-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PM/SIFjAfrn+4ygP87N0v9YzaatWpzL2MzVTo2c7Hf0OEQSnOOSauHBfHNqccaMz Mp0FBBc4bJtMhyPMkhew3Q== /in/edgar/work/20000808/0000016590-00-000009/0000016590-00-000009.txt : 20000921 0000016590-00-000009.hdr.sgml : 20000921 ACCESSION NUMBER: 0000016590-00-000009 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 20000808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMBEX CORP CENTRAL INDEX KEY: 0000016590 STANDARD INDUSTRIAL CLASSIFICATION: [3572 ] IRS NUMBER: 042442959 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-43294 FILM NUMBER: 688630 BUSINESS ADDRESS: STREET 1: 360 SECOND AVE CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6178906000 MAIL ADDRESS: STREET 1: 360 SECOND AVE STREET 2: 360 SECOND AVE CITY: WALTHAM STATE: MA ZIP: 02154 FORMER COMPANY: FORMER CONFORMED NAME: CAMBRIDGE MEMORIES INC DATE OF NAME CHANGE: 19801204 SB-2 1 0001.txt As filed with the Securities and Exchange Commission on August 8, 2000 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 CAMBEX CORPORATION (Name of small business issuer in its charter) Massachusetts 3572 04-2442959 (State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) Cambex Corporation 360 Second Avenue, Waltham, MA 02451 (781) 890-6000 (Address and telephone number of principal executive offices and principal place of business) - -------------------------------- Joseph F. Kruy Chairman of the Board, President and Chief Executive Officer Cambex Corporation 360 Second Avenue, Waltham, MA 02451 (781) 890-6000 (Name, address and telephone number of agent for service) With copies to: Neil H. Aronson, Esquire Anthony E. Hubbard, Esquire Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, MA 02111 Telephone: (617) 542-6000 Approximate date of commencement of proposed sale to public: from time to time after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [X] 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 Title of each class Amount Proposed maximum Proposed maximum Amount of of securities to be offering price aggregate registration to be registered registered per share offering price fee Common Stock, Up to $0.10 par value 2,600,000 (1) (2) $10,000,000.00(3) $ 2,640.00 Common Stock, $0.10 par value(4) 2,297,603 (4) $ 5,258,556.34(1) $ 1,388.26 Total Up to 4,897,603 (1) $15,258,556.34(1) $ 4,028.26 (1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933. (2) The price per common share will vary based on the volume-weighted average daily price of Cambex's common stock during the drawdown periods provided for in the common stock purchase agreement described in this registration statement. The purchase price will be equal to 93% of the volume-weighted average daily price for each trading day within such drawdown pricing periods. The agreement allows for up to 18 draws over a period of 18 months for amounts up to $1 million per draw, except for the initial draw that may be up to $2 million. (3) This represents the maximum purchase price that Thumberland Limited is obligated to pay Cambex under the common stock purchase agreement. The maximum net proceeds Cambex can receive is $10 million less a 5% cash placement fee payable to its placement agent, Ladenburg Thalmann & Co. Inc., and $1,500 per drawdown for escrow fees and expenses. (4) These shares to be registered may be offered for sale and sold from time to time during the period the registration statement remains effective, by or for the accounts of Thumberland, Ladenburg Thalmann, SovCap Equity Partners Ltd., Correllus International Ltd. and Arab Commerce Bank Ltd. These shares include: (a) 195,771 shares issuable upon the exercise of a stock purchase warrant issued to Thumberland under the common stock purchase agreement; (b) 195,771 shares issuable upon the exercise of a stock purchase warrant issued to Ladenburg Thalmann as part of its placement agent compensation; (c) a total of up to 649,958 issuable to SovCap Equity Partners Ltd., Correllus International Ltd. and Arab Commerce Bank Ltd. upon conversion of series 1 bridge financing notes issued to them under the series 1 bridge note purchase agreement described in this registration statement; (d) a total of up to 956,103 shares issuable to SovCap Equity Partners Ltd., Correllus International Ltd. and Arab Commerce Bank Ltd. upon exercise of repricing warrants attached to the series 1 bridge note financings; and (e) a total of up to 300,000 shares issuable to SovCap Equity Partners, Ltd., Correllus International Ltd. and Arab Commerce Bank Ltd. upon exercise of the common stock purchase warrants issued to them under the series 1 bridge note purchase agreement. The total original principal amount of the series 1 bridge financing notes is $2 million. These bridge notes bear interest at the rate of 8% per annum and Cambex is obligated to pay these lenders a premium ranging from 15% to 25% of the original principal amount of the bridge notes. The exercise price of the stock purchase warrants issued to Thumberland and Ladenburg Thalmann is $2.9376 per share. These stock purchase warrants may be exercised until July 20, 2003. The conversion price for series 1 bridge financing notes relating to $1,750,000 of the original principal amount borrowed is $3.79 per share. The conversion price for the remaining $250,000 of the original principal borrowed is $6.0875 per share. The exercise price of the attached repricing warrants is $0.10 per share. The exercise price of the common stock purchase warrants issued to SovCap Equity Partners Ltd., Correllus International Ltd. and Arab Commerce Bank Ltd. is $4.19 per share for warrants exercisable for 262,500 shares. The exercise price for the remaining common stock purchase warrants is $7.01 per shares for warrants exercisable for 37,500 shares. Common stock purchase warrants issued to SovCap Equity Partners Ltd., Correllus International Ltd. and Arab Commerce Bank Ltd. exercisable for 262,500 shares may be exercised until January 18, 2005 and the remaining warrants exercisable for 37,500 shares may be exercised until February 9, 2005. The registrant hereby amends this registration statement on such 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 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. The information in this prospectus is not complete and may be changed. We 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 we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED AUGUST 8, 2000 PROSPECTUS CAMBEX CORPORATION Common Stock 4,897,603 Shares The information in this prospectus is not complete and may be changed. The selling securityholders identified on pages 51 and 52 may not sell the shares of common stock that may be sold by Cambex Corporation or the shares of common stock underlying the other securities of Cambex that are held by selling securityholders until the registration statement filed by Cambex 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. All of the shares of common stock being sold are offered by the selling securityholders. The shares of common stock that may be sold constitute up to 50.8% of our issued and outstanding common stock as of May 31, 2000. We will not receive any proceeds from the sale of the shares of common stock by the selling securityholders. However, we will receive the sale price of any common stock that we sell to Thumberland Limited under the common stock purchase agreement described in this prospectus or upon the exercise for cash of the warrants exercisable for shares of common stock held by other selling securityholders, including warrants we issued to Thumberland. We will pay the costs of registering the shares under this prospectus, including legal fees. Our common stock is listed on the OTC Bulletin Board under the trading symbol "CBEX." The last reported sales price of our common stock on the OTC Bulletin Board on August 4, 2000 was $2.50 per share. The selling securityholders may offer shares of our common stock on the OTC Bulletin Board in negotiated transactions or otherwise, or by a combination of these methods. The selling securityholders may sell the shares through broker-dealers who may receive compensation from the selling shareholders in the form of discounts or commissions. Thumberland Limited is an "underwriter" within the meaning of the Securities Act of 1933 in connection with its sales. THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE "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 date of this prospectus is ___________, 2000. AVAILABLE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the United States Securities and Exchange Commission (the "Commission"). You may read and copy any document we file at the Commission's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. Our filings with the Commission are also publicly available through the Commission's Web site on the Internet at http://www.sec.gov. This prospectus does not contain all of the information set forth in the registration statement and the exhibits thereto. Descriptions of any contract or other document referred to in this prospectus are not complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the registration statement for a more complete description of the matter involved, each such statement being qualified in its entirety by such reference. At your written or telephonic request, we will provide you, without charge, a copy of any of the information that is incorporated by reference herein (excluding exhibits to the information that is incorporated by reference unless the exhibits are themselves specifically incorporated by reference). Direct your request to the Company at Cambex Corporation, 360 Second Avenue, Waltham, MA 02451, Attention: Chief Executive Officer, telephone (781) 890-6000. TABLE OF CONTENTS Page SUMMARY INFORMATION 3 OUR BUSINESS 4 THE OFFERING 5 RISK FACTORS 8 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 17 USE OF PROCEEDS 17 CAPITALIZATION 18 MARKET FOR OUR COMMON STOCK 19 DIVIDEND POLICY 19 BUSINESS 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 31 DIRECTORS AND EXECUTIVE OFFICERS 34 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 38 PRINCIPAL SHAREHOLDERS 39 DESCRIPTION OF SECURITIES 41 SOVEREIGN BRIDGE FINANCING 43 THUMBERLAND COMMON STOCK PURCHASE AGREEMENT 45 SELLING SECURITYHOLDERS 51 PLAN OF DISTRIBUTION 53 LEGAL MATTERS 56 EXPERTS 56 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1 Our executive offices are located at 360 Second Avenue, Waltham, Massachusetts 02451. Our telephone number is (781) 890-6000. Our Web site is located at http://www.cambex.com. Information contained on our Web site is not a part of this prospectus. "Cambex", "Centurion", "Centurion Storage Manager", "Dynamic Path Failover", "FibreQuik" and "STOR" are trademarks and trade names of Cambex Corporation. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. 2 SUMMARY INFORMATION To understand this offering fully, we encourage you to read this entire prospectus carefully, including the Financial Statements and the Notes to the Consolidated Financial Statements of the Company appearing elsewhere in this prospectus. Unless the context otherwise requires, throughout this prospectus references to: "Cambex," "we," "us," and "our," refer to Cambex Corporation and its subsidiaries; "Thumberland" refers to Thumberland Limited; "Ladenburg Thalmann" refers to Ladenburg Thalmann & Co. Inc., our placement agent in connection with the equity financing contemplated by the common stock purchase agreement between the Company and Thumberland; "Sovereign Lenders" refers collectively to SovCap Equity Partners, Ltd., Correllus International Ltd. and Arab Commerce Bank Ltd., the parties that loaned us a total of $2 million under the terms of the series 1 bridge note purchase agreement; "Sovereign Capital" refers to Sovereign Capital Advisors LLC, our placement agent in connection with the bridge note financing contemplated by the series 1 bridge note purchase agreement; and "CyberFin" refers to CyberFin Corporation, a corporation wholly owned by Peter J. Kruy, our Executive Vice President, Chief Financial Officer and Treasurer. This prospectus contains forward-looking statements. The outcome of the events described in these forward-looking statements is subject to risks and actual results could differ materially. The sections entitled "Risk Factors," "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as other sections in this prospectus, contain a discussion of some of the factors that could contribute to those differences. 3 OUR BUSINESS Cambex Corporation is a designer and supplier of fibre channel hardware and software products that enable computer servers and high capacity electronic data storage devices to be interconnected into storage area networks, commonly referred to as SANs. We develop and market both fibre channel connectivity products that interconnect the computer servers and storage devices as well as fibre channel disk storage devices. Because of the growth of information-based economies, primarily due to the dramatic growth of internet-based business models, businesses and other organizations have experienced large increases in the volume of business-critical electronic data that is generated, processed, stored and manipulated. Accordingly, effectively storing and managing online data is one of the most important challenges that face almost all enterprises. One of the ways that businesses and other organizations have begun to meet this challenge is to incorporate SANs into their enterprise. SANs enhance and simplify the management and sharing of electronic data storage resources because they: significantly improve the availability of online data; improve the speed at which data is transferred from one device to another; increase the distance over which data can reliably be transferred; permit the employment of centralized management software to monitor and control the performance and availability of the SAN; and can be utilized in a range of computer operating environments including UNIX, Linux and Windows NT. Fibre channel protocol, developed in the early 1990's, is the backbone connectivity technology that enables SANs to be a more effective means of managing, storing and retrieving electronic data. We currently offer fibre channel connectivity products consisting of host bus adapters and hubs, fibre channel disk storage devices utilizing a redundant array of inexpensive disks (RAID) technology, and software applications that significantly enhance the performance and availability of SANs. By reselling fibre channel hardware and software products from leading manufacturers, together with our host bus adapters, hubs, disk storage arrays and proprietary software products, we are able to offer customers a complete interoperable SAN solution. We began developing our current fibre channel product business in 1997. In 1998, we began to ship our Centurion brand of fibre channel RAID disk arrays. Our strategy has been to take advantage of the relationships developed from being a long time supplier of memory and disk storage products primarily for IBM mainframe computer users and to re-position Cambex as a leading supplier of fibre channel connectivity and storage products. We have also been working to establish relationships with a small number of leading resellers and OEMs in the SAN market. However, these relationships have not yet resulted in significant increases in our revenues. We also are working to position ourselves as a source for customers for complete SAN solutions including SAN design, integration and implementation services together with the hardware and software needed to supply fibre channel connectivity and storage products for a SAN solution. Founded in 1968, we have more than 30 years experience in providing highly reliable electronic data storage products. For more than 27 years we were a leading supplier of IBM compatible mainframe computer memory having supplied memory and related products for seven generations of IBM mainframe computers. In the mid-1990's, the IBM mainframe computer market experienced a significant decline and our business suffered. In October 1997, we voluntarily filed for protection under chapter 11 of the federal bankruptcy laws. In April 1998, we emerged from bankruptcy protection under a reorganization plan that we are continuing to implement. Since 1998, we have continued to transition our business towards the fibre channel products business, though we continue to support our computer memory customers with memory products, upgrades and maintenance services. In order to successfully transition our business and return to sustained profitable operations, we need to generate significant increases in revenues and meet our short-term debt obligations that mature in the next six months. In support of our strategy, we recently established an eighteen month $10 million equity drawdown facility that should enable us to meet our short-term working capital needs. In addition, we plan to achieve our longer term goals by expanding and improving our sales and marketing function and increasing expenditures for research and development so that we can broaden and enhance our product offerings as well. 4 THE OFFERING Common stock offered by Thumberland that it may purchase under the common stock purchase agreement 2,600,000 shares Common stock offered by Thumberland that it may purchase by exercise of stock purchase warrant 195,771 shares Common stock offered by Ladenburg Thalmann that it may purchase by exercise of stock purchase warrant 195,771 shares Common stock offered by the Sovereign Lenders that they may obtain by conversion of series 1 bridge financing notes 649,958 shares Common stock offered by the Sovereign Lenders that they may purchase by exercise of repricing warrants attached to series 1 bridge financing notes 956,103 shares Common stock offered by the Sovereign Lenders that they may obtain by exercise of common stock purchase warrants 300,000 shares Common stock outstanding: Prior to the sale of shares to Thumberland under the common stock purchase agreement 9,731,635 shares After sale of maximum number of shares to Thumberland registered under this registration statement and before issuance of shares issuable pursuant to our securities held by selling securityholders identified in this prospectus 12,331,635 shares After sale of maximum number of shares to Thumberland registered under this registration statement and after issuance of shares issuable pursuant to our securities held by selling securityholders identified in this prospectus 14,629,238 shares Trading symbol for common stock CBEX This prospectus covers a total of 4,897,603 shares of our common stock that may be sold by selling securityholders identified in this prospectus. The number of shares of our common stock subject to this prospectus represents 50.3% of our issued and outstanding common stock as of August 8, 2000. The number of shares subject to this prospectus represents 33.5% after the issuance of all currently unissued shares included in this prospectus. Sovereign Bridge Financing In January and February 2000, we borrowed a total of $2 million from the Sovereign Lenders which was arranged for us with the assistance of Sovereign Capital. We entered into a series 1 bridge note purchase agreement with the Sovereign Lenders pursuant to which we issued to the Sovereign Lenders: series 1 bridge financing notes that are convertible into up to a total of 649,958 shares of our common stock, which number includes shares issuable upon conversion of accrued interest and premium amounts due under the notes; repricing warrants attached to each series 1 bridge financing note that may be exercisable for up to a total of 956,103 shares of our common stock; and common stock purchase warrants that are exercisable for up to a total of 300,000 shares of our common stock. 5 The series 1 bridge financing notes mature on August 15, 2000 and September 6, 2000. Prior to the maturity dates, we have the choice to redeem the bridge notes for cash or in exchange for shares of our common stock, plus a premium in excess of the original principal amount we borrowed and accrued interest on the bridge notes. At the time this offering becomes effective, we anticipate the applicable premium to be either 20% or 25% of the original principal amount of the bridge notes. If we fail to redeem the bridge notes at or before maturity, then the Sovereign Lenders have the choice to accept cash or shares of our common stock to satisfy our obligations. The series 1 bridge financing notes bear interest at 8% per annum. If we fail to redeem the bridge notes at or before maturity, then interest will accrue at the rate of 12% per annum after maturity until the notes are paid in full. We anticipate that accrued interest on the bridge notes at redemption will not exceed $150,000. In connection with the Sovereign Bridge Financing, attached to each series 1 bridge note is a repricing warrant. If, during the 90 days after a bridge note is converted into shares of our common stock (the "repricing period"), a Sovereign Lender sells any shares it receives from conversion of the bridge note and fails to realize a gain of at least 20% above the applicable conversion price of the bridge note, then that Lender may exercise the repricing warrant on the 91st day after conversion of the bridge note. If the Sovereign Lender realizes less than a 20% gain on shares sold during the repricing period, the number of shares that it may acquire by exercise of a repricing warrant depends upon the number of shares sold and the market price of our common stock during the repricing period. If the average market price of our common stock during the repricing period is equal to or greater than the conversion price of the converted bridge note, then the Sovereign Lender may not acquire any shares by exercising the repricing warrant. If the average market price of our common stock is less than the conversion price of the converted bridge note, then the Sovereign Lenders may exercise the repricing warrant for a number of shares of our common stock determined in accordance with a formula. The maximum number of shares of common stock for which the repricing warrants may be exercised is a total of 956,103 shares. The exercise price of the repricing warrants is $0.10 per share. We also issued the Sovereign Lenders common stock purchase warrants exercisable for up to a total of 300,000 shares of our common stock. The exercise price of these common stock purchase warrants is $4.19 per share for warrants exercisable for up to 262,500 shares and $7.01 per share for warrants exercisable for up to 37,500 shares. These common stock purchase warrants expire on January 18, 2005 for warrants exercisable for up to 262,500 shares and on February 9, 2005 for warrants exercisable for up to 37,500 shares. Our two largest stockholders, Joseph F. Kruy, our Chairman, President and Chief Executive Officer, and CyberFin Corporation, a corporation wholly owned by Peter J. Kruy, our Executive Vice President, Treasurer and Chief Financial Officer, guaranteed our obligations under the Sovereign Bridge Financing in the event that we fail to fulfill them. The obligations of Joseph Kruy and CyberFin under these guarantees are secured by their pledge to the Sovereign Lenders of a total of 1,709,467 shares of our common stock that they own. In addition to a series 1 bridge note purchase agreement, which contains representations, warranties, covenants and other provisions typical to this type of transaction, we entered into a registration rights agreement with the Sovereign Lenders. Under this registration rights agreement, we agreed to register the number of shares of our common stock into which the series 1 bridge financing notes are convertible and for which the repricing warrants and the common stock purchase warrants are exercisable within 60 days following the issuance of the bridge notes and related warrants. The Sovereign Lenders have waived their rights resulting from our failure to file a registration statement covering shares of our common stock 60 days following our issuance of the bridge notes and related warrants, allowing us to register those shares of our common stock in this registration. Thumberland Equity Drawdown Facility We signed a common stock purchase agreement with Thumberland Limited, a British Virgin Islands corporation, on July 14, 2000, for the future issuance and purchase of shares of our common stock. The transaction closed on July 20, 2000. The common stock purchase agreement establishes what is sometimes termed an equity line of credit or an equity drawdown facility. 6 In general, the drawdown facility operates as follows: the investor, Thumberland, has committed to provide us up to $10 million as we request it over an 18 month period, in return for shares of common stock we issue to Thumberland. Subject to a maximum of 18 draws, once every 22 trading days we may request a draw of up to $1 million of that money, except that the initial draw may be up to $2 million. The maximum amount we actually can draw down upon each request will be determined by the volume-weighted average daily price of our common stock for the 22 trading days prior to our request and the average trading volume for the 45 trading days prior to our request. Each draw down must be for at least $250,000. At the end of a 22- day trading period following the drawdown request, the final drawdown amount is determined based on the volume-weighted average stock price during that 22-day period. We then use the formulas contained in the common stock purchase agreement to determine the number of shares we will issue to Thumberland in return for that money. The formulas for determining the final drawdown amounts, the number of shares we issue to Thumberland and the price per share paid by Thumberland are described in detail beginning on page 45 of this prospectus. We may make up to a maximum of 18 draws; however, the aggregate total of all draws cannot exceed $10 million and no single draw can exceed $1 million, except for the initial draw which may not exceed $2 million. We are under no obligation to request a draw for any period. The closing price for our common stock on May 31, 2000 was $2.5625 per share and the average daily trading volume for the 45 trading days ended May 31, 2000 was 28,357 shares per trading day. If our market price on May 31, 2000 and the 45-day average trading volume preceding May 31, 2000 each remained constant over the 18 month period of the common stock purchase agreement and we requested the maximum amount available to us under the common stock purchase agreement, each draw would be capped at $319,725 and we could make 18 draws for a total amount drawn of $5,755,050. As the example shows, if our stock price stays at current levels, we will not be able to draw down all $10 million under the common stock purchase agreement. Moreover, if, as a result of applying these formulas, the amount of the draw would be less than $250,000, then we may not drawdown. The number of shares registered under the registration statement of which this prospectus is a part may limit the proceeds we receive under the common stock purchase agreement. Moreover, the proceeds we receive could be further limited by a provision of the common stock purchase agreement that prevents us from issuing shares to Thumberland to the extent Thumberland would beneficially own more than 9.9% of our then outstanding common stock. Any resales of shares by Thumberland under this prospectus would reduce the number of shares beneficially owned by Thumberland, and would enable us to issue additional shares to Thumberland without violating this condition. The per share dollar amount Thumberland pays for our common stock for each drawdown includes a 7% discount to the average daily market price of our common stock for the 22-day period after our drawdown request, weighted by trading volume. We will receive the amount of the drawdown less an escrow agent fee equal to $1,500 per drawdown and a 5% placement fee payable to the placement agent, Ladenburg Thalmann, which introduced Thumberland to us. Ladenburg Thalmann is a registered broker dealer. It is not obligated to purchase any of our shares, but as an additional placement agent compensation, we have issued to Ladenburg Thalmann a stock purchase warrant to purchase up to 195,771 shares of our common stock at an exercise price of $2.9376 per share. The common stock issuable upon exercise of this warrant is included in the registration statement of which this prospectus is a part. 7 RISK FACTORS Risks Related to Our Industry Because a significant and growing proportion of our revenues are generated from the sale of our fibre channel products, our revenues will be limited if fibre channel technology does not achieve a widespread market acceptance or develops more slowly than we anticipate The growth of the market for our fibre channel products is dependent upon the broad acceptance of fibre channel technology as an alternative to other technologies traditionally utilized for network and storage communications. The fibre channel market, while rapidly evolving and attracting an increasing number of market participants, is still at an early stage of development. If the fibre channel market fails to develop, develops more slowly than anticipated or attracts more competitors than we expect, our business, operating results and financial condition would be materially adversely affected. We cannot be certain that fibre channel products will gain broader market acceptance or that customers will choose our technology and products. To achieve widespread market acceptance, fibre channel must supplant current widely accepted alternative technologies such as small computer systems interface or SCSI. Because many technology companies with SCSI-based product portfolios already have (a) well-established relationships with our current and potential customers, (b) extensive knowledge of the markets we serve, (c) better name recognition and (d) extensive development, sales and marketing resources, it may be difficult to convince customers to adopt fibre channel technology. If fibre channel does not replace existing technologies such as SCSI in emerging applications such as SANs or otherwise achieve broad market acceptance, our growth will be limited. Additionally, new technologies are currently in development that may compete with fibre channel for market share if they are successfully developed and commercialized. Because these competing new technologies are likely to have support from technology companies with more significant resources than we and other fibre channel companies have, they may limit the growth of the fibre channel market and therefore our growth. The SAN market in which we compete is new and unpredictable, and if this market does not develop and expand as we anticipate, our business will suffer The market for SANs and the related equipment, including disk arrays and host bus adapters, and management software that we offer, has only recently begun to develop and is rapidly evolving. If this market does not develop as rapidly as we anticipate, our operating results may be below the expectations of public market analysts and investors, which would likely cause our stock price to decline. Because this market is new, it is difficult to predict its potential size or future growth rate. Our products are principally purchased for use in SANs. Accordingly, widespread adoption of SANs as an integral part of data-intensive enterprise computing environments is critical to our future success. Potential end-users that have invested substantial resources in their existing data storage and management systems may be reluctant or slow to adopt a new approach similar to the SAN. Our operating results may suffer because of increasing competition in the fibre channel market, as well as additional competition from alternative data storage solutions The market in which we compete is intensely competitive. As a result, we face a variety of significant challenges, including rapid technological advances, price erosion, changing customer preferences and evolving industry standards. Our competitors continue to introduce products with improved price/performance characteristics, and we will have to do the same to remain competitive. Increased competition could result in significant price competition, reduced revenues, lower profit margins or loss of market share, any of which would have a material adverse effect on our business, operating results and financial condition. We cannot be certain that we will be able to compete successfully against either current or potential competitors in the future. Many of our current and potential competitors have substantially greater financial, technical, marketing and distribution resources than we have. We face the threat of potential competition from new entrants into the fibre channel market, including large technology companies who may develop or acquire differentiating technology and then apply their resources, including established distribution channels and brand recognition, to obtain significant market share. It is also possible that we will face increased competition due to mergers or consolidations of existing 8 or potential competitors. Emerging companies attempting to obtain a share of the existing market act as potential competition as well. Our products may also compete at the end-user level with other technology alternatives, such as SCSI. Further, businesses that implement SANs may select fully integrated SAN systems that are offered by large technology companies. Because such systems may not interoperate with products from independent open system suppliers, like us, customers that invest in these systems may be less likely to purchase our products. Because other technologies designed to address the applications served by fibre channel today are under development, our business would suffer as a result of competition from such competing technologies. In our industry, technology and other standards change rapidly, and we must keep pace with the changes to compete successfully The market for our products is characterized by rapidly changing technology, evolving industry standards and the frequent introduction of new products and enhancements. If we do not keep pace with these changes, we may lose market share to our competitors and fail to meet our financial and operational objectives. Because our products are designed to work with software produced by third parties, our operating results could be adversely affected if such third parties delay introduction of new versions of their software for which we have designed new products or if they make unanticipated modifications to such software. Our future success depends in a large part on our ability to enhance our existing products and to introduce new products on a timely basis to meet changes in customer preferences and evolving industry standards. We cannot be certain that we will be successful in designing, supplying and marketing new products or product enhancements that respond to such changes in a timely manner and achieve market acceptance. We also cannot be certain that we will be able to develop the underlying core technologies necessary to create new products and enhancements, or that we will be able to license the core technologies from third parties. Additionally, changes in technology and customer preferences could potentially render our current products uncompetitive or obsolete. If we are unable, for technological or other reasons, to develop new products or enhance existing products in a timely manner in response to technological and market changes, our business, operating results and financial condition would be materially adversely affected. Risks Related to Our Business We have a history that includes substantial operating losses and we are in an unfavorable financial position that makes an evaluation of our business difficult We incurred substantial operating losses in each of the five years prior to the current fiscal year. At April 1, 2000, we had an accumulated deficit of approximately $22 million. At April 1, 2000 we had current assets totaling approximately $1.9 million. At that same date, we had current liabilities totaling approximately $4.7 million and long-term liabilities totaling approximately $3.3 million, a substantial portion of which is attributable to a 1998 bankruptcy reorganization plan that we continue to implement. A total of approximately $3 million of our debts will become due before the end of 2000. In order to continue as a going concern and compete effectively, we need to increase our expenditures for research and development expenses and selling, general and administrative expenses as well as other expenses, which may not be possible if revenues do not increase significantly. If revenues remain at current levels, we will not be able to achieve profitability on quarterly or annual basis. We have a limited operating history with respect to our fibre channel products We commenced our fibre channel products business in 1997 and we shipped our first commercially available fibre channel products in 1998. Because we have a limited operating history with respect to our fibre channel products, you must consider the risks and difficulties frequently encountered by companies in the early stage of developing a business such as ours in new and rapidly evolving markets. Although our net product revenues from the sale of fibre channel products have become a majority of our total product revenues, sales from these products may not increase and we may not realize sufficient net revenues to become profitable. In addition, because of the competition in the fibre channel and SAN markets and the evolving nature of these markets, sustaining profitability may be extremely challenging. 9 We are developing relationships with potential OEM, distribution channel and end user customers and a decision by any one of these potential customers not to purchase our products, or any cancellation or delay of orders that may be placed by any of these potential customers will have a significant and adverse affect on our net revenues Historically, a limited number of OEMs, distribution channel and end user customers have accounted for a significant majority of our total net revenues in each fiscal period. For example, sales to our top five customers accounted for approximately 40% percent of net revenues for the fiscal year ended December 31, 1999. We are in the process of developing relationships with a small number of potential OEM, distribution channel and end user customers. If any one of these potential customers decides not to purchase our products or decides to purchase our products in quantities that are below our expectations, then our net revenues will be adversely affected. We expect to experience substantial period-to-period fluctuations in future operating results because, among other factors, we depend to a significant extent upon revenues from a small number of customers. Our sales cycle, particularly to OEMs, typically involves a lengthy qualification cycle during which there is a need to expend significant resources in addressing customer specifications. Because of the length of the sales cycle, we may experience a delay between increasing expenses for research and development and sales and marketing efforts and the generation of higher revenues, if any, from such expenditures. The purchase of our products or of solutions that incorporate our products typically involves significant internal procedures associated with the evaluation, testing, implementation and acceptance of new technologies. This evaluation process frequently results in a lengthy sales process, typically ranging from three months to longer than a year, and subjects the sales cycle associated with the purchase of our products to a number of significant risks, including budgetary constraints and internal acceptance reviews. The length of our sales cycle also varies substantially from customer to customer. In addition, because we anticipate that none of our potential customers will be, and none of our current customers are, contractually obligated to purchase any fixed amount of products from us in the future, they may stop placing orders with us at any time, regardless of any forecast they may have previously provided. If any of our significant customers stop or delay purchases, our revenues and operating results would be adversely affected, which could cause our stock price to decline. We cannot be certain that we will retain our current OEM, distribution channel or end user customers or that we will be able to recruit additional or replacement customers. As is common in an emerging technology industry, agreements with OEMs and distribution channel customers are typically non-exclusive and often may be terminated by either party without cause. Moreover, many OEM and distribution channel customers carry competing product lines. If we were to suddenly lose one or more important OEM, distribution channel or end user customers or potential customers to a competitor, our business, operating results or financial condition could be materially adversely affected. Moreover, OEM customers could develop products internally that would replace our products. The resulting reduction in sales of our products to any OEM customers, in addition to the increased competition presented by these customers, could have a material adverse effect on our business, operating results or financial condition and could affect our ability to continue as a going concern. The failure of OEM customers to keep pace with rapid technological change and to successfully develop and introduce new products could adversely affect our net revenues Our ability to generate increased revenues depends significantly upon the ability and willingness of OEM customers to develop and promote products on a timely basis that incorporate our technology. If OEM customers do not successfully develop and market the solutions that incorporate our products, then sales of our products to OEM customers will be adversely affected. The ability and willingness of OEM customers to develop and promote such products is based upon a number of factors beyond our control. While we have established relationships with a small number of OEM and reseller customers, most of these customers are still at the very early stages of incorporating fibre channel products into their systems. If our early stage customers are unable to, or otherwise do not ship systems that incorporate our products, or if their shipped systems are not commercially successful, our business, operating results or financial condition could be materially adversely affected as well as our ability to continue as a going concern. 10 Delays in product development could adversely affect our market position or customer relationships We have experienced delays in product development in the past and may experience similar delays in the future. Given the short product life cycles in the markets for our products, any delay or unanticipated difficulty associated with new product introductions or product enhancements could cause us to lose customers and damage our competitive position. Prior delays have resulted from numerous factors, such as: changing product specifications; difficulties in hiring and retaining necessary personnel; difficulties in reallocating engineering resources and other resource limitations; difficulties with independent contractors; changing market or competitive product requirements; unanticipated engineering complexity; undetected errors or failures in software and hardware; and delays in the acceptance or shipment of products by customers. We expect the average selling prices of our products to continue to decrease, which may reduce gross margins or revenues The markets for fibre channel and disk storage products have experienced erosion of average selling prices due to a number of factors, including competitive pricing pressures and rapid technological change. We may experience substantial period-to-period fluctuations in future operating results due to the erosion of our average selling prices. We anticipate that the average selling prices of our products will decrease in the future in response to competitive pricing pressures, increased sales discounts, new product introductions by us or our competitors or other factors. Therefore, to maintain our gross margins, we must develop and introduce on a timely basis, new products and product enhancements and continually reduce our product costs. Our failure to do so would cause our revenue and gross margins to decline, which could materially adversely affect our operating results and cause the price of our common stock to decline. If our business improves rapidly, our operations may be negatively impacted and we may be required to incur substantial costs to upgrade our infrastructure If our business expands rapidly, then a significant strain may be placed on our resources. Unless we manage such growth effectively, we may make mistakes in operating our business such as inaccurate sales forecasting, incorrect material planning or inaccurate financial reporting, which may result in unanticipated fluctuations in our operating results. Our management team has had limited experience managing rapidly growing companies on a public or private basis. We may not be able to install adequate control systems in an efficient and timely manner, and our current or planned personnel, systems, procedures and controls may not be adequate to support our future operations. The loss of or failure to attract and retain key technical, sales and marketing and managerial personnel could adversely affect our business Our success depends to a significant degree upon the performance and continued service of engineers involved in the development of our fibre channel technology and technical support of products and customers. Our success also depends to a significant degree upon the continued contributions of our key management, sales and marketing and manufacturing personnel. Accordingly, our future success depends upon our ability to attract, train and retain such technical, sales and marketing and managerial personnel. Except for an employment agreement with Joseph F. Kruy, our President and Chief Executive Officer, we do not have employment agreements with any of these personnel. We do not maintain key person life insurance on any of our personnel. As we further develop our product line we will need to increase the number of sales and marketing personnel as well as technical staff members with experience in hardware and software development. In addition, we are currently seeking to hire additional skilled software programmers and experienced sales personnel who are currently in short supply. Competition for such highly skilled employees in our industry is intense, and we cannot be certain that we will be successful in recruiting or retaining such personnel. In addition, our employees may leave and subsequently 11 compete against us. The loss of key employees could have a material adverse effect on our business, operating results or financial condition. We also believe that our success depends to a significant extent on the ability of our key personnel to operate effectively, both individually and as a group. Some of our employees have only recently joined us, and we intend to expand our employee base significantly. If we are unable to identify, hire and integrate new employees in a timely and cost-effective manner, our operating results may suffer. Our management has significant influence over stockholder decisions Prior to the issuance of any our common stock covered by this registration, our officers and directors control the vote of approximately 26.6% of the outstanding shares of common stock prior to the exercise of any outstanding warrants or options held by them. Following the issuance of all shares of our common stock covered by this registration, our officers and directors will control the vote of approximately 17.7% of the then outstanding shares of common stock. As a result, they may be able to significantly influence all matters requiring approval by our stockholders, including the election of directors. Because we rely on a limited number of third party suppliers and manufacturers, and failures by any of these third parties to provide key components or to manufacture and assemble products of sufficient quality and quantity could cause us to delay product shipments, which could result in delay or lost revenues or customer dissatisfaction PCWorld and Dynamic Details Incorporated fabricate our printed circuit boards, and various subcontractors, such as Flextronics International USA, Inc., perform assembly of our host bus adapters and hub circuit boards. We have no long-term contracts with PCWorld, Dynamic Details or Flextronics. Also, key components that we use in our products may, from time to time, only be available from single sources with which we do not have long-term contracts. In particular, QLogic Corporation is currently the sole supplier of certain components in certain of our host bus adapters. The components we use for our products are based on an emerging technology and may not be available with the performance characteristics or in the quantities that we require. Accordingly, our major suppliers are not obligated to supply products to us for any specific period, or in any specific quantity, except as may be provided in a particular purchase order. Moreover, any inability to supply products due to a lack of components or to redesign products to incorporate alternative components in a timely manner could materially adversely affect our business, operating results or financial condition. If any of our third-party manufacturers experiences delays, disruptions, capacity constraints or quality control problems in its manufacturing operations, then product shipments to our customers could be delayed, which would negatively impact our net revenues, competitive position and reputation. Further, our business would be harmed if we fail to effectively manage the manufacture of our products. Because we place orders with our suppliers and manufacturers based on our forecasts of expected demand for our products, if we inaccurately forecast demand, we may be unable to obtain adequate manufacturing capacity or adequate quantities of components to meet our customers' delivery requirements, or we may accumulate excess inventories. We may in the future need to find new contract manufacturers in order to increase our volumes or to reduce our costs. We may not be able to find contract manufacturers that meet our needs, and even if we do, qualifying a new contract manufacturer and commencing volume production is expensive and time consuming. If we are required or elect to change contract manufacturers, we may lose revenues, and our customer relationships may suffer. Our products are complex and may contain undetected software or hardware errors or may fail to achieve interoperability standards that could lead to an increase in our costs, reduce our net revenues, or damage our reputation In order to satisfy our customers, the solutions that we design require several different products to work together in a seamless fashion. Our solutions may fail to achieve various interoperability standards necessary to satisfy our customers. Moreover, products as complex as ours frequently contain undetected software or hardware 12 errors when first introduced or as new versions are released. We have from time to time found errors in existing products, and we may from time to time find errors in our existing, new or enhanced products. Generally, we provide our customers with a one year warranty covering our products. Therefore, failure to achieve interoperability among products or the occurrence of hardware or software errors in various products could adversely affect sales of our customer solutions and products, cause us to incur significant warranty and repair costs, divert the attention of our engineering personnel from our product development efforts, cause significant customer relations problems and could result in product returns and loss of revenue. Steps taken to protect our intellectual property may not be adequate to protect our business We primarily rely on unpatented trade secrets to protect our proprietary rights. We seek to protect these secrets, in part, through confidentiality agreements with employees, consultants, and our customers and potential customers. If these agreements are breached, or if our trade secrets become known to, or are independently developed by competitors, we may not have adequate remedies for such breach. We cannot be certain that the steps we take to protect our intellectual property will adequately protect our proprietary rights, that others will not independently develop or otherwise acquire equivalent or superior technology or that we can maintain such technology as trade secrets. In addition, the laws of some of the countries in which our products are or may be developed, manufactured or sold may not protect our products and intellectual property rights to the same extent as the laws of the United States, or at all. Our failure to protect our intellectual property rights could have a material adverse effect on our business, operating results or financial condition. We may become involved in costly and lengthy patent infringement or intellectual property litigation that could seriously harm our business We may receive communications from third parties alleging infringement of patents or other intellectual property rights, and there is the chance that third parties may assert infringement claims against us. Any such claims, with or without merit, could result in costly and time-consuming litigation or cause product shipment delays that would adversely affect our business, financial condition or operating results. It is possible that holders of patents or other intellectual property rights may assert rights that apply broadly to our industry, and that such patent or other intellectual property rights, if valid, may apply to our products or technology. These or other claims may require us to stop using the challenged intellectual property or to enter into royalty or licensing agreements. We cannot be certain that the necessary licenses will be available or that they can be obtained on commercially reasonable terms. Our business, operating results or financial condition could be materially adversely affected if we were to fail to obtain such royalty or licensing agreements in a timely manner or on reasonable terms. Failure to comply with governmental regulations by our OEM customers or us could reduce our sales or require design modifications Our products are subject to U.S. Department of Commerce and Federal Communications Commission regulations as well as various standards established by various state, local and foreign authorities. Failure to comply with existing or evolving U.S. or foreign governmental regulation or to obtain timely domestic foreign regulatory approvals or certificates, could materially harm our business by reducing our sales or requiring design modifications to our products or the products of OEM customers. U.S. export laws also prohibit the export of our products to a number of countries deemed by the United States to be hostile. These restrictions may make foreign competitors facing less stringent controls on their products more competitive in the global market than we or our customers are. The U.S. government may not approve future export license requests. In addition, the list of products and countries for which export approval is required, and the regulatory policies with respect thereto, could be revised. Our quarterly operating results are volatile and may cause our stock price to fluctuate Our revenues and operating results have varied on a quarterly basis in the past and are likely to vary significantly from quarter to quarter in the future. The variations in our revenues and operating results are due to a number of factors, many of which are outside of our control, including among others: Changes in our operating expenses; Our ability to develop and market new products; 13 The ability of our contract manufacturers and suppliers to produce and supply our products in a timely manner; The market acceptance of new fibre channel products; The timing of the introduction or enhancement of products by us, OEM and distribution channel customers, and competitors; The level of product and price competition; Our ability to expand our relationship with OEMs, distribution channel and end user customers; Activities of and acquisitions by our competitors; Changes in technology, industry standards or consumer preferences; Changes in the mix of products sold, as our fibre channel connectivity products typically have higher margins than our disk array products; Personnel changes; Changes in customer budgeting cycles; and General economic conditions. Accordingly, you should not rely on quarter-to-quarter comparisons of our operating results as an indication of future performance. It is possible that in some future periods our operating results will be below the expectations of public market analysts and investors. In this event, the price of our common stock will likely decline. We generally do not have a significant backlog of unfilled orders. As a result, our revenues in a given quarter depend substantially on orders booked in that quarter. A decrease in the number of orders we receive is likely to adversely and disproportionately affect our quarterly operating results. Moreover, a substantial portion of our sales of disk array products involve large commitments by customers and the timing or occurrence of one or more of these sales would have a significant impact on quarterly revenue and operating results. Our expense levels are partially based on our expectations of future sales. Therefore, our expenses may be disproportionately large as compared to sales in a quarter with reduced orders. As a result, we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Any shortfall in sales in relation to our quarterly expectations or any delay of customer orders would likely have an immediate and adverse impact on our business, quarterly operating results and financial condition. Risks Related to the Securities Markets We may need additional capital and additional financing may not be available We currently anticipate that our available cash resources combined with the maximum drawdown under the common stock purchase agreement with Thumberland Limited will be sufficient to meet our anticipated working capital and capital expenditure requirements through at least the next 24 months. However, if our stock price and trading volume stay at current levels, we will not be able to draw down all $10 million under the common stock purchase agreement and our available cash resources will meet our requirements for only the next 18 months. The time period for which we believe our capital is sufficient is an estimate; the actual time period may differ materially as a result of a number of factors, risks and uncertainties which are described herein. In addition, business and economic conditions may not make it feasible to draw down under the common stock purchase agreement at every opportunity, and drawdowns are available only every 22 trading days. We may be unable to fund more rapid expansion, to develop new and to enhance existing services to respond to competitive pressures, or to acquire complementary businesses or technologies without additional capital. Until February 9, 2001 our placement agent agreement with Sovereign Capital gives Sovereign Capital a right of first refusal to act as placement agent for any of our equity financings in which we offer to sell shares of our capital stock, or other securities convertible into or exchangeable or exercisable for shares of our capital stock, at a price of less than $3.79 per share. Sovereign Capital has waived its right of first refusal with respect to the Thumberland financing. However, our engagement with Thumberland restricts us from raising investment capital during the term of the common stock purchase agreement except through the common stock purchase agreement. If we need capital but are unable to drawdown under the common stock purchase agreement for any reason, we will need to separately negotiate with Thumberland to lift those restrictions so we can obtain the capital from other 14 sources. Our common stock purchase agreement with Thumberland provides that if we sell our securities for cash at a discount to the market price for 18 months from the effective date of the registration statement of which this prospectus is a part, then we must pay Thumberland $100,000 as liquidated damages before we may drawdown additional funds under the equity drawdown facility. Even if Sovereign Capital and Thumberland agree to permit us to raise additional capital, we may not be able to obtain additional financing on terms favorable to us, if at all. If adequate funds are not available or are not available on terms favorable to us, we will not be able to effectively execute our business plan and we may not be able to continue as a going concern. Our stock price is volatile and may drop unexpectedly The stock market in general, and the stock prices of technology-based companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of any specific public company. Changes in general economic conditions or developments in the data storage, Internet, and personal computer and workstation markets that affect investor confidence could have a dramatic impact on the market price of our common stock. Also, changes in estimates of our earnings as well as any of the factors described in "Risk Factors" could have a significant impact on the market price of our common stock. In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. We may be a target of such litigation in the future. If we become the subject of securities class action litigation, it could result in substantial costs and a diversion of management's attention and resources and could seriously harm our business, financial condition and results of operations. We may engage in future acquisitions that dilute our stockholders' equity and cause us to incur debt or assume contingent liabilities Although we have no current plans to pursue any acquisition in the near future, we may pursue acquisitions that could provide new technologies or products. Future acquisitions may involve the use of significant amounts of cash, potentially dilutive issuances of equity or equity-linked securities, the incurrence of debt, or amortization expenses related to goodwill and other intangible assets. In addition, acquisitions involve numerous risks, including: difficulties in the assimilation of the operations, technologies, products and personnel of the acquired company; the diversion of management's attention from other business concerns; risks of entering markets in which we have no or limited prior experience;and the potential loss of key employees of the acquired company. In the event that such an acquisition does occur and we are unable to successfully integrate businesses, products, technologies or personnel that we acquire, our business, operating results or financial condition could be materially adversely affected. We do not plan to pay cash dividends on our common stock We have never paid cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We intend to retain future earnings, if any, to finance the growth and expansion of our business and for general corporate purposes. Sales of our common stock in the public market by the selling securityholders could cause our stock price to decline The shares of our common stock that we are registering in this offering will be able to be sold in the public market upon the effectiveness of this registration. The Sovereign Lenders hold securities which may be exercisable for and convertible into approximately 19.8% of our outstanding capital stock at May 31, 2000. Moreover, Thumberland and Ladenburg Thalmann could purchase and resell up to approximately 31.0% of our outstanding 15 capital stock at May 31, 2000 during the 18 months following the effectiveness of the registration statement of which this prospectus is a part. Sales of a substantial number of shares of our common stock could cause our stock price to decline. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional stock. 16 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS We make many statements in this prospectus under the captions "Summary Information," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," and elsewhere that are forward-looking and are not based on historical facts. These statements relate to our future plans, projections, objectives, expectations, assumptions, beliefs and intentions. In some cases you can identify these statements by the use of words such as "anticipate," "assume," "believe," "could," "estimates," "expect," "intend," "may," "plan," "project," "should" and other similar expressions. These forward-looking statements involve a number of known and unknown risks and uncertainties. Our and our industry's actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those we discuss in "Risk Factors" and elsewhere in this prospectus. These forward-looking statements speak only as of the date of this prospectus, and we caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in this prospectus. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. The forward-looking statements made in this prospectus relate only to events and assumptions as of the date on which the statements are made. Moreover, neither we or any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. USE OF PROCEEDS We will not receive any of the proceeds from sales of common stock by any of the selling securityholders. However, we will receive the sale price of any common stock we sell to Thumberland under the common stock purchase agreement described in this prospectus and upon the exercise of warrants held by selling securityholders that pay the exercise price in cash. Depending upon the market value of shares of our common stock, we may use the proceeds of any such sales for the repayment of debt and if not, then for working capital and other general corporate purposes. 17 CAPITALIZATION The following table shows: our actual capitalization as of April 1, 2000; and our pro forma capitalization adjusted to reflect the conversion of the Series 1 bridge notes, Thumberland drawdown of $5,755,050 per the example on page 7, and exercise of all outstanding warrants being registered, excluding the repricing warrants issued to the Sovereign Lenders, for the acquisition of an aggregate of 3,756,417 shares common stock and the receipt by us of an aggregate $9,650,752 of proceeds. You should read the following table with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the financial statements and notes thereto and the description of the equity drawdown facility under "Thumberland Common Stock Purchase Agreement." As of April 1, 2000 Actual Pro forma Long-term obligations $1,273,730 $1,273,730 Stockholders' Equity: Preferred Stock, par value $1.00 per share; 3,000,000 shares authorized; no shares issued and outstanding, actual; no shares issued and outstanding, pro forma Common stock, $0.10 par value; 25,000,000 shares authorized 11,169,615 shares issued actual; 14,926,032 shares issued pro forma $ 1,116,962 $ 1,492,603 Capital in excess of par value 15,972,066 25,247,177 Accumulated other comprehensive income 101,989 101,989 Retained earnings (deficit) (22,300,843) (22,300,843) Less Cost of 1,534,356 shares held in treasury (854,766) (854,766) Total stockholders' equity (5,964,592) 3,686,160 Total capitalization (4,690,862) 4,959,890 The outstanding share information and amounts shown in the table above excludes the effect of the following: Shares of common stock issuable upon the exercise of options that remain outstanding under our former 1987 Stock Option Plan and our former 1997 Combination Stock Option Plan and shares of common stock issuable under our Year 2000 Equity Incentive Plan; Shares of common stock issuable upon the exercise of warrants issued to holders of our 10% Subordinated Convertible Promissory Notes and our Loan and Security Agreements; and Shares of common stock issuable upon the exercise of the repricing warrants that are attached to the series 1 bridge financing notes issued to the Sovereign Lenders. 18 MARKET FOR OUR COMMON STOCK Our common stock was listed on Nasdaq from 1972 until 1986. From 1986 through November 1989, our common stock was listed for quotation by the National Quotation Bureau "pink sheets". From November 1989 until July 1997 our common stock was relisted on Nasdaq. Since July 1997, our common stock has been listed for quotation on the OTC Bulletin Board under the symbol "CBEX". However, the market for such shares is limited. No assurance can be given that a trading market for our common stock will be sustained. The following table sets forth the range of the high and low closing bid prices of our common stock during each of the calendar quarters identified below. These bid prices were obtained from The OTC Bulletin Board or from the National Quotation Bureau, Inc., and do not necessarily reflect actual transactions, retail markups, mark downs or commissions. The transactions include inter-dealer transactions. High Low 1998 1st Quarter $0.34 $0.28 2nd Quarter 0.71 0.28 3rd Quarter 0.52 0.28 4th Quarter 0.35 0.15 1999 1st Quarter 0.33 0.16 2nd Quarter 1.03 0.20 3rd Quarter 3.13 0.69 4th Quarter 4.50 1.50 2000 1st Quarter 9.25 3.00 2nd Quarter 5.75 1.56 3rd Quarter (through August 4, 2000) 2.97 2.06 The last reported sale price of our common stock on May 31, 2000 was $2.5625 per share. On that date, there were approximately 526 holders of record of our common stock. DIVIDEND POLICY We have never paid cash dividends on our common stock. We presently intend to retain future earnings, if any, to finance the expansion of our business and do not anticipate that we will pay cash dividends in the foreseeable future. Our future dividend policy will depend on our earnings, capital requirements, expansion plans, financial condition and other relevant factors. 19 BUSINESS Summary of Business We are a designer and supplier of fibre channel hardware and software products used to build storage area networks (SANs). SANs enhance and simplify the centralized management and sharing of storage resources while providing improved availability, scalability, performance, and disaster recovery. SANs have been enabled by the emergence of fibre channel, a new generation of server to storage communications technology. We develop and offer Fibre Channel host bus adapters and hubs, high availability software, fibre channel RAID disk arrays and management software for the deployment of SAN solutions utilizing hardware and software supplied by many different vendors. We supplement our own fibre channel product offerings by reselling fibre channel SAN hardware and software solutions from leading manufacturers. We also offer SAN design, integration, and implementation services to value-added resellers (VARs) and end-users. We were organized as a corporation under the Massachusetts Business Corporation Law on September 5, 1968. Our principal executive offices are located at 360 Second Avenue, Waltham, Massachusetts. Prior to 1997, most of our revenue came from selling computer memory products to customers using mainframe computers primarily manufactured by International Business Machines Corporation. In October 1997 we voluntarily filed for protection under chapter 11 of the federal bankruptcy laws. In April 1998 we emerged from bankruptcy protection. We are continuing to fulfill our obligations under our reorganization plan adopted in April 1998. Our fibre channel development efforts began in 1997, and in 1998 we began to ship our Centurion brand of fibre channel disk arrays utilizing a redundant array of inexpensive disk, or RAID, technology. We began shipping our FibreQuik brand of fibre channel host bus adapters in 1999 and our FibreQuik brand of fibre channel hubs in 2000. We recently announced the introduction of the Centurion 2000 FF RAID disk storage array, our fifth generation disk array, which utilizes full-fibre channel technology. The Centurion 2000 FF delivers excellent price/performance for deploying workgroup and enterprise level SANs. We offer fibre channel connectivity products consisting of host bus adapters and hubs for the SAN market. A host bus adapter provides fibre channel connectivity between a computer workstation or server and a SAN. Our host bus adapters can be used both with the Micro Channel interface developed by IBM and the peripheral component interconnect, or PCI, interface. Our host bus adapters are deployable across a wide variety of network configurations and operating systems. Our proprietary driver software incorporates features that enhance and simplify SAN device integration and provide high availability. We work closely with some of our customers to tailor our products to their specific requirements by making software driver modifications to optimize performance with our customers' products. Our fibre channel hubs enable users to create star topology fibre channel SANs which greatly simplifies cabling and allows servers and storage to be non-disruptively added or removed from the SAN. Our hub is developed using digital circuitry providing cleaner fibre channel signals thus allowing longer cabling distances. We offer fibre channel RAID disk arrays that allow users to store large amounts of online information with increased data protection, availability and access capabilities. RAID systems allocate data across multiple hard disk drives and allow the server to access these drives simultaneously, thus increasing system storage and input/output performance. RAID algorithms allow lost data on any drive to be recreated, thus ensuring the integrity of RAID-protected data even in the event of a disk drive failure. In addition, our RAID systems incorporate redundant power, cooling and processing components for additional fault tolerance. We sell our products domestically and internationally through OEM, systems integrator, VAR and end-user channels. Our fibre channel connectivity products are sold primarily through OEM, systems integrator and VAR channels. Our fibre channel disk arrays are sold primarily through VARs and directly to end-users. 20 Industry Background Growth and Management of Data In today's information-based economy, a company's information and databases are central to the value of the enterprise. The volume of business- critical data generated, processed, stored and manipulated has grown dramatically over the last decade, and managing the increase in data is one of the most important challenges for organizations. The dramatic increase in stored data is the result of a variety of factors, including: the development of internet-based business operations and e-commerce; high volume database access and transaction processing; data warehousing and data mining of large databases; data replication services; digital video storage, transmission and editing; and business and scientific computing. As a result, enterprises face heightened requirements for data storage solutions that offer: improved access to shared data; efficient management of shared data; disaster tolerance and recovery; reduced costs of ownership; increased connectivity capabilities; higher performance; and greater reliability. International Data Corporation, an independent industry research company, projects that the overall storage market will reach $50 billion in 2002. Today's enterprises generally access, share and manage the rapidly expanding volume of data utilizing two major data communication technologies: local area network and input/output. Local area network technologies enable communications among servers and client computers, while input/output technologies enable communication between servers and their attached high-speed peripherals, such as storage devices. The servers and storage devices in most traditional architectures communicate using an input/output interface protocol known as small computer systems interface, or SCSI. The SCSI protocol is based on the concept of a single server transferring data in a serial manner to a limited number of disk drives. While SCSI has achieved wide acceptance, it has several limitations, such as short transport distance, lack of reliability and support for a limited number of connections, which have restricted the capabilities of traditional network storage architectures. The traditional storage architectures are commonly referred to as direct attached and network attached storage. In the widely-deployed direct attached architecture, each server is linked to a limited number of storage systems in close proximity using SCSI technologies. In the network attached storage architecture, stored data can be accessed over the local area network because the storage device is connected directly to the local area network by a dedicated storage server. Due to the significant volume of data being stored in today's business environment, both of these architectures have become increasingly costly to maintain and expand. The traditional architectures can provide acceptable performance in smaller enterprises and even in larger organizations when a single server runs the complete application. Over the past few years, however, the explosive growth of networked computers has led to the distribution of applications over hundreds or even thousands of servers. This trend, in combination with the growth in stored data, has highlighted a number of significant problems for enterprises using the traditional architectures: Availability: Because access to each storage device is controlled by a single server in traditional architectures, data can become inaccessible if the server goes down. Further, because the server must 21 process all requests for data in the storage device, the traditional model drains server processing power and increases latency for users which results in degraded overall performance. Performance and Distance: To achieve higher transmission speeds in traditional architectures, the distance between storage devices and servers must be limited to less than 12 meters. This close proximity increases configuration complexity and exposure to data loss in disaster situations. Scalability: Users want to be able to increase the amount of storage capacity without degrading performance. A business using a traditional architecture will generally increase the number of servers as well as the number of storage devices. Further, these architectures necessitate the replication of data in multiple locations to eliminate bottlenecks, thus increasing the cost of storing data. Manageability: Businesses that use traditional architectures must rely on network servers to provide performance, configuration, accounting, and fault and security management of the SCSI connection and the stored data. This decentralized management approach increases the costs of operations and limits the ability to improve performance, ensure data security and enable highly available data access. As a result, the traditional architectures do not adequately support the increasing requirements of today's data-intensive enterprises. Fibre Channel Technology In response to the demand for high-speed and high-reliability storage- to-server and server-to-server connectivity, the fibre channel interconnect protocol was developed in the early 1990s and received the American National Standards Institute approval in 1994. Fibre channel is an open, efficient transport system supporting multiple protocols. Fibre channel technology has the following capabilities: Performance capability of over four gigabits/second; Support for distances up to 10 km; Scalable networks to thousands of devices; Reliable data transmission; Interoperability with standard components; and Ability to carry multiple existing interface data protocols, including Internet Protocol, SCSI and VI. As a result of its broad range of features, many industry analysts consider fibre channel to be the most reliable, scalable, gigabit communications technology for data storage applications available today. Since its introduction, fibre channel has earned increasing acceptance from industry and independent testing laboratories. Fibre channel technology can be implemented in a wide variety of applications, including computer clustering, networking, digital video transmission and editing and storage access. To date, the most widely accepted and deployed application for fibre channel technology has been in SANs. Storage Area Networks A storage area network is a network of servers and data storage devices which interconnects servers and storage devices at gigabit speeds. Fibre channel is the enabling technology that has made implementation of a SAN possible. Businesses are investing in SANs because they have found that establishing a separate network for storage takes data movement off the local area network, thereby freeing up network resources and reducing the impact on network users. SANs provide an open, extensible platform for storage access in data intensive environments like those used for web hosting, online transaction processing and data warehousing. Equally important, SANs can be significantly less expensive to maintain and expand than traditional storage architectures because they enable shared, high-speed access to stored data as well as centralized management. International Data Corporation projects that the SAN market will reach $11 billion by 2003. 22 SANs provide the following benefits that address the growing challenges facing businesses using data-intensive, mission-critical applications: Availability: SANs enable businesses to eliminate the bottlenecks inherent in traditional storage architectures and to reduce the dependence on a single server to access each storage device. Because SANs use fibre channel technology and a networked approach, SANs can be designed with multiple fail-overs to provide more reliable connections and thereby assure availability of data in spite of failures of individual links or components of the system. Performance: By using fibre channel technology, SANs support large data block transfers at gigabit speeds and are therefore very effective for data transfers between storage systems and servers. Fibre channel has demonstrated transmission speeds of up to two gigabits per second and is designed to scale to significantly higher speeds. Distance: Fibre channel supports a transmission distance of up to 10 kilometers without loss of speed, which simplifies network configuration and significantly reduces susceptibility to environmental disasters. Scalability: By combining networking models with advanced server performance and mass storage capacity, a SAN eliminates the bandwidth bottlenecks and scalability limitations imposed by traditional storage architectures. The network architecture reduces the need to replicate data because all servers can share access to each storage device. Manageability: SANs facilitate the use of centralized management software for monitoring and control, allowing administrators to more closely monitor their storage systems. Flexibility: SANs provide high-speed connectivity for data-intensive applications across multiple operating systems, including UNIX, Linux and Windows NT. SANs can be configured in multiple topologies, and the various topologies contribute to the flexibility of the SAN to solve storage management issues by offering enterprises alternatives in cost and scale. Components of a SAN Virtually all SANs use several basic components to make up the network, including the following: servers and workstations; fibre channel host bus adapters; fibre channel hubs and/or switches; disk and/or tape storage devices; copper or fiber optic cables; and management software. All the components must work together to deliver a functional SAN environment. Each server connects to a SAN through host bus adapters, which are printed circuit cards that fit in standard sockets on computer motherboards and enable high-speed data transfer. A host bus adapter connects the server to other devices on a SAN via cables. The cables connect the host bus adapter either directly to a fibre channel disk array or tape library or to a hub or a switch. Host bus adapters are typically classified by (a) bus architecture,(b) computer operating system, and (c) topology. Each host bus adapter is designed to support a particular bus architecture, such as IBM's Micro Channel bus architecture, Sun Microsystems SBus architecture or the Peripheral Component Interconnect, or PCI, bus architecture. Because fibre channel host bus adapter functions are regulated by software, each host bus adapter must include software designed to work with the particular operating system being used by the server/storage solution. These systems typically include all types of UNIX as well as Linux and Windows NT systems. Host bus adapters are therefore designed to work with one or more operating systems and one or more fibre channel topologies. 23 Hubs and switches are devices that direct the flow of data from one computing device to another. When connecting multiple servers to one or more storage devices, a hub or switch is used to create a fibre channel network. Hubs and switches simplify cabling and allow the non-disruptive addition or removal of servers or storage devices from the storage area network. There are two main industry standards for the fibre channel protocol: fibre channel arbitrated loop (FC-AL) and fibre channel switched fabric (FC-SW), commonly known as "Fabric". Hubs utilize the fibre channel arbitrated loop protocol, whereas switches use the fibre channel switched fabric protocol. Hubs are typically deployed in workgroup or small enterprise environments. A hub based arbitrated loop SAN can scale to 126 devices, but all devices on the arbitrated loop share the fibre channel bandwidth on the loop. On the other hand, switches are used for large SAN deployments, as a fabric network can scale to thousands of devices and each device connected to a switch is provided with dedicated bandwidth when talking to other devices on the fabric even when multiple conversations are occurring simultaneously. The Cambex Solution We are a developer, manufacturer and reseller of fibre channel hardware and software products that enable users to deploy SANs. We have developed a family of host bus adapters, hubs and software that provide increased bandwidth and availability when deploying mission-critical SANs. Our fibre channel disk arrays allow the storage of large amounts of online data in a high performance, high availability environment. By offering other SAN products (tape storage, switches, software) from leading manufacturers, we are able to deliver a complete and interoperable SAN solution to our customers. As a result of our technology and product offerings, we are able to deliver the following benefits to our customers and end-users: Interoperability: The most difficult challenge faced in deploying SANs today is to guarantee the interoperability of all the components making up the SAN. Since we offer all the components of the SAN, including host bus adapters, hubs, switches, disk and tape storage, management software as well as SAN design, integration and implementation services we can ensure that the user will receive a fully functional SAN solution. Availability: Our products are installed in some of the most demanding business environments, and our customers typically have extremely low tolerance for system downtime. Our fibre channel host bus adapters provide very high availability using our proprietary Dynamic Path Failover software. Our fibre channel RAID disk arrays offer fully redundant components with no single point of failure. All components are hot swappable allowing for little or no downtime maintenance. We conduct extensive testing with complex simulations of user configurations to help ensure that our products will not cause any data loss or data interruption. Performance: Our integrated software and hardware implementations provide high performance SAN solutions. We believe that our products deliver exceptional price/performance, regardless of scale or configuration. Scalability: Our fibre channel connectivity products and RAID disk arrays easily scale from simple, cost-sensitive SAN configurations to complex, multi-terabyte enterprise solutions. Our products include both workgroup class solutions and enterprise solutions that can support the full range of connectivity enabled by the fibre channel standard. Manageability: Our software can help eliminate configuration errors, which are a common cause of SAN failure. Our Centurion Storage Manager software provides an easy-to-use graphical user interface for configuring and managing SAN attached storage. Flexibility: Our products work with all SAN topologies and interoperate with a wide variety of operating systems and computer platforms, including IBM AIX, Sun Solaris, HP-UX, Linux, and Windows NT. 24 Quality: We design, manufacture and test our products to meet high standards for quality. During the product design process, each component is qualified by testing to provide the necessary performance over ranges of environmental conditions that are more extreme than what our customers will encounter in normal use. The Cambex Strategy Our objective is to become a leading solution provider for deploying high-speed fibre channel SANs by providing both our internally developed fibre channel connectivity products, high availability software, and disk arrays, as well as the highest quality products available from other fibre channel product and storage vendors. The key elements of our strategy include: Focus On Fibre Channel Connectivity And Storage. We plan to base all of our new product development on fibre channel technology. We plan to enhance our presence in the SAN market by focusing all of our resources on developing and supplying superior fibre channel connectivity and storage solutions. By focusing on the design and development of fibre channel products, we believe that we can enhance our existing products and develop new products for SANs and other applications rapidly and efficiently. We believe that our focus will provide us with a competitive advantage in developing fibre channel products for complementary applications as the markets for such applications develop. Utilize Multiple Distribution Channels. We are focused on product sales to new customers and on extending our product penetration within our existing distribution channels and end-user customer base. By integrating the highest quality products available from other fibre channel product and storage vendors with our internally developed products, we believe that a customer can obtain the increased benefits of our product breadth and our interoperable, complete SAN solutions. To complement and support our direct and indirect sales efforts, we intend to increase our sales force. Leverage Fibre Channel Technology. We believe that we compete effectively, in part, because of proprietary software and hardware designs. We intend to continue to invest our engineering resources in software and embedded hardware development in order to develop enhanced technologies that increase the performance and functionality of our products. We believe that product quality is an indispensable condition of competitiveness, and we are focused on continuously improving product quality, delivery, performance and service. Provide Customer-Driven Product Functionality. We seek to enhance customer satisfaction and build customer loyalty through the quality of our service and support. In addition, we are committed to providing customer-driven product functionality through feedback from key prospects, consultants, and end-user, distribution channel and OEM customers. Establish And Maintain Strategic Alliances. We intend to work closely with leaders in the storage and computing industries to develop new and enhanced fibre channel products. We believe that establishing strategic relationships with technology partners is essential to facilitate the efficient and reliable integration of our products into SANs. Promote Our Brands. We plan to continue building awareness of our brands in order to position ourselves as a leading provider of high- performance fibre channel SAN solutions for high-end, enterprise-level business applications. To promote our brand, we plan to increase our investments in a range of marketing programs, including trade show participation, advertising in print publications, direct marketing, public relations and Web-based marketing. 25 Products We believe we offer high quality fibre channel products with a superior price/performance profile. Our products include a comprehensive suite of host bus adapters, hubs, disk arrays, and software. Host Bus Adapters We design, manufacture and sell a family of fibre channel host bus adapters and related device driver software. A host bus adapter is a printed circuit card that plugs into the motherboard of servers and workstations and enables these devices to connect to other fibre channel devices in a SAN. Communication between the host bus adapter and the operating system is regulated by device driver software that is included with the host bus adapter. Working in conjunction with our device driver software, our host bus adapters can be used with both the Micro Channel and the PCI interface and interoperate with a wide variety of operating systems, making our host bus adapter capabilities one of the broadest currently available. Our software drivers operate under all three fibre channel topologies - switched fabric, arbitrated loop and point-to-point - as well as fibre channel configurations, using switches and hubs. The result is our drivers simplify the installation and ensure interoperability between many types of platforms and servers. We introduced our FibreQuik MC1000 host bus adapter designed for the Micro Channel interface in early 1999 and, to our knowledge, we are currently the only supplier of gigabit speed fibre channel host bus adapters for the Micro Channel bus architecture. In mid-1999, we introduced our FibreQuik PC1000 host bus adapter for the PCI interface. Hubs We design, manufacture and sell an entry-level fibre channel hub targeted at workgroup and small enterprise SAN applications. Our FibreQuik HB2000 provides a cost-effective solution that addresses SAN interconnect requirements, linking servers with storage devices. By enhancing functionality and reducing costs for entry-level SAN products, our hub effectively addresses this segment of the SAN interconnect market. Introduced in 2000, the FibreQuik HB2000 has been tested in a wide range of demanding, mission-critical network environments and is a good option for cost-conscious, entry-level SAN installations. Our hub supports full gigabit data transfer speeds and automatically bypasses failed or unused ports in a SAN. Our Gigabit Interface Converter (GBIC) based design allows customers to add, move or delete storage capacity and Fibre Channel devices on the SAN as needed. The flexible design of our entry-level hub also enables different combinations of copper, short-wave optical, and long-wave optical transceiver types in a single SAN solution. Disk Arrays We sell full fibre channel RAID (redundant array of inexpensive disk) disk arrays that allow users to store large amounts of online information in high availability, high performance environments. The Centurion 2000 FF is our fifth generation disk array and is targeted at enterprises running mission- critical Internet, e-commerce, on-line transaction processing, data warehousing, and multimedia applications. The Centurion 2000 FF is ideal for deploying heterogeneous SANs in IBM, Sun, HP, Windows, and Linux environments. A fully redundant architecture ensures no single point of failure - redundant components include RAID controllers, power supplies, fans, AC power cords, Fibre I/O modules and global hot spares. All critical system components are hot swappable allowing for little or no downtime maintenance. Centurion's building block modularity allows users to start with configurations as small as 18 gigabytes, but with the ability to scale up to 25 terabytes behind a pair of RAID controllers. Centurion Storage Manager, an intuitive graphical user interface-based software management and configuration application, allows for single seat management of Centurion 2000 FF arrays both locally and remotely. Users can monitor the status of system components, gather performance statistics, and dynamically reallocate storage to specific clients on the SAN. Software We develop and sell software designed to provide very high availability for enterprise level, mission-critical SAN deployments. Our Dynamic Path Failover (DPF) software, used with our FibreQuik host bus adapters, provides full data path redundancy for superior data availability, delivers dynamic and static load balancing capabilities, and operates in active-active mode to deliver up to twice the performance when accessing storage in a 26 SAN environment. The software is deployed with two FibreQuik host bus adapters in each server that is connected to the SAN. The SAN is constructed to have redundant fibre channel data paths from each server to the storage resources on the SAN. DPF software intelligently monitors the end-to-end integrity of each fibre channel data path and automatically detects a host bus adapter, cable, hub, switch, or RAID controller failure. Upon detection of a path failure, DPF dynamically remaps the storage on the failed path to the active data path. When the network failure is corrected, DPF dynamically remaps the storage to the restored path. The failover/failback sequence is transparent to users and provides very high storage availability. DPF operates in active- active mode which means that both fibre channel data paths from each server can be accessing SAN-attached storage at the same time. This can effectively double throughput to SAN attached storage. Furthermore, DPF's load balancing capability acts as a traffic cop to provide for optimal utilization of active-active fibre channel paths. Load balancing can be done dynamically or the user can statically configure storage to be accessed on a specific path. SAN Integration Services In addition, to selling our internally developed fibre channel connectivity, disk array, and software products, we resell high quality SAN solutions from leading manufacturers of fibre channel switches, tape storage libraries, and management software. This allows us to offer our customer a complete, fully integrated storage area network solution. This service is currently made available, and included in the price of, our SAN products. We expect to offer SAN design and integration services to customers and potential customers on a separate fee for service basis in the future. Technology We possess a high level of multi-disciplinary technological expertise, which we utilize in designing our products. This expertise includes fibre channel technology, software design and development, embedded hardware design, system design, and systems integration. We believe that our expertise in these technologies provides us with competitive advantages in time-to- market, price/performance, interoperability and product capabilities. Our software developers have experience in developing software for fibre channel devices and applications. We have considerable experience in programming to meet the requirements of enterprise level systems running mission-critical applications. Our engineers have experience in developing software for major operating systems, including UNIX variants, Linux, and Windows NT. Our team also possesses expertise in SAN configuration and management as well as graphical user interface software. We employ computer-aided design tools to engineer and design our printed circuit boards. Our system design team has expertise in the containment of high-frequency electromagnetic interference, which is inherent in high-speed networking devices. We have expertise in chassis design, including design for manufacturability, testability, usability, reliability and low cost. At our principal offices in Waltham, Massachusetts, we have established a systems integration lab to provide comprehensive functional and system level integration/interoperability testing between our fibre channel host bus adapters, hubs, disk arrays, and software with various computer platforms and fibre channel systems. To facilitate expanded market penetration of our products and technology, our integration test methodologies and software are continually evolving. Integration testing at our lab combines our products with various fibre channel SAN components to simulate the most commonly used functional configurations defined by our reseller partners. The overall goal is to ensure enterprise class performance and interoperability in real world SAN deployments. Customers We sell our products to OEMs, resellers and end-users. Our OEM and reseller customers include Compaq, StorageTek, FDC Technologies, and EDS. End-user customers of our products include Aetna Insurance, Fidelity Investments, Chase Manhattan Bank, EDS, Lockheed Martin and MCI/Worldcom. In the year ended December 31, 1999, our top five customers accounted for approximately 40% of our total net revenues, and, in the year ended December 31, 1998, our top five customers accounted for approximately 29% of our total net revenues. 27 Customer Service and Support We offer a wide range of customer service and support programs that include telephone and on-site support 24 hours a day, seven days a week. In addition, we have designed our products to allow easy diagnostics and administration. We employ systems engineers for pre- and post-sales support and technical support engineers for field support. In order to support our customer service program, we have entered into an agreement with IBM Global Services whereby IBM will provide support for our products at end-user customer locations. Sales and Marketing We sell domestically and internationally to OEMs, systems integrators, and VARs as well as directly to end users in the United States. We target OEMs, systems integrators, and VARs who resell our products as a part of complete SAN solutions to end-users. Our sales and marketing strategy will continue to focus on the development of the fibre channel market through these relationships. We also sell complete fibre channel SAN solutions to certain targeted end-users through a small direct sales force. Our marketing efforts are focused on increasing awareness of our fibre channel products and being able to deliver complete SAN solutions, promoting SAN-based solutions, and advocating industry-wide standards and interoperability. Key components of our marketing efforts include: extending our partnerships with leading manufacturers of fibre channel connectivity, tape storage, and SAN management software products allowing us to offer a complete SAN solution; continuing our participation in industry associations and standards committees to promote and further enhance fibre channel technology and increase our visibility as industry experts; and participating in major trade show events and SAN conferences to promote our products and to continue our efforts to educate potential customers on the value of SANs. OEMs OEMs can exercise significant influence in the early development of our market because they utilize products to deliver to end users complete, factory-configured solutions that are installed and field-serviced by the OEMs' technical support organizations. We intend to continue our efforts to develop relationships with leading OEM customers to introduce new products. We believe that OEMs will continue to provide critical input as we develop our next generation of products. Reseller Customers As the markets for fibre channel products and SAN solutions evolve, and as end-user awareness of the benefits of fibre channel increases, we believe an increasing volume of sales will occur through reseller channels. We believe that as the market for fibre channel matures, we will be able to leverage sales through distributors, systems integrators, and value-added resellers and that such sales will represent an increasing percentage of our total net revenues. As this market continues to develop, we plan to establish additional relationships with select domestic and international resellers to reach additional markets and increase our geographic coverage. Manufacturing, Test and Assembly We outsource the majority of our manufacturing, and we conduct quality assurance, manufacturing, engineering, documentation control and certain finish assembly and test operations at our headquarter facility in Waltham, Massachusetts. This approach enables us to reduce fixed costs and to provide flexibility in meeting market demands. Except for the QLogic Corporation hardware we utilize in our host bus adapters, we believe most component parts used in our products are standard off-the-shelf items, which are, or can be, purchased from two or more sources. We select suppliers on the basis of technology, manufacturing capacity, quality and cost. Our reliance on third-party manufacturers involves risks, including possible limitations on availability of products due to market 28 abnormalities, unavailability of, or delays in obtaining access to, certain product technologies and the absence of complete control over delivery schedules, manufacturing yields, and total production costs. The inability of our suppliers to deliver products of acceptable quality and in a timely manner or our inability to procure adequate supplies of our products could have a material adverse effect on our business, financial condition or operating results. Research and Development Our success will depend to a substantial degree upon our ability to develop and introduce in a timely fashion new products and enhancements to our existing products that meet changing customer requirements and emerging industry standards. We have made, and plan to continue to make, expenditures for research and development and to participate in the development of industry standards. However, because our net revenues declined in each of the five most recently completed fiscal years, our expenditures for research and development have also declined. Over the last three fiscal years, our research and development expenses were approximately $1.1 million in 1999, compared to $1.4 million in 1998 and $2.3 million in 1997. Because the amount of resources available for research and development are limited, we have made the decision to devote all research and development expenditures on fibre channel connectivity products, related software drivers, and on high availability software applications for the SAN market. Before a new product is developed, our research and development engineers work with marketing managers and customers to develop a comprehensive requirements specification. After the product is designed and commercially released, our engineers continue to work with customers on early design-in efforts to understand requirements for future generations and upgrades. Research and development expenses primarily consist of salaries and related costs of employees engaged in ongoing research, design and development activities and subcontracting costs. We are seeking to hire additional skilled development engineers. Our business, operating results and financial condition could be adversely affected if we encounter delays in hiring additional engineers. Competition The markets in which we compete are intensely competitive and are characterized by frequent new product introductions, changing customer preferences and evolving technology and industry standards. Our competitors continue to introduce products with improved price/performance characteristics, and we will have to do the same to remain competitive. Increased competition could result in significant price competition, reduced revenues, lower profit margins or loss of market share, any of which would have a material adverse effect on our business, operating results and financial condition. Our principal competitors in the fibre channel connectivity product market include Emulex Corporation, QLogic Corporation, JNI Corporation, Hewlett-Packard Corporation, Agilent Corporation, Vixel Corporation, and Gadzoox Networks, Inc. Our primary competitors in the disk array market include International Business Machines Corporation, EMC Corporation and Sun Microsystems. Our principal competitors in the host bus adapter market include Emulex, QLogic, JNI and Agilent. Our products may also compete at the end-user level with other technology alternatives, such as SCSI, which are available from companies such as Adaptec, LSI Logic and QLogic as well as a number of other companies. In the future, other technologies may evolve to address the applications served by fibre channel today, and because we focus on fibre channel, our business would suffer as a result of competition from such competing technologies. Some of our OEM and reseller customers could develop products internally that would replace our products. The loss of opportunities to sell our products to any such OEM and reseller customers, in addition to the increased competition presented by these customers, could have a material adverse effect on our business, operating results and financial condition. 29 We believe that the principal bases of fibre channel product competition presently include interoperability, reliability, scalability, connectivity, performance and customization. We believe that other competitive factors include pricing and technical support. We believe that we compete favorably with respect to each of these factors. Intellectual Property The intellectual property rights we have in our technology, which generally consist of system designs, software and know-how associated with our product portfolio, principally arise from our own internal development efforts. We attempt to protect our technology through a combination of unpatented trade secrets, trademarks and contractual obligations. Our software products are protected by copyright laws. We cannot assure you that our intellectual property protection measures will be sufficient to prevent misappropriation of our technology or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology. In addition, the laws of many foreign countries do not protect our intellectual property rights to the same extent as the laws of the United States. Our failure to protect our proprietary information could have a material adverse effect on our business, financial condition or operating results. We may need to initiate litigation in the future to enforce our intellectual property rights, to protect trade secrets or to determine the validity and scope of the proprietary rights of others. Litigation could result in substantial costs and diversion of our resources and could materially harm our business. In the future, we may receive notice of infringement claims of other parties' proprietary rights. Infringement or other claims could be asserted or prosecuted against us in the future, and it is possible that such assertions or prosecutions could harm our business. Any such claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel, cause delays in the development and release of our products, or require us to develop non- infringing technology or enter into royalty or licensing arrangements. Such royalty or licensing arrangements, if required, may not be available on terms acceptable to us, or at all. For these reasons, infringement claims could materially harm our business. Employees At April 1, 2000, we had 26 full-time employees. None of our employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good. Legal Proceedings There are no material legal proceedings pending against us. Description of Property We currently lease approximately 68,000 square feet in an office facility in Waltham, Massachusetts pursuant to a lease that expires on May 31, 2003. Rent for the 68,000 square feet is approximately $381,924 per year. We have leased this space since 1978. Of the 68,000 square feet leased, approximately 42,000 square feet of this space is subleased to unrelated parties for a term ending May 31, 2003. We also own 12.4 acres of land in Poughkeepsie, New York. The land is vacant and not subject to a mortgage. 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this prospectus. Please refer to "Special Note Regarding Forward-Looking Statements" for additional information. Comparison of the three months ended April 1, 2000 and the three months ended April 3, 1999 Our revenues were $655,000 for the quarter ended April 1, 2000 and $1,390,000 for the quarter ended April 3, 1999. Revenues for the three months ended April 1, 2000 decreased 53% compared to revenues for the same three months in the prior year due to decreased disk array product sales and related service revenues, which was partially offset by growth in sales of our fibre channel connectivity products. The decrease in revenues from sales of our disk array products and related services was partly due to transitioning our line of storage products from traditional SCSI-based disk arrays to fibre channel disk arrays. Moreover, we believe that the decrease in revenues was, in part, because our sales and marketing organization was not as fully staffed during the three months ended April 1, 2000 compared to the first quarter of the prior year. We have experienced large fluctuations in quarter to quarter revenues because our revenue base is small and revenue from a disk array sale to a single customer is usually large, with a long sales cycle. Therefore, a delay of any given disk array sale from one quarter to the next quarter can have a significant impact on revenues from quarter to quarter. Gross profit rate was 45% of sales for the three months ended April 1, 2000, compared to 55% of sales for the three months ended April 3, 1999. This decrease in our gross profit rate was the result of the greater relative amount of fixed manufacturing costs in relation to revenues in the first quarter of this year as compared to the first quarter of fiscal 1999. Operating expenses for the three months ended April 1, 2000 increased by 5% in comparison to operating expenses for the comparable three months of the prior year. In order to remain competitive, we continue to expend significant amounts for research and development for new product development and the enhancement of existing fibre channel connectivity products. Research and development expenses for the three months ended April 1, 2000 increased by 13% compared to the amount of these expenses in the first quarter of fiscal 1999. We also continued to expend increased resources to build our sales and marketing organization and reseller channels. Interest expense increased by 152% for the three months ended April 1, 2000 compared to the three months ended April 3, 1999. This increase in interest expense was primarily due to funds borrowed for working capital following the end of the first quarter of 1999. We borrowed $210,000 in exchange for, among other things, our issuance of 10% subordinated convertible promissory notes from June 1, 1999 through August 18, 1999. We borrowed $550,000 in November 1999 in exchange for, among other things, our issuance of 12% promissory notes due November 2000. We also borrowed $2,000,000 in January and February 2000 from the Sovereign Lenders in exchange for, among other things, our issuance of series 1 bridge financing notes that bear interest at the rate of 8% per annum. Extraordinary income items for the three months ended April 1, 2000 were recorded as a result of some of our creditors agreeing to accept partial cash payments in full satisfaction of liabilities owed to these creditors. These partial cash payments were made primarily to pre-bankruptcy creditors. Total comprehensive net loss for the first quarter of fiscal 2000 was $369,000, or $0.04 per share, as compared with net income of $101,000, or $0.01 per share, for the first quarter of fiscal 1999. Comparison of fiscal years 1999 and 1998 Our revenues were $3,402,000 and $3,749,000 in 1999 and 1998, respectively. The increase in revenues for fibre channel connectivity products in 1999 was completely offset by a decrease in service revenues from memory products customers. 31 Cost of sales as a percentage of revenues was 42% and 79% in 1999 and 1998, respectively. The improved gross profit was due to a change in the mix of products sold to customers and a reduction in our fixed manufacturing costs. Our operating expenses for 1999 decreased by 27% in comparison to operating expenses for 1998. Research and development expenses represented 32% of sales, or $1,097,000, in 1999 and 37% of sales, or $1,379,000, in 1998. Sales and general and administrative expenses were $1,386,000 and $2,002,000 in 1999 and 1998, respectively. The reduction in operating expenses is due principally to the cost savings achieved from putting in place additional expense controls. Interest expense increased by 148% in 1999 compared to 1998 primarily because of funds borrowed for working capital. In addition to the $760,000 borrowed in 1999 described above, on June 1, 1998 we borrowed $1,060,000 in exchange for, among other things, our issuance of 10% subordinated convertible promissory notes. In November 1998 we entered into a loan and security agreement with B.A. Associates, Inc. under which we may borrow up to $650,000 on a revolving basis. Interest accrues at the rate of 12% per annum on amounts outstanding under this revolving credit facility. Interest accrued on amounts outstanding from time to time under this revolving credit facility were $44,000 and $3,000 in 1999 and 1998, respectively. Interest income decreased by 89% in 1999 compared to 1998. We recognized $405 and $3,641 in 1999 and 1998, respectively from certain equipment leases that qualify as sales type leases. These leases ended in the second quarter of 1999 and we do not currently have any sales type leases. Extraordinary income items for 1999 were recorded as a result of some of our creditors agreeing to accept partial cash payments in full satisfaction of liabilities owed to these creditors. These partial cash payments were made primarily to pre-bankruptcy creditors. Other expenses in 1998 were primarily legal and professional fees related to our 1998 bankruptcy reorganization proceeding. Total comprehensive income for fiscal 1999 was $110,000, or $0.01 per share, as compared with a total comprehensive loss of $2,746,000, or $0.30 per share, for fiscal 1998. Comparison of fiscal years 1998 and 1997 Our revenues were $3,749,000 and $10,066,000 in 1998 and 1997, respectively. The revenues for mainframe storage and client/server products declined significantly in 1998 compared to revenues from mainframe storage and client/server products in 1997. Cost of sales as a percentage of revenues was 79% and 94% in 1998 and 1997, respectively. Inventory write-downs in 1997 were approximately $2,700,000. Their effect on the cost of sales percentage was 28% in 1997. Operating expenses for 1998 decreased by 50% in comparison to operating expenses for 1997. Research and development expenses represented 37% of sales, or $1,379,000, in 1998 and 23% of sales, or $2,322,000, in 1997. Sales and general and administrative expenses were $2,002,000 and $4,489,000 in 1998 and 1997, respectively. The reduction in operating expenses was due principally to the cost savings achieved from outsourcing and putting in place additional expense controls. Interest income decreased by 79% in 1998 compared to 1997. We recognized $3,641 and $17,674 in 1998 and 1997, respectively from certain equipment leases that qualify as sales type leases. There was a substantial reduction in the recording of sales type leases in 1998 compared to 1997. Total comprehensive loss for fiscal 1998 was $2,746,000, or $0.30 per share, as compared with a total comprehensive loss of $6,720,000, or $0.74 per share, for fiscal 1997. Inflation We did not experience any material adverse effects in 1997, 1998, 1999 or in the first quarter of 2000 due to general inflation. 32 Liquidity and Capital Resources As discussed more fully in Note 1 to our consolidated financial statements, we have suffered substantial recurring losses from operations for the last five consecutive years. Consequently, our ability to continue as a going concern, is dependent upon several factors, including our ability to raise additional capital. Management has taken corrective actions to reduce expenses through consolidation of the workforce and outsourcing certain operations. Management has also been active in establishing new strategic alliances that it believes will result in increases in revenues in the future through the sale of a greater volume of products. We cannot give any assurances that the actions taken to date will increase revenues or continue to reduce operating losses. Requirements Depending upon the market value of shares of our common stock, any additional financing that we obtain through the sale of common stock to Thumberland Limited under the common stock purchase agreement or cash that we may receive from the exercise of outstanding warrants may be used to repay and prepay debt and for working capital purposes to fund our continuing operations including research and development and sales and marketing expenses. Resources Our cash and marketable securities were $1,008,000, $367,000 and $211,000 at April 1, 2000, December 31, 1999 and December 31, 1998, respectively. Working capital was a deficit of $2,851,000, $2,125,000 and $1,575,000 at April 1, 2000, December 31, 1999 and at December 31, 1998, respectively. During 1999, we expended $9,000 for capital equipment to support our growth. During fiscal 2000, we expect to acquire less than $100,000 of capital equipment. As described above, we have a revolving credit facility with B.A. Associates, Inc. under which we may borrow up to $650,000. At April 1, 2000 we had no amounts outstanding under this revolving credit facility. Moreover, as described above, during the first quarter of 2000, we borrowed $2,000,000 in cash from the Sovereign Lenders in exchange for, among other things, our issuance of series 1 bridge financing notes that mature in August and September 2000. We received net proceeds equal to $1,737,900 from the Sovereign Lenders as a result of this bridge financing. The series 1 bridge financing notes bear interest at the rate of 8% per annum and are convertible into shares of our common stock at a weighted average per share price of $4.08. Depending upon the date on which these series 1 bridge financing notes are paid in full or redeemed, we have to pay the Sovereign Lenders a premium ranging from 15% to 20% of the original principal amount of the notes prior to maturity and a premium of 25% of the original principal amount of the notes after maturity. Following conversion of the bridge notes, if the Sovereign Lenders do not realize at least a 20% gain on the sale of the shares received from conversion of the bridge notes and sold during the 90 days following conversion, then the Sovereign Lenders are entitled to acquire additional shares of common stock at a price of $0.10 per share through the exercise of repricing warrants. In addition to these bridge notes and the attached repricing warrants, we issued warrants to purchase 300,000 shares of common stock. These warrants have a weighted average exercise prices of $4.54 per share. 33 DIRECTORS AND EXECUTIVE OFFICERS Directors and Executive Officers The following table shows the name, age and position of each of our executive officers and directors as of the date of this prospectus. Name Age Position Joseph F. Kruy (1) 68 President, Chief Executive Officer and Chairman of the Board and a Director Philip C. Hankins (1)(2) 69 Director C.V. Ramamoorthy, Ph.D.(1)(2) 74 Director Robert J. Spain, Ph.D. (1). 62 Director Peter J. Kruy, M.D.. 37 Executive Vice President, Treasurer and Chief Financial Officer Lois P. Lehberger. 44 Vice President and Controller ___________________ (1) Member of the Compensation Committee. (2) Member of the Audit Committee. Joseph F. Kruy has served as our President, Chief Executive Officer and a member of our board of directors since our inception in 1968. Mr. Kruy has served as our Chairman of the Board since October 1975. Mr. Kruy holds a B.S. in electrical engineering and a Dipl. Eng. from the Technical University in Budapest. Philip C. Hankins has been a member of our board of directors since 1975. Since 1975 Mr. Hankins has been the President of Charter Information Corporation, an information processing company. Mr. Hankins holds a B.S. in mechanical engineering from Cornell University and a M.S. from Harvard University. C.V. Ramamoorthy, Ph.D. has been a member of our board of directors since our inception in 1968. Since prior to 1995, Dr. Ramamoorthy has been a Professor of Electrical Engineering and Computer Sciences at the University of California Berkeley. Dr. Ramamoorthy holds a B.S. in physics from the University of Madras, India, a M.S. in mechanical engineering from the University of California Berkeley and a M.S. and a Ph.D. from Harvard University. Robert J. Spain, Ph.D. has been a member of our board of directors since 1995. Dr. Spain was also our Vice President of Research from 1969 to 1977. Since prior to 1995, Dr. Spain has been the President of CFC, Inc., an electronic component manufacturing company. Dr. Spain holds a B.S.E.E. and a M.S.E.E. from the Massachusetts Institute of Technology and a Doctor of Science from Paris, Sorbonne. Peter J. Kruy has served as our Executive Vice President, Treasurer and Chief Financial Officer since August 1998. From November 1993 to January 1998, Dr. Kruy was the President, Chief Financial Officer and Chief Executive Officer of Jupiter Technology, Inc. a data networking company. Dr. Kruy holds a B.A. in biology from the University of Pennsylvania, a M.D. from Tufts University School of Medicine and an M.B.A. from the Wharton School at the University of Pennsylvania. Dr. Kruy is also the owner of CyberFin Corporation, a more than five percent shareholder of Cambex. Peter J. Kruy is the son of Joseph F. Kruy. Lois P. Lehberger joined Cambex in June 1978 and has served as our controller since August 1998, and our vice president since November 1999. Since joining Cambex, Ms. Lehberger has been responsible for our accounting function. Ms. Lehberger holds a B.A. in economics and accounting from the College of the Holy Cross. 34 Board Composition Under Massachusetts law, our board of directors is classified into three classes, as nearly equal in number as possible, with the term of office of one class expiring each year. At the meeting of stockholders held on December 23, 1999, the stockholders re-elected all directors for a one, two or three year term and until their successors are duly elected and qualified. At that meeting, Messrs. Joseph Kruy and C.V. Ramamoorthy were elected as Class I directors with terms of three years, or until the annual meeting of stockholders to be held in 2003, Dr. Spain was elected as a Class II director with a term of one year, or until the next annual meeting of stockholders to be held in 2001, and Mr. Hankins was elected as a Class III director with a term of two years, or until the annual meeting of stockholders to be held in 2002. Board Committees Our board of directors has an audit committee and a compensation committee. Audit Committee. The current members of our audit committee are Messrs. Ramamoorthy and Hankins. Our audit committee reviews, acts on, and reports to the board of directors with respect to various auditing and accounting matters, including the selection of our independent auditors, the scope of the annual audits, fees to be paid to the auditors, the performance of our independent auditors and our accounting practices. On July 10, 2000 the board of directors adopted an audit committee charter as required under the rules of the Securities and Exchange Commission. Compensation Committee. The current members of our compensation committee are the members of the board of directors. Our compensation committee determines the salaries and incentive compensation of our officers and provides recommendations for the salaries and incentive compensation of our other employees. Compensation Committee and Insider Participation The voting members of the compensation committee are the members of our board of directors. Mr. Kruy is on the compensation committee but abstains from discussions and voting on decisions regarding his compensation. Director Compensation We compensate our non-employee directors with an annual fee of $10,000 and a fee of $1,000 for each meeting of the board of directors attended. In August 1998, the board of directors authorized the non- employee director compensation to be converted from cash to shares of our common stock at a price of $0.25 per share, or 50% of the fair market value, whichever is greater. To date, no shares have been issued to the non- employee directors as compensation for services as a member of the board of directors. The board of directors is also covered by indemnification provisions of our by-laws, as amended. See the section entitled "Description of Securities." 35 Executive Compensation The following table shows all compensation awarded to, earned by, or paid to our Chief Executive Officer for services rendered to Cambex in all capacities during the years ended December 31, 1999, 1998 and 1997. For the years ended December 31, 1999, 1998 and 1997, none of our other executive officers earned more than $100,000 per year and are omitted from the table. Summary Compensation Table Name and Principal Position Year Annual Compensation(1) Salary Joseph F. Kruy 1999 $ 200,000 President and Chief Executive Officer 1998 $ 200,000 1997 $ 200,000 (2) ________________ (1) The columns for "Other Annual Compensation" and "Long-Term Compensation" have been omitted because there is no such compensation required to be reported. (2) Compensation for fiscal 1997 includes $63,730 in annual base salary that was earned, but the payment of which was deferred and paid to Mr. Kruy in 1998. Option Grants in 1999 No options were granted to, or exercised by Mr. Kruy in the fiscal year ended December 31, 1999. Year-end Option Values No options were granted to Mr. Kruy in the fiscal year ended December 31, 1999 or in previous years. Mr. Kruy does not hold any options to purchase shares of our capital stock. Employee Benefit Plans Year 2000 Equity Incentive Plan. The following description of Cambex's Year 2000 Equity Incentive Plan is a summary of the material terms of the plan. The purpose of the plan is to enhance the profitability and value of Cambex for the benefit of its stockholders by enabling Cambex to offer incentives to employees and other persons or entities associated with it. This is a means to both increase the ownership of Cambex held by those individuals in order to attract, retain and reward them and more closely align the interests of those individuals and the stockholders of Cambex. The plan authorizes the grant of awards in the form of stock options, stock appreciation rights (SARs), restricted stock or unrestricted stock awards, deferred stock awards, performance awards, loans or supplemental grants, or combinations thereof, to employees and others associated with Cambex and its affiliates. The plan was approved by Cambex's board of directors in November December 1999. Our board of directors reserved a total of 1,500,000 shares of our common stock for issuance under the plan. As of May 31, 2000, no shares had been issued as the result of the exercise of options or awards granted pursuant to the plan. As of May 31, 2000, 137,500 shares of our common stock were subject to outstanding stock options granted pursuant to the plan and 1,362,500 shares were available for future grants. The plan is administered by the board of directors. According to the plan, the board of directors has authority to determine the individuals or entities associated with Cambex or one of its subsidiaries who are to be granted awards and the terms of these awards, including: the number of shares subject to an award; the type of award; the exercise price per share; and the duration of the award. 36 Incentive stock options must have an exercise price equal to at least 100%, 110% if the grant is to a stockholder holding more than 10% of Cambex's voting stock, of the fair market value of our common stock on the date of the award. Incentive stock options generally have a duration of 10 years, and a duration of five years if the grant is to a stockholder holding more than 10% of Cambex's voting stock. There are also outstanding options granted under our 1997 Combination Stock Option Plan that was adopted by the board of directors. While the 1997 Combination Stock Option Plan was not approved by our stockholders, the stock options granted under this plan covering 1,176,500 shares of our common stock were approved by our stockholders in December 1999. Our Year 2000 Equity Incentive Plan replaced the 1997 Combination Stock Option Plan. Incentive Bonus Plan. In April 1980, the board of directors and the stockholders approved the Incentive Bonus Plan. The Incentive Bonus Plan authorizes the payment of a percentage of our pretax income to key employees. The maximum aggregate incentive bonus awards for any fiscal year shall be 15% of Cambex's pretax profits for each year. Pretax profit is defined under the plan as net income before taxes, with certain adjustments. The bonus plan is administered by the board of directors. The awards granted under the bonus plan are non-transferable. Employment Agreement We entered into an employment agreement with Joseph F. Kruy on November 18, 1994. An extension of the term of this employment agreement to December 31, 2002 was approved by our board of directors in November 1999. Under his employment agreement, Mr. Kruy is engaged to serve as our Chairman of the Board, President and Chief Executive Officer. Except for illness, reasonable vacations and other customary exceptions, during the term of the agreement, Mr. Kruy is to devote all of his working time and attention to the performance of his duties and responsibilities at Cambex. Mr. Kruy is to be paid a minimum annual base salary of $200,000 per year. Mr. Kruy is also entitled to participate in our Incentive Bonus Plan and is eligible to receive an annual bonus equal to 4% of our pre-tax profit, as that term defined in the Incentive Bonus Plan. If Mr. Kruy voluntarily terminates his employment with us, he is entitled to receive his base annual compensation through the date of termination and any amount that he may be entitled to receive under the Incentive Bonus Plan in accordance with the terms of that Plan. If, after Mr. Kruy voluntarily terminates his employment with us, he accepts employment during the remaining then current term of his agreement with an entity that directly competes with us, then we may cease paying Mr. Kruy any further amounts. If we terminate Mr. Kruy's employment for reasons other than for cause or if we give another person either the title or the powers of the Chief Executive Officer, then Mr. Kruy is entitled to continue to receive his annual base salary through the end of the then current term of the agreement, and is entitled to receive any incentive bonus that would have been earned under the Incentive Bonus Plan during the fiscal year in which his employment was terminated. If, following termination of Mr. Kruy's employment with us, he accepts employment elsewhere before December 31, 2002, then we do not have to continue to pay Mr. Kruy for the year ending December 31, 2002. Moreover, if on the date of termination of Mr. Kruy's employment with us, our assets are in the hands of a receiver, an assignee for the benefit of creditors, trustee in bankruptcy, debtor-in-possession or other entity for the benefit of creditors or if our consolidated net worth is less than our consolidated net worth at December 31, 1999, then we have no obligation to pay Mr. Kruy any amount after termination of his employment. 37 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS On June 1, 1998, we borrowed approximately $1,060,000, including approximately $460,000 from Joseph F. Kruy, our Chairman of the Board, President, and Chief Executive Officer, in exchange for the issuance of 10% Subordinated Convertible Promissory Notes (the "10% Notes"). Under the terms of the 10% Notes, which are due on April 30, 2003, the holders may convert the 10% Notes into shares of common stock at a conversion price of $0.22 per share. In addition to the 10% Notes, each holder, including Mr. Kruy, was issued a Stock Purchase Warrant, the exercise of which will allow the warrant holder to purchase one share of common stock, at $0.50 per share, for each dollar loaned to us. Additional Stock Purchase Warrants to purchase 96,373 shares of common stock, at an exercise price of $0.50 per share, were issued to the holders of 10% Notes on June 1, 1999 in relation to interest due on the June 1, 1998 notes. We believe that the borrowing arrangements we made with Mr. Kruy and others are on terms at least as favorable to us as we would have expected from lenders unrelated to us and Mr. Kruy. On June 1, 1998, we entered into a Master Lease with CyberFin Corporation, a corporation wholly owned by Peter J. Kruy, our Executive Vice President, Treasurer and Chief Financial Officer. Under the Master Lease we are renting from CyberFin an IBM 2003 S/390 Multiprise Processor and related software and maintenance at the rate of $3,787.64 per month for a period of three years. We also purchased computer memory from CyberFin for $141,920 in 1998 and $73,000 in 1999. We believe that lease and the purchase arrangements we made with CyberFin are on terms at least as favorable to us as we would have expected from an equipment lessor unrelated to us, CyberFin and Dr. Kruy for equipment of comparable quality. On November 9, 1998, we entered into a Loan and Security Agreement with B.A. Associates, Inc. (BAA), which is a corporation owned by a relative of Joseph F. Kruy, our Chairman, President and Chief Executive Officer. This Loan and Security Agreement, as amended by a First Amendment to Loan and Security Agreement dated March 15, 1999, and further amended by a Second Amendment to Loan and Security Agreement dated June 1, 1999 (as so amended, the "BAA Loan Agreement"), allows us to borrow up to $650,000, which is the maximum that may be outstanding at any one time. Under the BAA Loan Agreement, we granted BAA a first priority security interest in all of our accounts, instruments, documents, general intangibles, equipment, inventory, farm products and proceeds of any of the foregoing. We pay all amounts that we receive from collections of our accounts receivable to BAA not less frequently than each week until the outstanding loan amount plus interest, which accrues at a 12% annual rate, is fully paid. Under the terms of the BAA Loan Agreement, BAA received a warrant for the purchase of two shares of common stock for each dollar it has committed to loan to us. The exercise price under the warrants is $0.22 per share. We believe that the borrowing arrangements we made with BAA are on terms at least as favorable to us as we would have expected from lenders unrelated to us and relatives of Mr. Kruy. From June 1, 1999 through August 18, 1999, we raised $210,000 in exchange for the issuance of 10% Subordinated Convertible Promissory Notes. During this time period Joseph F. Kruy loaned us $100,000 of the total amount that we borrowed. In exchange for these loans, we issued 10% Subordinated Convertible Promissory Notes, including a 10% Subordinated Convertible Promissory Note to Mr. Kruy. We believe that the borrowing arrangements we made with Mr. Kruy and others are on terms at least as favorable to us as we would have expected from lenders unrelated to us and Mr. Kruy. In November 1999, we borrowed $125,000 from Joseph F. Kruy and $125,000 from Philip C. Hankins, a member of our board of directors. We also entered into separate Loan and Security Agreements with each of Messrs. Kruy and Hankins. At that time, we entered into three other Loan and Security Agreements with persons unrelated to the company (the "Other 1999 Lenders") pursuant to which we borrowed an additional $300,000. Our payment obligations under these Loan and Security Agreements (the "1999 Loan Agreements") are evidenced by 12% Notes due in November 2000. Under the 1999 Loan Agreements, we granted each of Messrs. Kruy and Hankins and the Other 1999 Lenders a first priority security interest in all of our accounts, instruments, documents, general intangibles, equipment, inventory, farm products and proceeds of any of the foregoing. Under the terms of the 1999 Loan Agreements, Messrs. Kruy and Hankins and the Other 1999 Lenders received a warrant to purchase up two shares of common stock for each dollar loaned to us. The exercise price under these warrants is $2.00 per share. We believe that the borrowing arrangements we made with Mr. Kruy and others are on terms at least as favorable to us as we would have expected from lenders unrelated to us and Mr. Kruy. 38 PRINCIPAL SHAREHOLDERS The following table presents information regarding the beneficial ownership of Cambex's common stock as of May 31, 2000, by: each person, or group of affiliated persons, known to us to be the beneficial owner of more than five percent of our outstanding shares of common stock; each of our directors; each of our executive officers; and all current directors and executive officers of Cambex as a group. For purposes of calculating the number of shares of common stock beneficially owned after the effectiveness of this registration, we have assumed the sale of all shares covered by the registration statement of which this prospectus is a part. For purposes of calculating the percentage beneficially owned after the effectiveness of this registration, the total number of shares of common stock outstanding includes the number of shares of common stock covered by this registration statement of which this prospectus is a part issuable to: (a) the Sovereign Lenders upon conversion of the series 1 bridge financing notes and the exercise of common stock purchase warrants issued to the Sovereign Lenders; (b) Thumberland upon the exercise of a stock purchase warrant issued to Thumberland; and (c) Ladenburg Thalmann upon the exercise of a stock purchase warrant issued to Ladenburg Thalmann. The number excludes (a) repricing warrants and (b) shares of common stock issuable to Thumberland under the common stock purchase agreement. Unless otherwise noted in the table, the address for each person listed in the table is c/o Cambex Corporation, 360 Second Avenue, Waltham, Massachusetts 02451. Number of Shares Percentage of Outstanding Name and address of Beneficially Shares Beneficially Owned(2) Beneficial Owner Owned (1) Before Offering After Offering Joseph F. Kruy (3) 2,194,288 21.0% 18.6% Philip C. Hankins (4) 289,245 2.9 2.6 3011 North Lamar Boulevard Austin, TX 78705 C.V. Ramamoorthy 99,156 1.0 * University of California, Berkeley Computer Science Division Berkeley, CA 94720 Robert J. Spain -0- * * 179 Bear Hill Road Waltham, MA 02451 Peter J. Kruy (5) 1,022,164 10.5 9.3 Lois P. Lehberger (6) 18,000 * * All directors and executive officers as a group (6 persons) (7) 3,622,853 33.9 30.1 _______________ * Represents beneficial ownership of less than 1%. (1) Beneficial ownership for purposes of the table is determined in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of beneficial ownership for any other purpose. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock issuable upon the exercise of options and warrants held by that person that are currently exercisable or exercisable within 60 days of following May 31, 2000 (July 31, 2000) are deemed to be outstanding. These shares, however, are not considered outstanding for purposes of computing the percentage ownership of any other person. Except as indicated in the footnotes, 39 we believe that the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned by them, subject to community property laws where applicable. (2) Percentage of ownership is based on 9,635,259 shares of common stock outstanding as of May 31, 2000, and 10,976,759 shares of common stock outstanding after completion of this offering. (3) Includes 794,348 shares of common stock issuable upon exercise of stock purchase warrants issued in 1998 and 1999 exercisable within 60 days following May 31, 2000 (or by July 31, 2000). This number also includes 56,250 shares held by the Kruy Family Trust, for which Mr. Kruy's wife and children are the beneficial owners. Mr. Kruy disclaims beneficial ownership of these shares. Of these shares of common stock, 979,239 are subject to the terms of a stock pledge agreement dated as of January 18, 2000 (the "Kruy Pledge Agreement"), among Joseph F. Kruy, Cambex and the Sovereign Lenders. Provided that Cambex is not in default under the series 1 bridge note purchase agreement dated as of January 18, 2000 (the "Bridge Note Purchase Agreement"), among Cambex and the Sovereign Lenders, the series 1 bridge financing notes issued pursuant to the Bridge Note Purchase Agreement, or the Kruy Pledge Agreement, Mr. Kruy has the right to vote the pledged shares. (4) Includes 184,245 shares of common stock issuable upon exercise of a stock purchase warrant issued in November 1999. (5) Includes 960,164 shares owned by CyberFin Corporation, a corporation wholly owned by Peter J. Kruy, and 60,000 shares subject to currently exercisable options. Of these shares of common stock, 730,228 are subject to the terms of a stock pledge agreement dated as of January 18, 2000 (the "CyberFin Pledge Agreement"), among CyberFin, Cambex, and the Sovereign Lenders. Provided that Cambex is not in default under the Bridge Note Purchase Agreement, the series 1 bridge financing notes, or the CyberFin Pledge Agreement, CyberFin has the right to vote the pledged shares. (6) Consists of 18,000 shares subject to options exercisable within 60 days following May 31, 2000 (or by July 31, 2000). (7) Includes 1,056,593 shares subject to options and warrants exercisable within 60 days following May 31, 2000 (or by July 31, 2000). See footnotes (3) through (6) above. 40 DESCRIPTION OF SECURITIES Common Stock We are authorized to issue up to 25,000,000 shares of common stock, $0.10 par value per share, of which 9,635,259 shares were issued and outstanding as of May 31, 2000. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends when, as and if declared by our board of directors, out of funds legally available therefor. Holders of common stock have one vote for each share held of record and do not have cumulative voting rights. In the event of any liquidation, dissolution or winding-up of our affairs, holders of our common stock are entitled to share ratably in the net assets that are remaining after payment or provision for payment of all or our debts and obligations, and after liquidation payments to holders of any preferred stock then outstanding, if any. Shares of common stock are not redeemable and have no preemptive or similar rights. All outstanding shares of common stock are, and the shares of common stock to be offered by us when issued will be, fully paid and nonassessable. Preferred Stock Our restated articles of organization authorize our board of directors, subject to the limitations prescribed by law and without further approval of our stockholders, to establish one or more series of preferred stock, to determine from time to time the number of shares constituting any series, and to fix the designation, preferences, powers, qualifications, special and relative rights and privileges of the shares of any series and the qualifications, limitations or restrictions thereof. We are authorized to issue up to 3,000,000 shares of series preferred stock, $1.00 par value per share, of which none are issued or outstanding as of the date hereof. We have no present intention to issue any shares of preferred stock. The future issuance of preferred stock could operate to dilute the voting power of holders of common stock, could create voting impediments or deter persons seeking to effect a takeover or otherwise gain control of Cambex, or could otherwise adversely affect the rights of holders of common stock. Miscellaneous One of the provisions of our 1998 bankruptcy reorganization plan is deemed to be an amendment to our restated articles of organization that prohibits us from: issuing non-voting equity securities; creating a class of equity securities having a preference over any other class of equity securities with respect to dividends unless adequate provision is made for the election of directors representing the preferred class in the event of a default in the payment of its dividends; and creating any other class of equity securities unless an appropriate distribution of voting power is made among all such classes. Dividend Policy We have not paid any cash dividends to date, and have no intention to pay any cash dividends on our common stock in the foreseeable future. The declaration and payment of dividends is subject to the discretion of the board of directors and to certain limitations imposed by the Massachusetts Corporation Laws. The timing, amount and form of dividends, if any, will depend, among other things, on our results of operations, financial condition, cash requirements and other factors deemed relevant by our board of directors. Registration Rights Individuals holding warrants to purchase an aggregate of 1,370,103 shares of our common stock have both demand and piggyback registration rights. Our registration rights agreement with the Sovereign Lenders requires us to file a registration statement covering shares of common stock issued or issuable to them pursuant to the Sovereign Bridge Financing, including 41 their assignees and transferees, within 60 days following the completion of that financing. Moreover, the Sovereign Lenders have the right to include shares of common stock issued or issuable to them pursuant to the Sovereign Bridge Financing, including their assignees and transferees, in registration statements that we file. Further, the Sovereign Lenders may require that we register their shares of common stock in any registration statements that we file to sell shares for our own account or the account of others. We are obligated to pay the costs for the exercise of the Sovereign Lenders' registration rights including their legal fees and disbursements. The Sovereign Lenders have waived our failure to file a registration statement covering the shares of common stock issuable to them in accordance with the time periods described in the registration rights agreement. Our registration rights agreement with Thumberland provides that we will file a registration statement covering shares of our common stock issuable to Thumberland under the common stock purchase agreement and upon the exercise of the stock purchase warrant issued to Thumberland on or before August 28, 2000. We are obligated to pay the costs associated with the filing of the registration statement and related costs associated with the registration of the shares of common stock issuable to Thumberland. Indemnification Provisions Our by-laws, as amended, reflect the adoption of the provisions of the Massachusetts General Laws, Chapter 156B, Section 67 which empowers a Massachusetts corporation to indemnify any person in connection with any action, suit or proceeding brought or threatened by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or was serving as such with respect to another corporation or other entity at the request of such corporation, unless such person shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that such action was in the best interests of the corporation. Our by-laws, as amended, also provide that we will indemnify any person, who was or is a party to a proceeding by reason of the fact that he is or was one of our directors or officers, or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with such proceeding if he acted in good faith and in a manner he reasonably believed to be or not opposed to our best interests, in accordance with, and to the full extent permitted by, the Massachusetts General Corporation Law. Transfer Agent and Registrar The transfer agent for our common stock is American Stock Transfer and Trust Company New York, New York. 42 SOVEREIGN BRIDGE FINANCING In January and February, 2000, we borrowed a total of $2 million from the Sovereign Lenders which was arranged for us with the assistance of Sovereign Capital. We entered into a series 1 bridge note purchase agreement and other related agreements with the Sovereign Lenders pursuant to which we issued the Sovereign Lenders: series 1 bridge financing notes that are convertible into up to a total of 649,958 shares of our common stock, which number includes shares issuable upon conversion of accrued interest and premium amounts due under the notes; repricing warrants that are attached to each series 1 bridge financing note which may be exercisable for up to a total of 956,103 shares of our common stock; and common stock purchase warrants that are exercisable for up to a total of 300,000 shares of our common stock. The series 1 bridge financing notes mature on August 15, 2000 and September 6, 2000. Prior to the maturity dates, we have the choice of redeeming the bridge notes for cash or exchanging the notes for shares of our common stock, plus a premium in excess of the original principal amount we borrowed and accrued interest on the bridge notes. At the time the registration statement of which this prospectus is a part becomes effective, we anticipate the applicable premium to be either 20% or 25% of the original principal amount of the bridge notes. If we fail to redeem the bridge notes at or before maturity, then the Sovereign Lenders have the choice to accept cash or shares of our common stock to satisfy our obligations. If we fail to redeem the bridge notes at or before maturity, in addition to the original amount we borrowed and accrued interest, we will have to pay a premium equal to 25% of the original principal amount of the notes. We have had preliminary discussions with representatives of the Sovereign Lenders requesting that the Sovereign Lenders postpone the maturity date of the series 1 bridge financing notes. However, we are unable to assure you that the Sovereign Lenders will agree to postpone the maturity date of the bridge notes. If we fail to redeem the bridge notes at or before maturity, in addition to the original amount we borrowed and accrued interest, we will have to pay a premium equal to 25% of the original principal amount of the notes. The series 1 bridge financing notes bear interest at 8% per annum. If we fail to redeem the bridge notes at or before maturity, then interest will accrue at a rate of 12% per annum after maturity until the notes are paid in full. We anticipate that accrued interest on the bridge notes at redemption will not exceed $150,000. In connection with the Sovereign Bridge Financing, attached to each series 1 bridge note is a repricing warrant. If, during the 90 days after a bridge note is converted into shares of our common stock (the "repricing period"), a Sovereign Lender sells any shares it receives from conversion of the bridge note and fails to realize a gain of at least 20% above the applicable conversion price of the bridge note, then that Lender may exercise the repricing warrant on the 91st day after conversion of the bridge note. The number of shares that a Sovereign Lender may acquire by exercise of a repricing warrant is equal to the number of shares sold for less than a 20% gain during the repricing period, multiplied by a fraction. The numerator of the fraction is the difference between the conversion price of the bridge note and the average market price of our common stock during the repricing period. The denominator of the fraction is the average market price of our common stock during the repricing period. The lowest average market price that may be used in calculating the fraction is $1.65 per share, unless our revenues decline by more than 10% in any two consecutive quarters beginning with the fourth quarter of our fiscal year ended December 31, 1999, in which case the lowest possible price in the fraction would be equal to the lesser of (a) $1.65 or (b) the average closing bid price of our common stock during the 30 day period immediately prior to the maturity date of the bridge notes. The Sovereign Lenders may not exercise the repricing warrants to acquire shares of our common stock if: we redeem the bridge notes in cash; the average market price of our common stock during the repricing period is equal to or greater than the conversion price of the bridge notes; 43 the Sovereign Lenders do not sell any shares of common stock received upon conversion of the bridge notes during the repricing period; or the Sovereign Lenders sell shares of common stock received upon conversion of the bridge notes during the repricing period and realize a gain of 20% or greater. However, if the average market price of our common stock is less than the conversion price of the bridge notes and the Sovereign Lenders do not realize a 20% gain from the sale during the repricing period of shares received from conversion of the bridge notes, then they are entitled to acquire, depending upon the number of shares sold during the repricing period and the average market price of our common stock during that period, a maximum of up to 956,103 shares by exercise of the repricing warrants. The exercise price of the repricing warrants is $0.10 per share. We also issued the Sovereign Lenders common stock purchase warrants exercisable for up to a total of 300,000 shares of our common stock. The exercise price of these common stock purchase warrants is $4.19 per share for warrants exercisable for up to 262,500 shares and $7.01 per share for warrants exercisable for up to 37,500 shares. These common stock purchase warrants expire on January 18, 2005 for warrants exercisable for up to 262,500 shares and on February 9, 2005 for warrants exercisable for up to 37,500 shares. Our two largest stockholders, Joseph F. Kruy, our Chairman, President and Chief Executive Officer, and CyberFin Corporation, a corporation wholly owned by Peter J. Kruy, our Executive Vice President, Treasurer and Chief Financial Officer, guaranteed our obligations under the Sovereign Bridge Financing in the event that we fail to fulfill them. The obligations of Joseph Kruy and CyberFin under these guarantees are secured by their pledge to the Sovereign Lenders of a total of 1,709,467 shares of our common stock that they own. In connection with the Sovereign Bridge Financing, we issued Sovereign Capital Advisors, LLC a warrant exercisable for up to 100,000 shares of our common stock. In addition to a series 1 bridge note purchase agreement, which contains representations, warranties, covenants and other provisions typical for this type of transaction, we entered into a registration rights agreement with the Sovereign Lenders. Under this registration rights agreement, we agreed to register the number of shares of our common stock into which the series 1 bridge financing notes are convertible and for which the repricing warrants and other warrants are exercisable within 60 days of issuing the bridge notes. The Sovereign Lenders have waived their rights resulting from our failure to register shares of our common stock issuable to them within 60 days after issuance of the bridge notes with the understanding that we would to register those shares pursuant to the registration statement of which this prospectus is a part. 44 THUMBERLAND COMMON STOCK PURCHASE AGREEMENT Overview We signed a common stock purchase agreement with Thumberland Limited, a British Virgin Islands corporation, on July 14, 2000, for the future issuance and purchase of shares of our common stock. The transaction closed on July 20, 2000. The common stock purchase agreement establishes what is often referred to as a structured equity line or an equity drawdown facility. In general, the drawdown facility operates as follows: the investor, Thumberland, has committed to provide us up to $10 million as we request it over an 18 month period, in return for common stock we issue to Thumberland. Once every 22 trading days, we may request a draw of up to $1 million of that money (except that our initial drawdown may be for up to $2 million), subject to a maximum of 18 draws. The maximum amount we actually can drawdown upon each request will be determined by the volume- weighted average daily price of our common stock for the 22 trading days prior to our request and the average trading volume for the 45 trading days prior to our request. Each draw down must be for at least $250,000. At the end of a 22-day trading period following the drawdown request, the actual drawdown amount principally is determined based on the volume-weighted average stock price during that 22-day period. We then use the formulas in the common stock purchase agreement to determine the number of shares we will issue to Thumberland in return for that money. We may make up to a maximum of 18 draws; however, the aggregate total of all draws cannot exceed $10 million and no single draw can exceed $1 million, except that our first draw may not exceed $2 million. We are under no obligation to request a draw for any period. The per share dollar amount Thumberland pays for our common stock for each drawdown includes a 7% discount to the average daily market price of our common stock for the 22-day period after our drawdown request, weighted by trading volume. We will receive the amount of the drawdown less an escrow agent fee equal to $1,500 per drawdown, and a 5% placement fee payable to the placement agent, Ladenburg Thalmann, which introduced Thumberland to us. Ladenburg Thalmann is not obligated to purchase any of our shares, but as additional placement agent compensation, we have issued to Ladenburg Thalmann a stock purchase warrant to purchase up to 195,771 shares of our common stock at an exercise price of $2.9376 per share, which is equal to 115% of the volume-weighted average share price for the five trading days prior to July 20, 2000. The warrant expires on July 20, 2003. The shares of common stock issuable upon exercise of that stock purchase warrant are included in the registration statement of which this prospectus is a part. In lieu of providing Thumberland with a minimum aggregate drawdown commitment, we have issued to Thumberland a stock purchase warrant to purchase up to 195,771 shares of our common stock with an exercise price of $2.9376 per share, which is equal to 115% of the volume- weighted average share price for the five trading days prior to the closing date. The warrant expires July 20, 2003. The number of shares registered under the registration statement of which this prospectus is a part may limit the proceeds we receive under the common stock purchase agreement. Moreover, the proceeds we receive could be further limited by a provision of the common stock purchase agreement that prevents us from issuing shares to Thumberland to the extent Thumberland would beneficially own more than 9.9% of our then outstanding common stock. Any resales of shares by Thumberland under this prospectus would reduce the number of shares beneficially owned by Thumberland, and would enable us to issue additional shares to Thumberland without violating this condition. The Drawdown Procedure and the Stock Purchases We may request a drawdown by faxing a drawdown notice to Thumberland, stating the amount of the drawdown we wish to exercise and the minimum threshold price, if any, at which we are willing to sell the shares. We will set the threshold price by determining the price below which we are unwilling to sell shares of our common stock. 45 Amount of the Draw Except for the initial drawdown which may not exceed $2 million, no draw may exceed the lesser of $1 million and the capped amount that is derived from the following formula: Average daily trading volume for the 45 trading days immediately prior to the date we give notice of the drawdown, multiplied by 22; multiplied by The average of the volume-weighted average daily prices for the 22 trading days immediately prior to the date we give notice of the drawdown; multiplied by 20%. The lesser of our draw request and the capped amount is reduced by 1/22 for every day in the 22 trading days after our drawdown request that the volume-weighted average daily price for a trading day is below the threshold price set by us in the request. If the daily price for a day is below the threshold price we will not issue any shares and Thumberland will not purchase any shares for that day. Thus, if we set a threshold price too high and our stock price does not consistently meet that level during the 22 trading days after our drawdown request, the amount we can draw and the number of shares we can sell to Thumberland will be reduced. However, if we set a threshold price too low and our stock price falls significantly but stays above the threshold price, we will be able to draw the lesser of our draw request and the capped amount, but we will have to issue a greater number of shares to Thumberland at a reduced price. We cannot make another drawdown request until expiration of the 22 trading days that follow a drawdown request we have already made. Number of Shares The 22 trading days immediately following the drawdown notice are also used to determine the number of shares we will issue in return for the money provided by Thumberland, and thus the price per share Thumberland will pay for our shares. To determine the number of shares of common stock we must issue in connection with a drawdown, take 1/22 of the drawdown amount determined by the formulas above, and for each of the 22 trading days immediately following the date we give notice of the drawdown, divide it by 93% of the volume-weighted average daily trading price of our common stock for that day. The 93% accounts for Thumberland's 7% discount. The sum of these 22 daily calculations produces the number of common shares we will issue, unless the volume-weighted average daily price for any given trading day is below the threshold amount, in which case that day is ignored in the calculation. The price per share Thumberland ultimately pays is determined by dividing the final drawdown amount by the number of shares we issue Thumberland. Sample Calculation of Stock Purchases The following is an example of the calculation of the drawdown amount and the number of shares we would issue to Thumberland in connection with that drawdown based on hypothetical assumptions. Sample drawdown amount calculation. We provide a drawdown request notice to Thumberland. Suppose that we specify in our drawdown notice a threshold price of $1.75 per share, below which we will not sell any shares to Thumberland during this drawdown period. Suppose further the average daily trading volume for the 45 trading days prior to our drawdown notice is 40,000 shares and that the average of the volume-weighted average daily prices of our common stock for the 22 trading days prior to the notice is $2.00. You can apply the formula to these hypothetical numbers as follows: the average trading volume for the 45 trading days prior to our drawdown notice (40,000) multiplied by 22, equals 880,000 multiplied by 46 the average of the volume-weighted average daily prices of our common stock for the 22 trading days prior to the notice ($2.00) multiplied by 20%. The maximum amount we can draw down under the formula is therefore capped at $352,000, subject to further adjustments if the volume- weighted average daily price of our common stock for any of the 22 trading days following the drawdown notice is below the threshold price we set of $1.75 per share. For example, if the volume-weighted average daily per share price of our common stock is below $1.75 on one of those 22 days, the $352,000 would be reduced by 1/22 for each of those days and our draw down amount would be 21/22 of $352,000, or $336,000. Sample Calculation of Number of Shares Assume that we have made a drawdown request with a threshold price of $1.75 per share. Assume the maximum amount we can draw down is capped at $352,000 based on the formula above. Also, assume that the volume-weighted average daily price for our common stock is as set forth in the table below. The number of shares to be issued based on any trading day during the drawdown period is calculated from the formula: 1/22 of the drawdown amount of $352,000, divided by 93% of the volume weighted average daily price. For example, for the first trading day in the example in the table below, the calculation is as follows: 1/22 of $352,000 is $16,000. Divide $16,000 by 93% of the volume-weighed average daily price for that day of $2.00 per share, to get 8,602 shares. Perform this calculation for each of the 22 measuring days, excluding any days on which the volume-weighted average daily price is below the $1.75 threshold price, and add the results to determine the number of shares to be issued. In the table below, there is one day which must be excluded: day 8. 47 After excluding the day that is below the threshold price, the amount of our drawdown in this example would be $336,000, and the total number of shares we would issue to Thumberland for this drawdown request would be 137,702, as long as those shares would not cause Thumberland to beneficially own more than 9.9% of our then outstanding common stock. Thumberland would pay $2.44 per share for these shares. Trading Day Volume-Weighted Average 1/22 of Requested Number of Shares of Daily Stock Price* Draw Down Amount Common Stock to be Issued for the Trading Day 1 $2.563 $16,000.00 6,713 2 2.625 16,000.00 6,554 3 1.750 16,000.00 9,831 4 1.844 16,000.00 9,330 5 1.840 16,000.00 9,350 6 2.000 16,000.00 8,602 7 1.844 16,000.00 9,330 8 1.563 ** ** 9 1.875 16,000.00 9,176 10 2.469 16,000.00 6,968 11 2.688 16,000.00 6,400 12 2.750 16,000.00 6,256 13 3.000 16,000.00 5,735 14 3.313 16,000.00 5,193 15 3.375 16,000.00 5,098 16 3.531 16,000.00 4,872 17 3.500 16,000.00 4,916 18 3.563 16,000.00 4,829 19 3.688 16,000.00 4,665 20 3.750 16,000.00 4,588 21 3.781 16,000.00 4,550 22 3.625 16,000.00 4,746 Total $336,000.00 137,702 * The share prices are illustrative only and should not be interpreted as a forecast of share prices or the expected or historical volatility of the share prices of our common stock. ** Excluded because the volume-weighted average daily price is below the threshold specified in our hypothetical draw down notice. We would receive the amount of our drawdown ($336,000) less a 5% cash fee paid to the placement agent of $16,800, less a $1,500 escrow fee, for net proceeds to us of $317,700. The delivery of the requisite number of shares and payment of the draw will take place through an escrow agent, Epstein, Becker & Green, P.C. of New York, New York. The escrow agent pays 95% of the draw to us-after subtracting its escrow fee-and 5% to Ladenburg Thalmann & Co. Inc., our placement agent, in satisfaction of placement agent fees. 48 Necessary Conditions Before Thumberland is Obligated to Purchase our Shares The following conditions must be satisfied before Thumberland is obligated to purchase the common shares that we wish to sell from time to time: A registration statement for the shares must be declared effective by the Securities and Exchange Commission and must remain effective and available as of the draw down settlement date for making resales of the common shares purchased by Thumberland; There can be no material adverse change in our business, operations, properties, prospects or financial condition; We must not have merged or consolidated with or into another company or transferred all or substantially all of our assets to another company, unless the acquiring company has agreed to honor the common stock purchase agreement; No statute, rule, regulation, executive order, decree, ruling or injunction may be in effect which prohibits consummation of the transactions contemplated by the common stock purchase agreement; No litigation or proceeding nor any investigation by any governmental authority can be pending or threatened against us or Thumberland seeking to restrain, prevent or change the transactions contemplated by the stock purchase agreement or seeking damages in connection with such transactions; and Trading in our common shares must not have been suspended by the Securities and Exchange Commission or The OTC Bulletin Board, nor shall minimum prices have been established on securities whose trades are reported by The OTC Bulletin Board. On each drawdown settlement date for the sale of common shares, we must deliver an opinion from our counsel about these matters. Restrictions on Future Financings The common stock purchase agreement provides that we must pay Thumberland a $100,000 fee before we may raise money by selling our securities for cash at a discount to the market price until the earlier of 18 months from the effective date of the registration statement of which this prospectus is a part or the date which is 60 days after Thumberland has purchased the maximum of $10 million worth of common stock from us under the common stock purchase agreement. There are exceptions to this liquidated damages payment for securities that we may sell under the following circumstances: in a registered public offering which is underwritten by one or more established investment banks; in one or more private placements where the purchasers do not have registration rights; pursuant to any presently existing or future employee benefit plan which plan has been or is approved by the our stockholders; pursuant to any compensatory plan for a full-time employee or key consultant; in connection with a strategic partnership or other business transaction, the principal purpose of which is not simply to raise money; and a transaction to which Thumberland gives its written approval. Costs of Closing the Transaction At the closing of the transaction on July 20, 2000, we delivered the requisite opinion of counsel to Thumberland and paid the escrow agent, Epstein Becker & Green P.C., $10,000 for Thumberland's legal, administrative and escrow costs. We paid Ladenburg Thalmann & Co. Inc. an additional $7,500 for its expenses. Ladenburg Thalmann also received a stock purchase warrant exercisable for up to 195,771 shares of our common stock with an exercise price equal to 115% of the volume-weighted average price of our common stock on the five trading days prior to July 20, 2000 or $2.9376. We are also obligated to pay a fee of $17,500 to Ladenburg upon our initial draw. Ladenburg Thalmann is not obligated to purchase any of our shares pursuant to the warrant. 49 Termination of the Stock Purchase Agreement Thumberland may terminate the equity draw down facility under the common stock purchase agreement if any of the following events occur: our common shares are delisted from The OTC Bulletin Board unless such delisting is in connection with the listing of such shares on another stock exchange in the United States; or we file for protection from creditors. We may terminate the common stock purchase agreement if Thumberland fails to fund more than one drawdown within three trading days of the date payment for such drawdown is due. If Thumberland fails to fund more than one drawdown, each of the stock purchase warrants issued to Thumberland and Ladenburg Thalmann will be cancelled except as to ten percent of the shares covered by the stock purchase warrant and any warrant shares previously purchased under the warrant. This cancellation does not apply to the shares of common stock already purchased through the exercise of the warrants prior to Thumberland's failure to timely fund more than one drawdown. Indemnification of Thumberland Thumberland is entitled to customary indemnification from us for any losses or liabilities suffered by it based upon material misstatements or omissions from the registration statement and the prospectus, except as they relate to information supplied by Thumberland to us for inclusion in the registration statement and prospectus. 50 SELLING SECURITYHOLDERS Overview Shares of our common stock registered for resale under this prospectus constitute 50.8% of our issued and outstanding common shares as of May 31, 2000. The number of shares we are registering is based in part on: our good faith estimate of the maximum number of shares we will issue to Thumberland under the common stock purchase agreement; and the decision to register the maximum number of shares issuable through exercise of the attached repricing warrants held by the Sovereign Lenders. Accordingly, the number of shares we are registering for issuance under the common stock purchase agreement and for exercise of the repricing warrants, may be higher than the number we actually issue under the common stock purchase agreement. Thumberland Limited Thumberland Limited is engaged in the business of investing in publicly traded equity securities for its own account. Thumberland's principal offices are located at c/o Dr. Batliner & Partner, Aeulestrasse 74, FL-9490 Vaduz, Liechtenstein. Investment decisions for Thumberland are made by its board of directors. Other than the stock purchase warrant we issued to Thumberland in connection with closing the common stock purchase agreement, Thumberland does not currently own any of our securities as of the date of this prospectus. Other than its obligation to purchase shares of our common stock under the common stock purchase agreement, it has no other commitments or arrangements to purchase or sell any of our securities. There are no business relationships between Thumberland and Cambex other than the common stock purchase agreement. Ladenburg Thalmann & Co. Inc. Ladenburg Thalmann & Co. Inc. has acted as placement agent in connection with the common stock purchase agreement. Ladenburg Thalmann introduced us to Thumberland and assisted us with structuring the equity drawdown facility with Thumberland. Ladenburg Thalmann's duties as placement agent were undertaken on a reasonable best efforts basis only. It made no commitment to purchase shares from us and did not ensure us of the successful placement of any securities. This prospectus covers 195,771 shares of common stock issuable upon exercise of a stock purchase warrant we issued to Ladenburg Thalmann as placement compensation for introducing us to Thumberland. That warrant is exercisable at $2.9376 per share and expires on July 20, 2003. The decision to exercise the warrant issued, and the decision to sell the common stock issuable through the exercise of the warrant, will be made by Ladenburg Thalmann's officers and board of directors. Other than the warrant, Ladenburg Thalmann does not currently own any of our securities as of the date of this prospectus. Our engagement agreement with Ladenburg Thalmann provides Ladenburg Thalmann with a right of first refusal for one year after completion of the offering under the common stock purchase agreement, as underwriter or placement agent, of all of our financing arrangements at terms no less favorable than we could obtain in the market. Sovereign Lenders Of the 4,897,603 shares we are registering, 1,906,061 shares are being registered and may be offered for sale from time to time during the period the registration statement remains effective, by or for the accounts of the Sovereign Lenders. The Sovereign Lenders currently hold series 1 bridge financing notes that are convertible into shares of our common stock, together with repricing warrants attached to the bridge notes that may be exercisable for shares of our common stock. The Sovereign Lenders also hold common stock purchase warrants for shares of our common stock. Our securities now held by the Sovereign Lenders were acquired from us in a private placement pursuant to a series 1 bridge note purchase agreement. Certain of the shares of common stock being registered for resale will be issued upon exercise of warrants. 51 Based on information provided to us by each of the Sovereign Lenders, the following table shows, as of May 31, 2000: The number of shares and the percentage each Sovereign Lender beneficially owns before the effectiveness of the registration statement of which this prospectus is a part, based on our common stock outstanding on May 31, 2000 (which amount includes the maximum number of shares that the Sovereign Lenders may acquire as a result of the exercise of attached repricing warrants); The number of shares of common stock each Sovereign Lender may resell under this prospectus; and Assuming each Sovereign Lender sells all the shares it is entitled to sell under this prospectus, the number of shares of common stock and the percentage each Sovereign Lender will beneficially own after the effectiveness of the registration statement of which this prospectus is a part, based on our common stock outstanding on May 31, 2000 and the issuance of shares included in this prospectus. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, is not necessarily indicative of beneficial ownership for any other purpose, and generally includes voting or investment power with respect to securities. Except as indicated, we believe each person possesses sole voting and investment power with respect to all of the shares of common stock owned by such person, subject to community property laws where applicable. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock issuable upon the exercise of options or warrants held by that person that are currently exercisable or exercisable within 60 days following May 31, 2000 (July 31, 2000) are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Shares of Common Stock Shares of Common Beneficially Owned Before Stock to be Beneficially Offering Under this Owned After Ofeering Prospectus Under this Prospectus(1) Name Number Percentage Shares to Number Percentage be Offered SovCap Equity Partners, Ltd. 1,524,848(2) 15.8% 1,524,848 0 0% Correllus International Ltd. 238,258(3) 2.5 238,258 0 0 Arab Commerce Bank, Ltd. 142,955(4) 1.5 142,955 0 0 - ----------------------------------- (1) Assumes the sale of all shares of our common stock that the selling security holder may sell under this prospectus. (2) Consists of a total of 519,966 shares issuable upon the exercise of two series 1 bridge financing notes, a total of 764,882 shares issuable upon exercise of two attached repricing warrants and a total of 240,000 shares issuable upon exercise of two common stock purchase warrants. (3) Consists of 81,245 shares issuable upon the exercise of a series 1 bridge financing note, 119,513 shares issuable upon exercise of an attached repricing warrant and 37,500 shares issuable upon exercise of a common stock purchase warrant. (4) Consists of 48,747 shares issuable upon the exercise of a series 1 bridge financing note, 71,708 shares issuable upon exercise of an attached repricing warrant and 22,500 shares issuable upon exercise of a common stock purchase warrant. The selling securityholders have not held any positions or offices or had material relationships with us or any of our affiliates within the past three years other than as a result of the ownership of our common stock. 52 PLAN OF DISTRIBUTION General Thumberland is offering the shares of common stock for its account as statutory underwriter, and not for our account. We will not receive any proceeds from the sale of common shares by Thumberland. Thumberland may be offering for sale up to 2,600,000 shares of common stock acquired by it pursuant to the terms of the stock purchase agreement more fully described under the section above entitled "Thumberland Common Stock Purchase Agreement" and the stock purchase warrant we issued to it in connection with the transaction. Thumberland has agreed to be named as a statutory underwriter within the meaning of the Securities Act of 1933, as amended, in connection with such sales of common stock and will be acting as an underwriter in its resales of the shares of common stock under this prospectus. Thumberland has, prior to any sales, agreed not to effect any offers or sales of the common shares in any manner other than as specified in the prospectus and not to purchase or induce others to purchase shares of common stock in violation of any applicable state and federal securities laws, rules and regulations and the rules and regulations of The National Association of Securities Dealers. To permit Thumberland to resell the common shares issued to it under the stock purchase agreement, we agreed to register those shares and to maintain that registration. To that end, we have agreed with Thumberland that we will prepare and file such amendments and supplements to the registration statement and the prospectus as may be necessary in accordance with the Securities Act and the rules and regulations promulgated thereunder, to keep it effective until the earliest of any of the following dates: the date after which all of the shares of common stock held by Thumberland or its transferees that are covered by the registration statement of which this prospectus is a part have been sold under the provisions of Rule 144 under the Securities Act; the date after which all of the shares of common stock held by Thumberland or its transferees that are covered by the registration statement have been transferred to persons who may trade such shares without restriction under the Securities Act and we have delivered new certificates or other evidences of ownership of such common shares without any restrictive legend; the date after which all of the shares of common stock held by Thumberland or its transferees that are covered by the registration statement have been sold by Thumberland or its transferees pursuant to such registration statement; the date after which all of the shares of common stock held by Thumberland or its transferees that are covered by the registration statement may be sold, in the opinion of our counsel, under Rule 144 under the Securities Act irrespective of any applicable volume limitations; the date after which all of the shares of common stock held by Thumberland or its transferees that are covered by the registration statement may be sold, in the opinion of our counsel, without any time, volume or manner limitations under Rule 144(k) or similar provision then in effect under the Securities Act; or the date after which none of the shares of common stock held by Thumberland that are covered by the registration statement are or may become issued and outstanding. Shares of common stock offered through this prospectus may be sold from time to time by Thumberland, Ladenburg Thalmann and the Sovereign Lenders or by pledgees, donees, transferees or other successors in interest to the Sovereign Lenders. We will supplement this prospectus to disclose the names of any pledgees, donees, transferees or other successors in interest that intend to offer common stock through this prospectus. Sales may be made on the OTC Bulletin Board, or otherwise at prices and at terms then prevailing or at prices related to the then current market price, or in negotiated private transactions, or in a combination of these methods. The selling securityholders will act independently of us in making decisions with respect to the form, timing, manner and size of each sale. We have been informed by the selling securityholders that there are no existing arrangements between any selling stockholder and any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of shares of common stock which may be sold by selling securityholders through this prospectus. Selling securityholders may be deemed underwriters in connection with resales of their shares. 53 The shares of common stock may be sold in one or more of the following manners: a block trade in which the broker or dealer so engaged will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; purchases by a broker or dealer for its account under this prospectus; or ordinary brokerage transactions and transactions in which the broker solicits purchases. In effecting sales, brokers or dealers engaged by the selling securityholders may arrange for other brokers or dealers to participate. Except as disclosed in a supplement to this prospectus, no broker-dealer will be paid more than a customary brokerage commission in connection with any sale of shares of common stock by the selling securityholders. Brokers or dealers may receive commissions, discounts or other concessions from the selling securityholders in amounts to be negotiated immediately prior to the sale. The compensation to a particular broker-dealer may be in excess of customary commissions. Profits on any resale of shares of common stock as a principal by such broker-dealers and any commissions received by such broker-dealers may be deemed to be underwriting discounts and commissions under the Securities Act of 1933, as amended. Any broker-dealer participating in such transactions as agent may receive commissions from the selling securityholders (and, if they act as agent for the purchaser of shares of common stock, from such purchaser). Broker-dealers may agree with the selling securityholders to sell a specified number of shares of common stock at a stipulated price per share, and, to the extent a broker dealer is unable to do so acting as agent for the selling securityholders, to purchase as principal any unsold shares of common stock at a price required to fulfill the broker-dealer commitment to the selling securityholders. Broker-dealers who acquire shares of common stock as principal may thereafter resell such shares from time to time in transactions (which may involve crosses and block transactions and which may involve sales to and through other broker-dealers, including transactions of the nature described above) in the over-the-counter market, in negotiated transactions or otherwise at market prices prevailing at the time of sale or at negotiated prices, and in connection with such resales may pay to or receive from the purchasers of such shares commissions computed as described above. Brokers or dealers who acquire shares of common stock as principal and any other participating brokers or dealers may be deemed to be underwriters in connection with resales of the shares. In addition, any shares of common stock covered by this prospectus which qualify for sale pursuant to Rule 144, may be sold under Rule 144 rather than pursuant to this prospectus. We will not receive any of the proceeds from the sale of these shares, although we have paid the expenses of preparing this prospectus and the related registration statement of which it is a part, and have reimbursed Thumberland $10,000 for its legal, administrative and escrow costs. Thumberland and each of the other selling securityholders are subject to the applicable provisions of the 1934 Securities Exchange Act, including without limitation, Rule 10b-5 thereunder. Under applicable rules and regulations under the Exchange Act, any person engaged in a distribution of shares of common stock may not simultaneously engage in market making activities with respect to such securities for a period beginning when such person becomes a distribution participant and ending upon such person's completion of participation in a distribution, including stabilization activities in the shares to effect covering transactions, to impose penalty bids or to effect passive market making bids. In addition, in connection with the transactions involving shares of common stock, Thumberland, each of the Sovereign Lenders, and the Company will be subject to applicable provisions of the Exchange Act and the rules and regulations under that Act, including, without limitation, the rules set forth above. These restrictions may affect the marketability of the shares. The selling securityholders will pay all commissions and their own expenses, if any, associated with the sale of shares of the common stock, other than the expenses associated with preparing this prospectus and the registration statement of which it is a part. The price at which we will issue the common shares to Thumberland under the stock purchase agreement will be 93% of the volume-weighted average daily price traded on the OTC Bulletin Board, for each day in the pricing period with respect to each drawdown request. Assuming we receive $5,755,000 of financing available under the stock purchase agreement using 18 drawdowns, and assuming we issue 2,414,917 shares registered for 54 issuance under the common stock purchase agreement, we will pay underwriting compensation to and expenses for Thumberland, and other offering expenses, as follows: Underwriting Compensation and Expenses Per Share Total Discount to Thumberland (a) $0.179375 $433,176 Expenses payable on behalf of Thumberland: Escrow Fees 0.011181 27,000 Legal fees of Thumberland 0.004141 10,000 Estimated offering expenses: Placement agent fees (b) 0.129509 312,753 SEC filing fee 0.001668 4,029 Accountants' fees and expenses 0.000580 1,400 Legal fees and expenses 0.041409 100,000 Total 0.367863888,358 (a) We also issued to Thumberland a stock purchase warrant to purchase 195,771 shares of our common stock at $ 2.9376 per share as consideration for providing the common stock purchase agreement. The closing price of our common stock on July 20, 2000 was $2.969. The warrant expires July 20, 2003. (b) We also issued to the placement agent a stock purchase warrant to purchase 195,771 shares of our common stock at $2.9376 per share as consideration for placement services. The closing price of our common stock on July 20, 2000 was $2.969 per share. The warrant expires on July 20, 2003. Limited Grant of Registration Rights We granted registration rights to Thumberland to enable it to sell the common stock it purchases under the common stock purchase agreement. In connection with any such registration, we will have no obligation: to assist or cooperate with Thumberland in the offering or disposition of such shares; to indemnify or hold harmless the holders of any such shares (other than Thumberland) or any underwriter designated by such holders; to obtain a commitment from an underwriter relative to the sale of any such shares; or to include such shares within any underwritten offering we do. We will assume no obligation or responsibility whatsoever to determine a method of disposition for such shares or to otherwise include such shares within the confines of any registered offering other than the registration statement of which this prospectus is a part. We will use our best efforts to file, during any period during which we are required to do so under our registration rights agreement with Thumberland, one or more post-effective amendments to the registration statement of which this prospectus is a part to describe any material information with respect to the plan of distribution not previously disclosed in this prospectus or any material change to such information in this prospectus. This obligation may include, to the extent required under the Securities Act of 1933, as amended, that a supplemental prospectus be filed, disclosing: the name of any broker-dealers; the number of common shares involved; the price at which the common shares are to be sold; the commissions paid or discounts or concessions allowed to broker- dealers, where applicable; that broker-dealers did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, as supplemented; and any other facts material to the transaction. 55 Our registration rights agreement with Thumberland permits us to restrict the resale of the shares Thumberland has purchased from us under the common stock purchase agreement for a period of time sufficient to permit us to amend or supplement this prospectus to include material information. If we restrict Thumberland for more than 30 consecutive days and our stock price declines during the restriction period, we are required to pay to Thumberland cash to compensate Thumberland for its inability to sell shares during the restriction period. The amount we would be required to pay would be the difference between our stock price on the first day of the restriction period and the last day of the restriction period, for each share held by Thumberland during the restriction period that has been purchased under the common stock purchase agreement. LEGAL MATTERS Certain legal matters in connection with the securities offered hereby will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts. EXPERTS The financial statements of the Company appearing in this prospectus have been audited by Belanger & Company, P.C., independent certified public accountants, to the extent and for the periods set forth in their report appearing elsewhere herein, and are included in reliance upon such report given upon the authority of said firm as experts in accounting and auditing. 56 CAMBEX CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Independent Auditors' Report F-2 Consolidated Balance Sheets at December 31, 1998, December 31, 1999 and April 1, 2000 (unaudited) F-3 Consolidated Statements of Operations for the Years Ended December 31, 1998 and December 31, 1999 and for the three months ended April 3, 1999 and April 1, 2000 (unaudited) F-5 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998 and December 31, 1999 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and December 31, 1999 and for the three months ended April 3, 1999 and April 1, 2000 (unaudited) F-7 Notes to Consolidated Financial Statements F-9 F-1 Independent Auditors' Report To The Stockholders of Cambex Corporation: We have audited the accompanying consolidated balance sheets of Cambex Corporation (a Massachusetts corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' investment and cash flows for the years ended December 31, 1999, 1998 and 1997. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We have 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 financial statements referred to above present fairly, in all material respects, the financial position of Cambex Corporation and subsidiaries as of December 31, 1999, and 1998 and the results of their operations and their cash flows for the years ended December 31, 1999, 1998 and 1997 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of the financial statements is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. BELANGER & COMPANY, P.C. CERTIFIED PUBLIC ACCOUNTANTS Chelmsford, Massachusetts March 29, 2000 F-2 CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS APRIL 1, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998 ASSETS APRIL 1, DECEMBER 31, DECEMBER 31, 200 1999 1998 (unaudited) CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 1,008,108 $ 366,743 $ 211,452 ACCOUNTS RECEIVABLE, Less Reserves of $100,000 in 2000, 1999 and 1998 245,187 202,466 514,335 CURRENT PORTION OF INVESTMENT IN SALES-TYPE LEASES, net of unearned interest income of $400 in 1998 - - 25,820 INVENTORIES 562,223 622,430 303,720 PREPAID EXPENSES 66,180 65,995 72,852 TOTAL CURRENT ASSETS $ 1,881,698 $1,257,634 $1,128,179 PROPERTY AND EQUIPMENT,at cost: MACHINERY AND EQUIPMENT $ 3,052,887 $3,052,887 $3,044,199 FURNITURE AND FIXTURES 162,625 162,625 247,173 LEASEHOLD IMPROVEMENTS 602,092 602,092 602,092 $ 3,817,604 $3,817,604 $3,893,464 LESS-ACCUMULATED DEPRECIATION AND AMORTIZATION 3,659,769 3,639,196 3,585,441 NET PROPERTY AND EQUIPMENT $ 157,835 $ 178,408 $ 308,023 OTHER ASSETS OTHER $ 37,830 $ 37,830 $ 37,830 TOTAL ASSETS $ 2,077,363 $1,473,872 $1,474,032
F-3 CONSOLIDATED BALANCE SHEETS APRIL 1, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998 LIABILITIES AND STOCKHOLDERS' INVESTMENT APRIL 1, DECEMBER 31, DECEMBER 31, 2000 1999 1998 (unaudited) CURRENT LIABILITIES: LOAN AGREEMENT $ - $ 601,029 $ 393,424 NOTES PAYABLE 2,287,940 550,000 - ACCOUNTS PAYABLE 482,953 463,675 408,841 OBLIGATIONS FOR TRADE-IN MEMORY 240,000 286,250 360,250 OTHER LIABILITIES-SHORT TERM PORTION 1,177,421 967,558 1,146,168 ACCRUED EXPENSES 544,607 513,849 394,039 TOTAL CURRENT LIABILITIES $ 4,732,921 $ 3,382,361 $ 2,702,722 LONG TERM DEBT $ 1,273,730 $ 1,273,730 $ 1,063,730 OTHER LIABILITIES-LONG TERM PORTION 1,935,188 2,324,540 3,173,007 DEFERRED REVENUE 100,116 100,116 255,366 STOCKHOLDERS' INVESTMENT: PREFERRED STOCK, $ 1.00 PAR VALUE PER SHARE AUTHORIZED - 3,000,000 SHARES ISSUED - NONE COMMON STOCK, $ .10 PAR VALUE PER SHARE AUTHORIZED - 25,000,000 SHARES ISSUED - 11,169,615 shares in 2000, 11,076,232 shares in 1999, and 11,072,582 shares in 1998 $ 1,116,962 $ 1,107,623 $ 1,107,258 CAPITAL IN EXCESS OF PAR VALUE 15,972,066 15,970,199 15,966,625 ACCUMULATED OTHER COMPREHENSIVE INCOME 101,989 101,989 88,134 RETAINED EARNINGS (DEFICIT) (22,300,843) (21,931,920) (22,028,044) LESS - COST OF SHARES HELD IN TREASURY 1,534,356 in 2000, 1999 and 1998 (854,766) (854,766) (854,766) TOTAL STOCKHOLDERS' INVESTMENT $ (5,964,592) $ (5,606,875)$ (5,720,793) TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 2,077,363 $ 1,473,872 $ 1,474,032
The accompanying notes are an integral part of these consolidated financial statements. F-4 CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1999 AND FOR THE THREE MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000 Three Months Year Ended Three Months Year Ended Ended Ended April 1, December 31, April 3, December 31, 2000 1999 1999 1998 (unaudited) REVENUES $ 655,028 $3,401,733 $1,390,148 $ 3,748,933 COST OF SALES 361,494 1,422,430 624,917 2,967,406 Gross profit $ 293,534 $1,979,303 $ 765,231 $ 781,527 OPERATING EXPENSES: Research and development $ 351,786 $1,096,806 $ 311,728 $ 1,379,094 Selling 201,750 778,839 182,370 1,241,385 General and administrative 123,248 607,408 148,782 760,578 $ 676,784 $2,483,053 $ 642,880 $ 3,381,057 OPERATING INCOME (LOSS) $ (383,250) $ (503,750) $ 122,351 $(2,599,530) OTHER INCOME (EXPENSE): Interest expense (88,079) (173,265) (35,000) (70,000) Interest income - 405 323 3,641 Other income (expense) - 14,827 13,810 (107,288) INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS $ (471,329) $ (661,783) $ 101,484 $(2,773,177) Provision for income taxes - - - - INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS $ (471,329) $ (661,783) $ 101,484 $(2,773,177) Extraordinary Items(Note 15) 102,406 757,907 - - NET INCOME (LOSS) $ (368,923) $ 96,124 $ 101,484 $(2,773,177) OTHER COMPREHENSIVE INCOME, NET OF TAX: Foreign Currency translation Adjustments - 13,855 - 27,378 OTHER COMPREHENSIVE INCOME $ - $ 13,855 $ - $ 27,378 TOTAL COMPREHENSIVE INCOME(LOSS) $ (368,923) $ 109,979 $ 101,484 $(2,745,799) TOTAL COMPREHENSIVE INCOME (LOSS) PER COMMON SHARE $ (0.04) $ 0.01 $ 0.01 $ (0.30) Weighted Average Common Shares Outstanding 9,600,000 9,540,000 9,500,000 9,300,000 Weighted Average Common and Common Equivalent Shares Outstanding 10,390,000 10,390,000 9,500,000 9,300,000
The accompanying notes are an integral part of these consolidated financial statements. F-5 CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT Common Stock Capital in Accumulated Retained Cost of $.10 Excess of Other Earnings Shares Held Par Value Par Value Comprehensive (Deficit) in Treasury Income BALANCE AT DECEMBER 31,1997 $1,063,611 $15,814,783 $ 60,756 $(19,254,867) $(854,766) ADD: Net loss $ - $ - $ - $ (2,773,177) $ - Exercise of employee stock options 600 120 - - - Stock Purchase Plan Shares 5,386 1,077 - - - Issuance of shares pursuant to reorganization plan 37,661 150,645 - - - Translation adjustment - - 27,378 - - BALANCE AT DECEMBER 31,1998 $1,107,258 $15,966,625 $ 88,134 $(22,028,044) $(854,766) ADD: Net income $ - $ - $ - $ 96,124 $ - Exercise of employee stock options 365 74 - - - Issuance of warrants - 3,500 - - - Translation adjustment - - 13,855 - - BALANCE AT DECEMBER 31,1999 $1,107,623 $15,970,199 $ 101,989 $(21,931,920) $(854,766)
The accompanying notes are an integral part of these consolidated financial statements. F-6 CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1999 AND FOR THE THREE MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000 Three Months Year Ended Three Months Year Ended Ended Ended April 1, December 31, April 3, December 31, 2000 1999 1999 1998 (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(368,923) $ 96,124 $ 101,484 $(2,773,177) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation $ 20,573 $ 131,603 $ 32,892 $ 283,243 Provision for losses on accounts receivable - - - - Provision for losses on inventory - - - - Amortization of prepaid expenses 7,210 7,822 8,422 24,892 Common stock/warrants issued in lieu of cash 10,246 - - 194,769 Change in assets and liabilities: Decrease (increase) in accounts receivable (42,721) 311,869 (76,900) 686,008 Decrease(increase) in inventory 60,207 (318,710) (205,961) 1,109,205 Decrease(increase) in investment in sales-type leases - 25,820 15,411 59,299 Decrease(increase) in prepaid expenses(7,395) (965) 4,430 23,439 Decrease in other assets - - - - Increase(decrease) in accounts payable19,278 54,834 56,505 112,422 Increase(decrease) in obligations for trade-in memory (46,250) (74,000) - 360,250 Increase(decrease) in accrued expenses30,758 119,810 1,009 (67,686) Increase(decrease) in deferred revenue - (155,250) - 239,888 Increase(decrease) in other liabilities (179,489) (1,027,077) (37,781) 4,319,175 Increase(decrease) in liabilities subject to compromise - - - (6,325,273) Total adjustments $ (127,583) $ (924,244) $ (201,973) $ 1,019,631 Net cash provided by (used in) operating activities $ (496,506) $ (828,120) $ (100,489) $(1,753,546) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment, net $ - $ (1,988) $ (3,395) $ 3,500 Net cash provided by (used in) investing activities $ - $ (1,988) $ (3,395) $ 3,500
F-7 CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in notes payable $ 1,737,940 $ 760,000 $ - $ 1,063,730 Proceeds from sale of common stock and warrants 960 3,939 - 720 Net borrowings (repayments) under loan agreement (601,029) 207,605 65,445 393,424 Net cash provided by (used in) financing activities $ 1,137,871 $ 971,544 $ 65,445 $ 1,457,874 Effect of exchange rate changes on cash - 13,855 - 27,378 Net increase (decrease) in cash and cash equivalents $ 641,365 $ 155,291 $ (38,439) $ (264,794) Cash and cash equivalents at beginning of period 366,743 211,452 211,452 476,246 Cash and cash equivalents at end of period $ 1,008,108 $ 366,743 $ 173,013 $ 211,452 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 1,618 $ 13,265 $ - $ - Income Taxes - - - -
The accompanying notes are an integral part of these consolidated financial statements. F-8 CAMBEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for the Three Months Ended April 3, 1999 and April 1, 2000 is unaudited) (1) Liquidity As further described in Note 12, from June 1, 1998 through August 18, 1999, the Company borrowed $1,270,000 in cash in exchange for its issuance of 10% Subordinated Convertible Promissory Notes, of which $700,000 was used to pay pre-petition debt and legal and professional fees resulting from the Company voluntarily filing a petition for relief under Chapter 11 of the federal bankruptcy code on October 10, 1997 with the United States Bankruptcy Court in Boston, Massachusetts. The Company's reorganization plan was confirmed by the Court and the Company emerged from Chapter 11 on April 23, 1998. As described in the Company's Reorganization Plan, the success of the Reorganization Plan is dependent upon several factors, including the Company's ability to raise additional capital. Additional financing will be used to fund continuing operations of the Company, particularly in research and development as well as sales and marketing. The Company also has a loan and security agreement under which the Company may borrow up to $650,000 outstanding at any one time. During 1999, the Company borrowed $550,000 in cash from the issuance of notes payable with interest at 12% per annum and maturities of November 2000. The Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. The Company's management believes it has taken the appropriate corrective actions to reduce expenses through consolidation of the workforce and outsourcing certain operations and to increase revenue through the development of new strategic relationships which management believes will lead to sale of a greater volume of products. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. (2) Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of Cambex Corporation and its wholly-owned subsidiaries (the Company). All material intercompany transactions and balances have been eliminated in consolidation. Revenue Recognition The Company manufactures equipment for sale or lease. Revenue from product sales is recognized at the time the hardware and software are shipped. The Company accepts memory in trade as consideration in certain revenue transactions. Revenue is recorded at the net cash received. When the memory is subsequently sold, the amount received is recorded as revenue. Service and other revenues are recognized ratably over the contractual period or as the services are provided. Under certain equipment leases which qualify as sales type leases, the present value of noncancelable payments is currently included in revenues as sales, and all related costs, exclusive of the residual value of the equipment, are currently included in cost of sales. The unearned interest is recognized over the noncancelable term of the lease. The Company has deferred revenue associated with the sale of certain products that have future performance obligations. For equipment leased under operating lease agreements, revenue is recognized over the lease term and the equipment is depreciated over its estimated useful life. License fees are amortized over the useful life of the technologies being licensed. Inventories Inventories, which include materials, labor and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or market and consist of the following: F-9 December 31, 1998 December 31, 1999 April 1, 2000 Raw materials $ 228,524 $ 419,984 $ 358,653 Work-in-process 51,215 78,572 98,085 Finished goods 23,981 123,874 105,485 $ 303,720 $ 622,430 $ 562,223 Property and Equipment The Company provides for depreciation and amortization on a straight-line basis to amortize the cost of property and equipment over their estimated useful lives as follows: Leasehold improvements 2-10 Years Machinery and equipment 3- 8 Years Furniture and fixtures 3- 8 Years Leased equipment 3- 5 Years Maintenance and repair items are charged to expense when incurred; renewals or betterments are capitalized. If property is sold or otherwise disposed of, the Company's policy is to remove the related cost and accumulated depreciation from the accounts and to include any resulting gain or loss in income. Depreciation expense of $131,603, $283,243, and $569,207, was recorded for the periods ended December 31, 1999, December 31, 1998, and December 31, 1997, respectively. Net Income (Loss) Per Common Share On January 1, 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No. 128 replaces the presentation of primary income (loss) per share with a dual presentation of basic income (loss) per share and diluted income (loss) per share for each year for which a statement of operations is presented. Basic income (loss) per share amounts are based on the weighted average number of common shares outstanding during each year. Diluted income (loss) per share amounts are based on the weighted average number of common shares and common share equivalents outstanding during each year to the extent such equivalents have a dilutive effect on the income (loss) per share. For the year ended December 31, 1999, common stock equivalents had no material effect on the computation of earnings per share. For the years ended December 31, 1998 and 1997, common share equivalents were not included in diluted income (loss) per share because the Company incurred a loss for each year. The inclusion of the common stock equivalents would have had an antidilutive effect on the computation of diluted income (loss) per share. Cash and Cash Equivalents Cash and cash equivalents are recorded at cost which approximates market value. Cash equivalents include certificates of deposit, government securities and money market instruments purchased with maturities of less than three months. F-10 Stock Options and Employee Stock Purchase Plan Proceeds from the sale of newly issued stock to employees under the Company's stock option plans and Employee Stock Purchase Plan are credited to common stock to the extent of par value and the excess to capital in excess of par value. Income tax benefits attributable to stock options are credited to capital in excess of par value. Disclosures about the Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash, cash equivalents, accounts receivable, investment in sales-type leases, property held for sale, accounts payable, notes payable, and a revolving credit agreement. The carrying amounts of these financial instruments approximate their fair value due to the short-term nature of these instruments, except for the following. Under the reorganization plan described in Note 1 to the financial statements, other liabilities of approximately $4,300,000 are expected to be paid over a 30 month period which commenced in October 1998, without interest. Accordingly, the net present value of these payments approximate $2,200,000 at December 31, 1999 assuming an interest rate of 8.50%, $3,800,000 at December 31, 1998 assuming an interest rate of 7.44% and $4,000,000 at December 31, 1997 assuming an interest rate of 9%. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of income and expenses during the reporting periods. Actual results could differ from those estimates. Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of On January 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of". SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The statement also requires that certain long-lived assets and identifiable intangibles to be disposed of be reported at the lower of the carrying amount or fair value less cost to sell. Based on its review, the Company does not believe that any material impairment of its long-lived assets has occurred. The Company's review was based on the assumption that the Company continues as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the company be unable to continue as a going concern. Comprehensive Income On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." This statement requires that changes in stockholders' equity from transactions and events other than those resulting from investments by and distributions to stockholders be reflected in comprehensive income or loss. All prior year financial statements have been reclassified to comply with this statement. Segment Reporting SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," became effective for periods beginning after December 31, 1997. This statement requires the presentment of information about the identifiable components comprising an enterprise's business activities. The Company has determined that there are no separately reportable operating segments and, therefore, does not present separate reporting segments in the financial statements. F-11 Stock-Based Compensation SFAS No. 123, "Accounting for Stock-Based Compensation", encourages but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for such plans using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the exercise price of the stock (See Note 9). (3) Business, Operations and Segment Information The Company is a designer and supplier of fibre channel hardware and software solutions for building Storage Area Networks ("SANs"). The Company's products include Fibre Channel host bus adapters, hubs, high availability software and disk arrays for building SANs in heterogeneous open systems operating environments. The Company also provides add-on memory for IBM enterprise servers. The Company sells its equipment to end users, resellers, distributors and OEMs. The Company's principal customers operate in a wide variety of industries and in a broad geographical area. No single customer or distributor accounted for 10% or more of total sales in fiscal year 1997. During years 1998 and 1999, one customer accounted for 11% of total revenues each year. Foreign sales were 23% in 1997 and less than 10% of total revenues in fiscal 1998 and 1999. In the year ended December 31, 1999, our top five customers accounted for approximately 40% of our total net revenues, and, in the year ended December 31, 1998, our top five customers accounted for approximately 29% of our total net revenues. (4) Income Taxes In accordance with SFAS No. 109, "Accounting For Income Taxes", deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The following table presents the components of income (loss) before income taxes: Year ended Year ended Year ended December 31, 1999 December 31, 1998 December 31, 1997 Domestic $ ( 531,000) $ ( 2,549,000) $ ( 5,689,000) Foreign ( 131,000) ( 224,000) ( 908,000) $ ( 662,000) $ ( 2,773,000) $ ( 6,597,000) The following table presents a reconciliation between taxes provided at the statutory federal income tax rate and the actual tax provision recorded for the following periods: F-12 Year ended Year ended Year ended December 1999 December 1998 December 1997 Provision (credit) at federal statutory rate $ 32,700 $ ( 943,000) $ ( 2,243,000) State tax provision (credit), net of federal tax benefits 14,300 ( 160,000) ( 358,000) Foreign and other losses for which no benefits have been recorded 44,400 76,000 309,000 Change in valuation allowances ( 90,800) 1,047,000 2,007,000 Other ( 600) ( 20,000) 285,000 $ -0- $ -0- $ -0- The Company has federal net operating loss carryovers totaling $16,271,000 which expire through the year ended December 31, 2014. The tax effects of the significant items which comprise the deferred tax liability and tax asset, as of fiscal 1999, 1998 and 1997 are as follows: December 1999 December 1998 December 1997 Assets Reserves not currently deductible for tax purposes $1,584,000 $1,920,000 $1,874,000 State tax net operating loss carryforward 1,612,000 1,565,000 1,335,000 Federal net operating loss carryforward 5,012,000 4,859,000 4,114,000 Employee benefits 41,000 47,000 96,000 Other 49,000 154,000 76,000 Total deferred tax assets $8,298,000 $8,545,000 $7,495,000 F-13 Liabilities Fixed asset basis difference $ (164,000) -0- -0- Other 158,000 (45,000) (42,000) Total deferred tax liabilities $ ( 6,000) $ (45,000) $ (42,000) Net deferred tax asset $8,292,000 $8,500,000 $ 7,453,000 Valuation allowance (8,292,000) (8,500,000) (7,453,000) Tax asset -0- -0- -0- Tax refunds receivable -0- -0- -0- Total tax asset -0- -0- -0- Due to the uncertainty of the realizability of the deferred tax assets, the Company has established a valuation allowance for the net deferred tax assets. (5) Short Term Borrowings The Company has a loan and security agreement with a related party referred to in Note 12. The outstanding balance due to the related party was $601,029 and $393,424 at December 31, 1999 and 1998, respectively. Notes payable of $550,000 at December 31, 1999 represent advances payable which are due November, 2000. These notes include amounts of $250,000 from related parties. These notes are further described in Note 12. During 1993, the Company obtained a $10 million unsecured, revolving line of bank credit, bearing interest at the prime rate plus one-half percent with a commitment fee of 3/8 of 1% per year on the unused portion. The Company was required to repay any borrowings under this revolving credit line on March 29, 1996. During the second quarter of 1996, the Company agreed with its bank to extend and modify its Revolving Credit Agreement. As of December 31, 1996, $1,800,000 remained outstanding under this Agreement. Subsequent to the end of the year, the Company received its refund from the Internal Revenue Service and repaid its bank in full and the agreement was terminated. Consequently, the bank released its security interest in the Company's accounts receivable, inventory and general intangibles. F-14 (6) Long-Term Debt and Related Matters Long-term debt at December 31, 1999 and 1998 consists of the following: 1999 1998 Subordinated Convertible Notes with interest rate of 10% due April 30, 2003 $1,273,730 $1,063,730 Less : Current maturities -0- -0- Total $1,273,730 $1,063,730 Of the advances received for the notes, approximately $560,000 was received from a related party and is discussed in Note 12. The maturities of long-term debt for each of the succeeding five years subsequent to December 31, 1999 are as follows: Year Amount 2000 -0- 2001 -0- 2002 -0- 2003 $1,273,730 Thereafter -0- Total $1,273,730 (7) Earnings Per Share Earnings per share are computed by dividing net income by the average number of common shares and common stock equivalents outstanding during the year. The weighted average number of common shares outstanding during the years ended December 31, 1999, 1998 and 1997 were approximately 9,540,000, 9,300,000, and 9,100,000, respectively. Common stock equivalents include the net additional number of shares that would be issuable upon the exercise of the outstanding common stock options and warrants (see Note 9), assuming that the Company reinvested the proceeds to purchase additional shares at market value. Common stock equivalents also include shares of common stock that would be issuable upon conversion of subordinated promissory convertible notes. Options and warrants to purchase 143,851 and 259,305 weighted average shares of common stock during the years ended December 31, 1998 and 1997, respectively, were not included in the computation of diluted loss per share because to do so would have had an antidilutive effect on the computation of loss per share. Weighted average shares of 855,313 common stock equivalents had no material effect on the computation of earnings per share for the year ended December 31, 1999. Weighted average shares issuable from convertible notes of 5,235,261 were not included in the diluted earnings per share because to do so would have had an antidilutive effect on the computation of earnings per share. As more fully described in Note 9, options and warrants to purchase 4,959,423, 94,970 and 187,420 shares of common stock outstanding at December 31, 1999, 1998 and 1997, respectively, and 5,235,261 shares of common stock issuable upon conversion of notes outstanding at December 31, 1999 could potentially dilute basic income (loss) per share in the future. F-15 (8) Commitments and Contingencies At December 31, 1999, the Company had minimum rental commitments under long-term, noncancelable operating leases for facilities and other equipment as follows: Due during Fiscal Year 2000 $ 381,924 2001 $ 381,924 2002 $ 381,924 2003 $ 159,134 $1,304,906 Total rental expense, including the cost of short-term equipment leases, real estate taxes and insurance paid to the landlord and charged to operations approximated $213,000 for the year ended December 31, 1999, $260,000 for the year ended December 31, 1998, and $1,160,000 for the year ended December 31, 1997. During 1997, 1998, 1999 and 2000, the Company entered into agreements to sublet portions of its facilities to unrelated parties. In the ordinary course of business, the Company is involved in legal proceedings. The Company believes that the outcome of these proceedings will not have a material adverse effect on the Company's financial condition or results of operations. (9) Stock Options and Warrants On November 12, 1999, the Company established and on December 23, 1999, shareholders approved the Year 2000 Equity Incentive Plan. The Year 2000 Equity Incentive Plan provides for the delivery of up to 1,500,000 shares. On March 7, 1997, the Company established the 1997 Stock Option Plan. The Year 2000 Equity Incentive Plan replaces the 1997 Plan for all future options. At December 31, 1999, the Company had three stock option plans for officers and certain employees under which 2,564,320 shares were reserved and options for 1,475,000 shares were available for future grants. Options are granted at not less than 85%, or in certain cases, not less than 100%, of the fair market value of the common stock on the date of grant. Options outstanding have a term of ten years and become exercisable in installments as determined by the board of directors. The plans' options vest between one through six years and all expire between January 6, 2002 and November 12, 2009. Stock option activity for the three years ended December 31, 1999 was as follows: Number Option Price Option Shares Outstanding at December 31, 1996 368,820 .25 - 16.15 Granted - - Exercised, cancelled or expired (181,400) .25 - 10.41 Outstanding at December 31, 1997 187,420 .35 - 16.15 Granted - - Exercised, cancelled or expired (92,450) .15 - 16.15 Outstanding at December 31, 1998 94,970 .12 Granted 1,204,500 .12 - 2.10 F-16 Exercised, cancelled or expired (210,150) .12 - 1.67 Outstanding at December 31, 1999 1,089,320 .12 - 2.10 As of December 31, 1999 and 1998, options for 161,620 and 27,970 shares were exercisable at aggregate option prices of $33,524 and $3,356, respectively. Had compensation cost for these plans been determined consistent with SFAS No. 123, the Company's net income(loss) and income(loss) per share would have been changed to the following pro forma amounts: Year ended Year ended Year ended December 31, 1999 December 31, 1998 December 31, 1997 Net Income (Loss): As reported (000's) 96 (2,773) (6,597) Pro Forma 96 (2,773) (6,597) Basic and Diluted EPS: As Reported 0.01 (0.30) ( .72) Pro Forma 0.01 (0.30) ( .72) The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions and values for grants in the periods presented. Year ended Year ended Year ended December 31, 1999 December 31, 1998 December 31, 1997 Assumptions: Risk free interest rate 6.92% N/A N/A Expected dividend yield 0% N/A N/A Expected life in years 10 N/A N/A Expected volatility 129.2% N/A N/A Values: Weighted average fair value of options granted 2.85 0 0 Weighted average exercise price .43 .12 1.94 Because the SFAS No. 123 method of accounting has not been applied to options granted prior to September 1, 1994, the resulting pro forma compensation cost may not be representative of that to be expected in future years. F-17 As of December 31, 1999 and 1998, warrants to purchase 3,870,103 and 1,063,730 shares of common stock at weighted average prices of $0.82 and $0.50 per share, respectively, were outstanding and an equal number of shares were reserved for issuance. (10) Incentive Bonus Plan and 401(k) Profit Sharing Retirement Plan The Company has an incentive bonus plan under which certain key employees as a group are entitled to receive additional compensation up to a maximum of 15% of the Company's pre-tax income, as defined. There was no provision in 1999, 1998 or 1997. On September 1, 1988, the Company established the Cambex Corporation 401(k) Profit Sharing Retirement Plan (the Plan). Under the Plan, employees are allowed to make pre-tax retirement contributions. In addition, the Company may provide matching contributions based on pre- established rates as determined by the board of directors. The Company's contributions have been in the form of Cambex common stock since fiscal 1994. The Company offers no post-retirement benefits other than those provided under the Plan. (11) Employee Stock Purchase Plan On December 20, 1993, the Company established the Cambex Corporation Employee Stock Purchase Plan (the Plan), which was approved by the shareholders. On August 31, 1998, the board of directors voted, subject to shareholder approval, to increase the number of shares to cover the number of shares purchased under the Plan during the period January 1, 1998 to June 30, 1998 and to terminate the Plan. Under the Plan, employees could elect to have a specified percentage of their wages withheld through payroll deduction and purchase common stock shares at 85% of the lower of the fair market value of Common Stock on the first or last trading day of each Purchase Period. There were two (2) Purchase Periods each year - the first six months and the last six months of each calendar year. During fiscal 1998, fiscal 1997 and fiscal 1996, there were 53,862, 21,069, and 50,060 shares issued under the Plan, respectively. At December 31, 1999, there were 160,708 shares reserved for issuance under the Plan. (12) Related Party Transactions In November, 1999, the Company raised $550,000, including $125,000 from Joseph F. Kruy, Chairman, President and Chief Executive Officer of the Company and $125,000 from Philip C. Hankins, a Director of the Company, in cash from the issuance of 12% Notes Payable (the "Notes"), which are not due before November, 2000. In addition to the Note, each holder was issued a Stock Purchase Warrant (the "Warrant"), the exercise of which will allow the warrant holder to purchase two shares of common stock, at approximately $2.00 per share, for each dollar invested through the issuance of the Notes. From June 1, 1999 through August 18, 1999, the Company has raised $210,000, including $100,000 from Joseph F. Kruy, Chairman, President and Chief Executive Officer of the Company, in cash from the issuance of 10% Subordinated Convertible Promissory Notes. On June 1, 1998, the Company raised approximately $1,060,000, including approximately $460,000 from Joseph F. Kruy, in cash from the issuance of 10% Subordinated Convertible Promissory Notes. Under the terms of the Notes, which are due on April 30, 2003, the holders may convert the notes into shares of common stock at a conversion price of $0.22 per share. In addition to the Note, each holder was issued a Stock Purchase Warrant, the exercise of which will allow the warrant holder to purchase one share of common stock, at $0.50 per share, for each dollar invested through the issuance of the Notes. Additional warrants to purchase approximately 96,000 shares of common stock, at $0.50 per share were issued on June 1, 1999 in relation to interest due on the June 1, 1998 notes. On November 9, 1998, the Company entered into a loan and security agreement with a lender company, hereafter referred to as "Lender" which is owned by a relative of Joseph F. Kruy, Chairman and Chief Executive Officer of the Company, under which the Company may borrow up to a maximum of $650,000 being outstanding at any one time. Such loan is fully secured by all assets of the Company. The Company pays all collections from accounts receivable to the Lender not less frequently than each week until the outstanding loan amount plus related interest, which accrues at a 12% annual rate, is fully paid. Under the terms of the loan agreement, the Lender F-18 receives a warrant for the purchase of two shares of common stock, at $0.22 per share, for each dollar loaned to the Company. On June 1, 1998, we entered into a Master Lease with CyberFin Corporation, a corporation wholly owned by Peter J. Kruy, our Executive Vice President, Treasurer and Chief Financial Officer. Under the Master Lease we rent from CyberFin an IBM 2003 S/390 Multiprise Processor and related software and maintenance at the rate of $3,787.64 per month for a period of three years. We also purchased computer memory from CyberFin for $141,920 in 1998 and $73,000 in 1999. We believe that lease and the purchase arrangements we made with CyberFin are on terms at least as favorable to us as we would have expected from an equipment lessor unrelated to us, CyberFin and Dr. Kruy for equipment of comparable quality. (13) Events (Unaudited) Subsequent to date of Report of Independent Public Accountants Subsequent to the end of 1999, the Company raised an additional $2,000,000 in cash from the issuance of 8% Convertible Bridge Notes which are due in August and September, 2000. The notes are convertible at a weighted average share price of $4.08. The Company may redeem the notes at any time during the term of the notes. If the Company does not redeem the notes prior to maturity and the Company's stock price falls below certain levels, the holders are entitled to acquire additional shares. In addition to the notes, warrants to purchase 300,000 shares of common stock were issued at weighted average exercise prices of $4.54 per share. On March 1, 2000, the Company entered into a Sublease Agreement with a third party pursuant to which the Company sublet approximately 8,000 square feet in its Waltham, Massachusetts facility (which is approximately 12% of the Company's total leased space). The term of the sublease is coterminous with the primary lease and expires on May 31, 2003. (14) Credit Risk The Company maintains cash balances at financial institutions located in Massachusetts. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. At December 31, 1999, the Company's uninsured cash balances total $246,606. The Company's subsidiaries maintain cash balances at several financial institutions located throughout Europe. These cash balances are subject to normal currency exchange fluctuations. At December 31, 1999, the Company's overseas cash balances total $18,678. (15) Extraordinary Items Extraordinary income in 1999 consists of the payment of other liabilities at a discount from face value. The per share amount of the gain on the extinguishment of debt is $0.07. F-19 BACKCOVER OF PROSPECTUS Until ___________, 2000 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers Our by-laws, as amended, reflect the adoption of the provisions of the Massachusetts General Laws, Chapter 156B, Section 67 which empowers a Massachusetts corporation to indemnify any person in connection with any action, suit or proceeding brought or threatened by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or was serving as such with respect to another corporation or other entity at the request of such corporation, unless such person shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that such action was in the best interests of the corporation. Our by-laws, as amended, also provide that the Company shall indemnify any person, who was or is a party to a proceeding by reason of the fact that he is or was a director or officer of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with such proceeding if he acted in good faith and in a manner he reasonably believed to be or not opposed to the best interests of the Company, in accordance with, and to the full extent permitted by, the Massachusetts General Corporation Law. Item 25. Other Expenses of Issuance and Distribution The following table sets forth an itemization of all estimated expenses, all of which we will pay, in connection with the issuance and distribution of securities being registered: Registration fees 4,028.26 Federal taxes Blue Sky fees State taxes and fees Transfer agent's and registrar fees Legal fees 100,000.00 Accounting fees 1,400.00 Miscellaneous fees Item 26. Recent Sales of Unregistered Securities None Item 27. Exhibits 2.1 Reorganization Plan of Cambex Corporation dated March 17, 1998 (included as Exhibit 2.1 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 2.2 Amended Disclosure Statement with respect to Reorganization Plan of the Company dated March 17, 1998 (included as Exhibit 2.2 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 3.1 Restated Articles of Organization of Cambex Corporation. 3.2 Restated By-laws of Cambex Corporation. 4.1 Specimen Stock Certificate. II-1 4.2 Registration Rights Agreement among the Company and the Purchasers identified therein (the "Sovereign Purchasers") dated as of January 18, 2000 (included as Exhibit 4.1 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 4.3 Registration Rights Agreement between the Company and Thumberland Limited dated as of July 14, 2000. *5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. 10.1 Employment Agreement between Joseph F. Kruy and the Company, dated as of November 18, 1994 (included as Exhibit 10.1 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.2 Incentive Bonus Plan. 10.3 1987 Combination Stock Option Plan (included as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1987, and incorporated herein by reference). 10.4 2000 Equity Incentive Plan (included as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, and incorporated herein by reference). 10.5 Series 1 Bridge Note Purchase Agreement among the Company and the Sovereign Purchasers dated as of January 18, 2000 (included as Exhibit 10.7 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.6 Escrow Agreement among the Company, the Sovereign Purchasers and Suntrust Bank, Atlanta dated as of January 6, 2000 (included as Exhibit 10.8 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.7 Placement Agent Agreement between the Company and Sovereign Capital Advisors, LLC ("Sovereign Advisors") dated as of January 18, 2000 (included as Exhibit 10.9 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.8 Guaranty Agreement among Joseph F. Kruy, the Company and the Sovereign Purchasers dated as of January 18, 2000. (included as Exhibit 10.10 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.9 Guaranty Agreement among CyberFin Corporation, the Company and the Sovereign Purchasers dated as of January 18, 2000 (included as Exhibit 10.11 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.10 Stock Pledge Agreement by Joseph F. Kruy in favor of the Sovereign Purchasers dated as of January 18, 2000 (included as Exhibit 10.12 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.11 Stock Pledge Agreement by CyberFin Corporation in favor of the Sovereign Purchasers dated as of January 18, 2000 (included as Exhibit 10.13 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.12 Series 1 Bridge Financing Note in favor of SovCap Equity Partners, Ltd. dated as of January 18, 2000 (included as Exhibit 10.14 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). II-2 10.13 Series 1 Bridge Financing Note in favor of Correllus International, Ltd. dated as of January 18, 2000 (included as Exhibit 10.16 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.14 Common Stock Purchase Warrant in favor of SovCap Equity Partners, Ltd. dated as of January 18, 2000 (included as Exhibit 10.18 to the Company's Amendment to the Quarterly Report on Form 10- Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.15 Common Stock Purchase Warrant in favor of Correllus International, Ltd. dated as of January 18, 2000 (included as Exhibit 10.19 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.16 Sovereign Warrant Agreement between the Company and Sovereign Advisors dated as of January 18, 2000 (included as Exhibit 10.20 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.17 Warrant Certificate registered in the name of Sovereign Advisors dated January 18, 2000 (included as Exhibit 10.21 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.18 Series 1 Bridge Financing Note in favor of Arab Commerce Bank Ltd. dated as of February 9, 2000 (included as Exhibit 10.22 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.19 Common Stock Purchase Warrant in favor of Arab Commerce Bank Ltd. dated as of February 9, 2000 (included as Exhibit 10.24 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.20 Series 1 Bridge Financing Note in favor of SovCap Equity Partners, Ltd. dated as of February 9, 2000 (included as Exhibit 10.25 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.21 Common Stock Purchase Warrant in favor of SovCap Equity Partners, Ltd. dated as of February 9, 2000 (included as Exhibit 10.27 to the Company's Amendment to the Quarterly Report on Form 10- Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.22 Common Stock Purchase Agreement between the Company and Thumberland Limited dated as of July 14, 2000. 10.23 Escrow Agreement among the Company, Thumberland Limited and Epstein, Becker & Green, P.C., dated as of July 14, 2000. 10.24 Stock Purchase Warrant in favor of Thumberland Limited dated as of July 14, 2000. 10.25 Stock Purchase Warrant in favor of Ladenburg Thalmann & Co. Inc. dated as of July 14, 2000. 21.1 List of subsidiaries of the Company. *23.1 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (included in Exhibit 5.1). 23.2 Consent of Belanger & Company, P.C. 24.1 Powers of Attorney (See Signature Page) 27.1 Financial Data Schedule. II-3 99.1 Audit Committee Charter. ____________ * To be filed by amendment. Item 28. Undertakings Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers and controlling persons of the registrant pursuant to any charter provision, by-law, contract arrangements, statute, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in 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. The undersigned registrant hereby undertakes: (1) To file, during any period in which it offers or sales securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, to treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering of those securities. (3) For determining any liability under the Act, to treat the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant under Rule 424(b)(1) or (4), or 497(h) under the Securities Act as part of this Registration Statement as of the time the Securities and Exchange Commission declared it effective. (4) To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. II-4 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Waltham, Commonwealth of Massachusetts, on August 8, 2000. CAMBEX CORPORATION By: /s/ Joseph F. Kruy Joseph F. Kruy, Chief Executive Officer, President and Chairman of the Board POWER OF ATTORNEY We the undersigned officers and directors of Cambex Corporation hereby severally constitute and appoint Joseph F. Kruy our true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution in him for him and in his name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement (or any other Registration Statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming that the said attorney-in-fact and agent, or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Joseph F. Kruy Chairman, Chief Executive August 8, 2000 Joseph F. Kruy Officer and President (principal executive officer) /s/ Peter J. Kruy Executive Vice President and August 8, 2000 Peter J. Kruy Chief Financial Officer (principal financial and accounting officer) /s/ Philip C. Hankins Director August 8, 2000 Philip C. Hankins /s/ C.V. Ramamoorthy Director August 8, 2000 C.V. Ramamoorthy /s/ Robert J. Spain Director August 8, 2000 Robert J. Spain II-5 EXHIBIT INDEX Exhibit Number Description of Exhibit 2.1 Reorganization Plan of Cambex Corporation dated March 17, 1998 (included as Exhibit 2.1 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 2.2 Amended Disclosure Statement with respect to Reorganization Plan of the Company dated March 17, 1998 (included as Exhibit 2.2 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 3.1 Restated Articles of Organization of Cambex Corporation. 3.2 Restated By-laws of Cambex Corporation. 4.1 Specimen Stock Certificate. 4.2 Registration Rights Agreement among the Company and the Purchasers identified therein (the "Sovereign Purchasers") dated as of January 18, 2000 (included as Exhibit 4.1 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 4.3 Registration Rights Agreement between the Company and Thumberland Limited dated as of July 14, 2000. *5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. 10.1 Employment Agreement between Joseph F. Kruy and the Company, dated as of November 18, 1994 (included as Exhibit 10.1 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.2 Incentive Bonus Plan. 10.3 1987 Combination Stock Option Plan (included as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1987, and incorporated herein by reference). 10.4 2000 Equity Incentive Plan (included as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, and incorporated herein by reference). 10.5 Series 1 Bridge Note Purchase Agreement among the Company and the Sovereign Purchasers dated as of January 18, 2000 (included as Exhibit 10.7 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.6 Escrow Agreement among the Company, the Sovereign Purchasers and Suntrust Bank, Atlanta dated as of January 6, 2000 (included as Exhibit 10.8 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.7 Placement Agent Agreement between the Company and Sovereign Capital Advisors, LLC ("Sovereign Advisors") dated as of January 18, 2000 (included as Exhibit 10.9 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.8 Guaranty Agreement among Joseph F. Kruy, the Company and the Sovereign Purchasers dated as of January 18, 2000. (included as Exhibit 10.10 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.9 Guaranty Agreement among CyberFin Corporation, the Company and the Sovereign Purchasers dated as of January 18, 2000 (included as Exhibit 10.11 to the Company's Amendment to Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.10 Stock Pledge Agreement by Joseph F. Kruy in favor of the Sovereign Purchasers dated as of January 18, 2000 (included as Exhibit 10.12 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.11 Stock Pledge Agreement by CyberFin Corporation in favor of the Sovereign Purchasers dated as of January 18, 2000 (included as Exhibit 10.13 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.12 Series 1 Bridge Financing Note in favor of SovCap Equity Partners, Ltd. dated as of January 18, 2000 (included as Exhibit 10.14 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.13 Series 1 Bridge Financing Note in favor of Correllus International, Ltd. dated as of January 18, 2000 (included as Exhibit 10.16 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.14 Common Stock Purchase Warrant in favor of SovCap Equity Partners, Ltd. dated as of January 18, 2000 (included as Exhibit 10.18 to the Company's Amendment to the Quarterly Report on Form 10- Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.15 Common Stock Purchase Warrant in favor of Correllus International, Ltd. dated as of January 18, 2000 (included as Exhibit 10.19 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.16 Sovereign Warrant Agreement between the Company and Sovereign Advisors dated as of January 18, 2000 (included as Exhibit 10.20 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.17 Warrant Certificate registered in the name of Sovereign Advisors dated January 18, 2000 (included as Exhibit 10.21 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.18 Series 1 Bridge Financing Note in favor of Arab Commerce Bank Ltd. dated as of February 9, 2000 (included as Exhibit 10.22 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.19 Common Stock Purchase Warrant in favor of Arab Commerce Bank Ltd. dated as of February 9, 2000 (included as Exhibit 10.24 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.20 Series 1 Bridge Financing Note in favor of SovCap Equity Partners, Ltd. dated as of February 9, 2000 (included as Exhibit 10.25 to the Company's Amendment to the Quarterly Report on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.21 Common Stock Purchase Warrant in favor of SovCap Equity Partners, Ltd. dated as of February 9, 2000 (included as Exhibit 10.27 to the Company's Amendment to the Quarterly Report on Form 10- Q/A for the quarter ended April 1, 2000, and incorporated herein by reference). 10.22 Common Stock Purchase Agreement between the Company and Thumberland Limited dated as of July 14, 2000. 10.23 Escrow Agreement among the Company, Thumberland Limited and Epstein, Becker & Green, P.C., dated as of July 14, 2000. 10.24 Stock Purchase Warrant in favor of Thumberland Limited dated as of July 14, 2000. 10.25 Stock Purchase Warrant in favor of Ladenburg Thalmann & Co. Inc. dated as of July 14, 2000. 21.1 List of subsidiaries of the Company. /23.1 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (included in Exhibit 5.1). 23.2 Consent of Belanger & Company, P.C. 24.1 Powers of Attorney (See Signature Page) 27.1 Financial Data Schedule. 99.1 Audit Committee Charter. ____________________ * To be filed by amendment. EX-3.1 2 0002.txt RESTATED ARTICLES OF ORGANIZATION FEDERAL IDENTIFICATION NO. 04-2442959 The Commonwealth Of Massachusetts William Francis Galvin Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 RESTATED ARTICLES OF ORGANIZATION (General Laws, Chapter 156B, Section 74) We, JOSEPH F.KRUY, *President and ARTHUR L. ZISKEND,/*Assistant Clerk, of CAMBEX CORPORATION, (Exact name of corporation) located at 360 SECOND AVENUE, WALTHAM, MA 02451, (Street address of corporation Massachusetts) do hereby certify that the following Restatement of the Articles of Organization was duly adopted on July 10, 2000 by consent of the directors. ______________________ shares of _________________________of __________________ shares outstanding, (type, class & series, if any) ______________________ shares of _________________________of __________________ shares outstanding, and (type, class & series, if any) ______________________ shares of __________________________of __________________ shares outstanding, (type, class & series, if any) **being at least a majority of each type, class or series outstanding and entitled to vote thereon: /** being at least two-thirds of each type, class or series outstanding and entitled to vote thereon and of each type, class or series of stock whose rights are adversely affected thereby: ARTICLE I The name of the corporation is: CAMBEX CORPORATION ARTICLE II The purpose of the corporation is to engage in the following business activity(ies): SEE CONTINUATION PAGE 2A ATTACHED HERETO *Delete the inapplicable words. **Delete the inapplicable clause. Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated. ARTICLE III State the total number of shares and par value, if any, of each class of stock which the corporation is authorized to issue: WITHOUT PAR VALUE WITH PAR VALUE TYPE NUMBER OF TYPE NUMBER OF PAR VALUE SHARES Common: Common: 25000000 $.10 Preferred: Preferred: 3000000 $1.00 ARTICLE IV If more than one class of stock is authorized, state a distinguishing designation for each class.Prior to the issuance of any shares of a class, if shares of another class are outstanding, the corporation must provide a description of the preferences, voting powers, qualifications, and special or relative rights or privileges of that class and of each class of which shares are outstanding and of each series then established within any class. SEE CONTINUATION PAGES 4A, 4B AND 6C ATTACHED HERETO ARTICLE V The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are: NONE ARTICLE VI **Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: SEE CONTINUATION PAGES 6A, 6B AND 6C ATTACHED HERETO **If there are no provisions state "None". Note: The preceding six (6) articles are considered to be permanent and may only be changed by filing appropriate Articles of Amendment. ARTICLE VII The effective date of the restated Articles of Organization of the Corporation shall be the date Approved and filed by the Secretary of the Commonwealth. If a later date is desired, specify such date which shall not be more than thirty days after the date of filing. ARTICLE VIII The information contained in Article VIII is not a permanent part of the Articles of Organization. a. The street address (post office boxes are not acceptable) of the principal office of the corporation in Massachusetts is: 360 Second Avenue, Waltham, MA 02451 b. The name, residential address and post office address of each director and officer of the corporation is as follows: See Continuation Page 8A Attached Hereto c. The fiscal (i.e. tax year) of the corporation shall end on the last day of the month of: 12/31 d. The name and address of the resident agent, if any, of the corporation is: N/A **We further certify that the foregoing Restated Articles of Organization affects no amendments to the Articles of Organization of the corporation as heretofore amended, except amendments to the following articles. Briefly describe amendments below: None SIGNED UNDER THE PENALTIES OF PERJURY, this 10th day of July, 2000, /s/ Joseph F. Kruy, President /s/ Arthur L. Ziskend, Assistant Clerk PAGE 2A CAMBEX CORPORATION RESTATED ARTICLES OF ORGANIZATION (Continued) Article II (Continued) Purpose: 1. To engage in the design, development, manufacture and sale of equipment, devices, components and other products used in connection with the storage and processing of information on digital data processing and control systems; to engage in research concerning such systems and equipment, devices, components and other products relating thereto; to design, develop, manufacture and sell, and to engage in research concerning other products; to supply services to others and consult with respect to the foregoing; to carry on such businesses by itself or under arrangements with others, directly or through subsidiaries or otherwise. 2. To carry on any manufacturing, mercantile, selling, management, service or other business, operation or activity which may be lawfully carried on by a corporation organized under the Business Corporation Law of the Commonwealth of Massachusetts, whether or not related to those referred to in the foregoing paragraph. 3. To carry on any business, operation or activity through a wholly or partly owned subsidiary. 4. To carry on any business, operation or activity referred to in the foregoing paragraphs to the same extent as might an individual, whether as principal, agent, contractor or otherwise, and either alone or in conjunction or a joint venture or other arrangement with any corporation, association, trust, firm or individual. 5. To have as additional purposes all powers granted to corporations by the laws of The Commonwealth of Massachusetts, provided that no such purpose shall include any activity inconsistent with the Business Corporation Law or the general laws of said Commonwealth. PAGE 4A CAMBEX CORPORATION RESTATED ARTICLES OF ORGANIZATION (Continued) Article IV (Continued) PROVISIONS RELATING TO CAPITAL STOCK 1. The authorized capital stock of this corporation shall consist of 25,000,000 shares of Common Stock, $.10 par value per share and 3,000,000 shares of Series Preferred Stock, $1.00 par value per share. The shares of Series Preferred Stock may be issued from time to time in one or more series. To the extent not inconsistent with the other provisions of this Article 4, the Board of Directors is authorized to establish and designate the different series, and to fix and determine the variations in the relative rights and preferences among the different series, provided that all shares of Series Preferred Stock shall be identical except for variations so fixed and determined among the different series to the extent permitted by Massachusetts General Laws, Chapter 156B, Section 26 and any successor to that Section. 2. The preferences, voting powers, qualifications, special or relative rights or privileges of the Common Stock and the Series Preferred Stock are as follows: (a) Liquidation Preference. Upon any liquidation, dissolution or winding up of this Corporation, whether voluntary or involuntary, and after provision for the payment of creditors, the holders of each series of Series Preferred Stock shall be entitled, before any distribution or payment is made upon any shares of Common Stock, to be paid the amount fixed by the Board of Directors in establishing such series plus (except as otherwise provided for any series of Series Preferred stock) an amount equal to dividends accrued to the date of payment, and to no further payment. Except as otherwise fixed by the Board of Directors in establishing any series of Series Preferred Stock, in the event that the assets of this Corporation available for distribution to holders of Series Preferred Stock shall be insufficient to permit payment to such holders of such amounts, all the assets of the Corporation then remaining shall be distributed among the series of Series Preferred Stock ratably on the basis of the relative aggregate liquidation preferences of each series and, within each such series, ratably among the holders of the shares of such series. The aggregate amount of payments to be made to holders of Series Preferred Stock upon any liquidation, dissolution or winding up of this Corporation may be fixed by the Board of Directors in establishing any series at any amount and by any method up to the full amount legally available for distribution to stockholders. After payment in full has been made to all holders of Series Preferred Stock, the remaining assets of this Corporation may be distributed to the holders of Common Stock. The holders of any series of Preferred Stock shall be entitled to participate in any such distribution to holders of Common Stock to the extent, if any, fixed for such series by the Board of Directors in establishing such series. PAGE 4B CAMBEX CORPORATION RESTATED ARTICLES OF ORGANIZATION (Continued) Article IV (Continued) PROVISIONS RELATING TO CAPITAL STOCK Except as otherwise fixed by the Board of Directors in establishing any series of Series Preferred Stock, neither the purchase or redemption by this Corporation of shares of any class or series of its capital stock in any manner permitted by the Articles of Organization, nor the merger or consolidation of this Corporation with or into any other corporation or corporations, nor the sale or transfer by this Corporation of all or any part of its assets, shall be deemed to be liquidation; dissolution or winding up of this Corporation for the purposes of this Article 4. (b) Dividend Preference. Holders of Series Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the purpose, dividends at such annual rate or rates, and no more, as are fixed for each series of Series Preferred Stock by the Board of Directors in establishing such series, payable in cash or in property or in shares of any series of Series Preferred Stock, or in shares of Common Stock, or in any combination thereof. Holders of Series Preferred Stock may receive in the aggregate dividends equal to the full amount of funds legally available for the payment of dividends. Except as otherwise provided for any series of Series Preferred Stock by the Board of Directors in establishing such series, until all accrued dividends, if any, on all shares of Series Preferred Stock shall have been declared and set apart for payment, no dividend or distribution shall be made to holders of Common Stock, other than a dividend payable in Common Stock of this Corporation, nor shall any shares of Common Stock be repurchased, redeemed or otherwise retired. The holders of any series of Series Preferred Stock shall be entitled to participate in any dividend or distribution to holders of Common Stock to the extent, if any, provided for such series by the Board of Directors in establishing such series. (c) Voting Powers and Qualifications. Each share of Common Stock shall entitle the holder thereof to one vote on all matters presented to the stockholders. The holders of each series of Series Preferred Stock shall be entitled to vote separately as a class, or in combination with the holders of any other series or Common Stock (or both) as a single class, to the extent (if any), and in regard to such matters and transactions (if any), as the Board of Directors may fix in establishing any such series or as may otherwise be required by law. Matters and transactions as to which the Board of Directors, in establishing any series, may fix a separate class vote of holders of Series Preferred Stock or any series thereof may include, without limitation, the election of a specified number or percentage of the directors, changes in this Corporation's authorized capital stock, amendments, to this Corporation's Articles of Organization or PAGE 4C CAMBEX CORPORATION RESTATED ARTICLES OF ORGANIZATION (Continued) Article IV (Continued) PROVISIONS RELATING TO CAPITAL STOCK By-laws, mergers, a sale of substantially all of the assets of this Corporation and dissolution of this Corporation. The Board of Directors may fix in establishing any series of Series Preferred Stock the percentage of votes required to approve any matter or transaction requiring a separate vote of the Series Preferred Stock or any series thereof. As to matters and transactions as to which any series of Series Preferred Stock is entitled to vote in combination with holders of Common Stock as a single class, the Board of Directors, in establishing any such series, may specify that the voting power of each share of such series may be greater or less than the voting power of each share of Common Stock, provided that Series Preferred Stock shall have no more than ten votes per share, or such greater number as is equivalent to the number of shares of Common Stock into which such shares of Series Preferred Stock are convertible. (d) Additional Special or Relative Rights or Privileges. Holders of any series of Series Preferred Stock shall enjoy such additional special or relative rights or privileges vis-a-vis the holders of Common Stock as the Board of Directors (subject to the limitations imposed by this Article 4) may fix in establishing such series, including, without limitation, rights of redemption, sinking or purchase fund provisions and conversion rights. PAGE 6A CAMBEX CORPORATION RESTATED ARTICLES OF ORGANIZATION (Continued) Article VI (Continued) OTHER LAWFUL PROVISIONS: (a) The directors may make, amend or repeal the by-laws in whole or in part, except with respect to any provision thereof which by law or the by-laws requires action by the stockholders. (b) Meetings of the stockholders may be held anywhere in the United States. (c) No stockholder shall have any right to examine any property or any books, accounts or other writings of the corporation if there is reasonable ground for belief that such examination will for any reason be adverse to the interests of the corporation, and a vote of the directors refusing permission to make such examination and setting forth that in the opinion of the directors such examination would be adverse to the interests of the corporation shall be prima facie evidence that such examination would be adverse to the interests of the corporation. Every such examination shall be subject to such reasonable regulations as the directors may establish in regard thereto. (d) The directors may specify the manner in which the accounts of the corporation shall be kept and may determine what constitutes net earnings, profits and surplus, what amounts, if any, shall be reserved for any corporate purpose, and what amounts, if any, shall be declared as dividends. Unless the board of directors otherwise specifies, the excess of the consideration for any share of its capital stock with par value issued by it over such par value shall be paid-in surplus. The board of directors may allocate to capital stock less than all of the consideration for any share of its capital stock without par value issued by it, in which case the balance of such consideration shall be paid-in surplus. All surplus shall be available for any corporate purpose, including the payment of dividends. (e) The purchase or other acquisition or retention by the corporation of shares of its own capital shall not be deemed a reduction of its capital stock. Upon any reduction of capital or capital stock, no stockholder shall have any right to demand any distribution from the corporation, except as and to the extent that the stockholders shall so have provided at the time of authorizing such reduction. (f) Each director and officer of the corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account of the corporation, reports made to the corporation by any of its officers or employees or by counsel, accountants, appraisers or other experts or consultants selected with reasonable care by the directors, or upon other records of the corporation. PAGE 6B CAMBEX CORPORATION RESTATED ARTICLES OF ORGANIZATION (Continued) Article VI (Continued) OTHER LAWFUL PROVISIONS: (g) The directors shall have the power to fix from time to time their compensation. No person shall be disqualified from holding any office by reason of any interest. In the absence of fraud, any director, officer or stockholder of this corporation individually, or any individual having any interest in any concern which is a stockholder of this corporation, or any concern in which any such directors, officers, stockholders or individuals have any interest, may be a party to, or may be pecuniarily or otherwise interested in, any contract, transaction or other act of this corporation, and (1) such contract, transactions or act shall not be in any way invalidated or otherwise affected by that fact; (2) no such director, officer, stockholder or individual shall be liable to account to this corporation for any profit or benefit realized through any such contract transaction or act; and (3) any such director of this corporation may be counted in determining the existence of a quorum at any meeting of the directors or of any committee thereof which shall authorize any such contract, transaction or act, and may vote to authorize the same; provided, however, that any contract, transaction or act in which any director or officer of this corporation is so interested individually or as a director, officer, trustee or member of any concern which is not a subsidiary or affiliate of this corporation, or in which any directors or officers are so interested as holders, collectively, of a majority of shares of capital stock or other beneficial interest at the time outstanding in any concern which is not a subsidiary or affiliate of this corporation, shall be duly authorized or ratified by a majority of the directors who are not so interested and to whom the nature of such interest has been disclosed; the term "interest" including personal interest and interest as a director, officer, stockholder, shareholder, trustee, member of beneficiary of any concern; the term "concern" meaning any corporation, association, trust, partnership, firm person or other entity other than this corporation; and the phrase "subsidiary or affiliate" meaning a concern in which a majority of the directors, trustees, partners or controlling persons are elected or appointed by the directors of this corporation, or are constituted of the directors or officers of this corporation. PAGE 6C CAMBEX CORPORATION RESTATED ARTICLES OF ORGANIZATION (Continued) Article VI (Continued) OTHER LAWFUL PROVISIONS: To the extent permitted by law, the authorizing or ratifying vote of a majority in interest of each class of the capital stock of this corporation outstanding and entitled to vote fore directors at an annual meeting or a special meeting duly called for the purpose (whether such vote is passed before or after judgment rendered in a suit with respect to such contract, transaction or act) shall validate any contract, transaction or act of this corporation, or of the board of directors or any committee thereof, with regard to all stockholders of this corporation, whether or not of record at the time of such vote, and with regard to all creditors and other claimants under this corporation; provided, however, that with respect to the authorization or ratification of contracts, transactions or acts in which any of the directors, officers, or stockholders of this corporation have an interest, the nature of such contracts, transactions or acts and the interest of any director, officer or stockholder therein shall be summarized in the notices of any such annual or special meeting, or in a statement or letter accompanying such notice, and shall be fully disclosed at any such meeting; provided, also, that stockholders so interested may vote at any such meeting; and provided, further, that any failure of the stockholders to authorize or ratify such contract, transaction or act shall not be deemed in any way to invalidate the same officers or employees of its or their right to proceed with such contract, transaction or act. No contract, transaction or act shall be avoided by reason of any provision of this paragraph (g) which would be valid but for those provisions. (h) No director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director notwithstanding any provision of law imposing such liability; provided, however, that this Article 6(h) shall not eliminate the liability of a director to the extent that such liability is provided by applicable law (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 61 or Section 62 (or successor provision) of the Business Corporation Law of the Commonwealth of Massachusetts, or (iv) for any transaction from which the director derived an improper personal benefit. The foregoing provisions of this Article 6(h) shall not eliminate the liability of a director for any act or omission occurring prior to the date on which this Article 6(h) becomes effective. No amendment to or repeal of this Article 6(h) shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. PAGE 8A CAMBEX CORPORATION RESTATED ARTICLES OF ORGANIZATION (Continued) Article VI (Continued) OFFICERS AND DIRECTORS: Name Residential Address P.O. Address President Joseph Kruy 21 Driftwood Lane Same Weston, MA 02493 Treasurer Peter Kruy 3 Crown Point Road Same Sudbury, MA 01776 Clerk John Beard 194 Glezen Lane Same Wayland, MA 01778 Assistant Clerk Arthur L. Ziskend 116 Wayne Road Same Newton, MA 02459 Directors Joseph Kruy 21 Driftwood Lane Same Weston, MA 02493 C. V. Ramamoorthy 558 Blackhawk Club Dr. Same Danville, CA 94506 Philip C. Hankins 1801 Lavaca Street, #14J Same Austin, TX 87801 Robert J. Spain 170 Pine Ridge Road Same Newton, MA 02468 EX-3.2 3 0003.txt BY-LAWS B Y - L A W S of CAMBEX CORPORATION (formerly known as "Cambridge Memory Systems, Inc.") Section 1. ARTICLES OF ORGANIZATION The name and purposes of the corporation shall be as set forth in the articles of organization. These by-laws, the powers of the corporation and of its directors and stockholders, or of any class of stockholders if there shall be more than one class of stock, and all matters concerning the conduct and regulation of the business and affairs of the corporation shall be subject to such provisions in regard thereto, if any, as are set forth in the articles of organization as from time to time in effect. Section 2. STOCKHOLDERS 2.1. Annual Meeting. The annual meeting of the stockholders shall be held at 2:00 o'clock in the afternoon (unless a different hour is fixed by the president or the board of directors and stated in the notice) on a date in each year to be determined by the board of directors within six months after the end of each fiscal year. If that day be a legal holiday at the place where the meeting is to be held, the meeting shall be held on the next succeeding day not a legal holiday at such place. Purposes for which an annual meeting is to be held, additional to those prescribed by law, by the articles of organization or by these by-laws, may be specified by the president or by the directors. 2.2. Special Meeting in Place of Annual Meeting. If no annual meeting has been held in accordance with the foregoing provisions, a special meeting of the stockholders may be held in place thereof, and any action taken at such special meeting shall have the same force and effect as if taken at the annual meeting, and in such case all references in these by-laws to the annual meeting of the stockholders shall be deemed to refer to such special meeting. Any such special meeting shall be called as provided in Section 2.3. 2.3. Special Meetings. A special meeting of the stockholders may be called at any time by the president or by the directors. Each call of a meeting shall state the place, date, hour and purposes of the meeting. 2.4 Place of Meetings. All meetings of the stockholders shall be held at the principal office of the corporation in Massachusetts or, to the extent permitted by the articles of organization, at such other place within the United States as shall be fixed by the president or the directors. Any adjourned session of any meeting of the stockholders shall be held at the same city or town as the initial session, or within Massachusetts, in either case at the place designated in the vote of adjournment. 2.5. Notice of Meetings. A written notice of each meeting of stockholders, stating the place, date and hour and the purposes of the meeting, shall be given at least seven days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, by law, by the articles of organization or by these by-laws, is entitled to notice, by leaving such notice with him or at his residence or usual place of business, or by mailing it, postage prepaid, addressed to such stockholder at his address as it appears in the records of the corporation. Such notice shall be given by the clerk or an assistant clerk or by an officer designated by the directors. No notice of any meeting of stockholders need be given to a stockholder if a written waiver of notice, executed before or after the meeting by such stockholder or his attorney thereunto duly authorized, is filed with the records of the meeting. 2.6. Quorum of Stockholders. At any meeting of the stockholders, a quorum shall consist of a majority in interest of all stock issued and outstanding and entitled to vote at the meeting; except that if two or more classes or series of stock are entitled to vote as separate classes or series, then in the case of each such class or series a quorum shall consist of a majority in interest of all stock of that class or series issued and outstanding; and except when a larger quorum is required by law, by the articles of organization or by these by-laws. Stock owned directly or indirectly by the corporation, if any, shall not be deemed outstanding for this purpose. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 2.7. Action by Vote. When a quorum is present at any meeting, a plurality of the votes properly cast for election to any office shall elect to such office, and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the articles of organization or by these by-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. 2.8. Voting. Stockholders entitled to vote shall have one vote for each share of stock entitled to vote held by them of record according to the records of the corporation, unless otherwise provided by the articles of organization. The corporation shall not, directly or indirectly, vote any share of its own stock. 2.9. Action by Writing. Any action to be taken by stockholders may be taken without a meeting if all stockholders entitled to vote on the matter consent to the action by a writing filed with the records of the meetings of stockholders. Such consent shall be treated for all purposes as a vote at a meeting. 2.10. Proxies. Stockholders entitled to vote may vote either in person or by proxy in writing dated not more than six months before the meeting named therein, which proxies shall be filed with the clerk or other person responsible to record the proceedings of the meeting before being voted. Unless otherwise specifically limited by their terms, such proxies shall entitle the holders thereof to vote at any adjournment of such meeting but shall not be valid after the final adjournment of such meeting. Section 3. BOARD OF DIRECTORS 3.1. Number. A board of not more than nor less than three directors shall be elected at the annual meeting of the stockholders, by such stockholders as have the right to vote at such election. The number of directors may be increased at any time or from time to time either by the stockholders or by the directors by vote of a majority of the directors then in office. The number of directors may be decreased to any number not less than three at any time or from time to time either by the stockholders or by the directors by a vote of a majority of the directors then in office, but only to eliminate vacancies existing by reason of the death, resignation or removal of one or more directors. No director need be a stockholder. 3.2. Tenure. Except as otherwise provided by law, by the articles of organization or by these by-laws, the directors shall hold office until the next annual meeting of the stockholders and until their successors are elected and qualified, or until a director sooner dies, resigns, is removed or becomes disqualified. 3.3. Powers. Except as reserved to the stockholders by law, by the articles of organization or by these by-laws, the business of the corporation shall be managed by the directors who shall have and may exercise all the powers of the corporation. In particular, and without limiting the generality of the foregoing, the directors may at any time issue all or from time to time any part of the unissued capital stock of the corporation from time to time authorized under the articles of organization and may determine, subject to any requirements of law, the consideration for which stock is to be issued and the manner of allocating such consideration between capital and surplus. 3.4. Committees. The directors may, by vote of a majority of the directors then in office, elect from their number an executive committee and other committees and may by vote delegate to any such committee or committees some or all of the powers of the directors except those which by law, by the articles of organization or by these by-laws they are prohibited from delegating. Except as the directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the directors or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these by- laws for the conduct of business by the directors. 3.5. Regular Meetings. Regular meetings of the directors may be held without call or notice at such places and at such times as the directors may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of the stockholders. 3.6. Special Meetings. Special meetings of the directors may be held at any time and at any place designated in the call of the meeting, when called by the president or the treasurer or by two or more directors, reasonable notice thereof being given to each director by the secretary or an assistant secretary, or, if there be none, by the clerk or an assistant clerk, or by the officer or one of the directors calling the meeting. 3.7. Notice. It shall be sufficient notice to a director to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 3.8. Quorum. At any meeting of the directors a majority of the directors then in office shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 3.9. Action by Vote. When a quorum is present at any meeting, a majority of the directors present may take any action, except when a larger vote is required by law, by the articles of organization or by these by-laws. 3.10. Action by Writing. Any action required or permitted to be taken at any meeting of the directors may be taken without a meeting if a written consent thereto is signed by all the directors and such written consent is filed with the records of the meetings of the directors. Such consent shall be treated for all purposes as a vote at a meeting. Section 4. OFFICERS AND AGENTS 4.1. Enumeration: Qualification. The officers of the corporation shall be a president, a treasurer, a clerk, and such other officers, if any, as the incorporators at their initial meeting, or the directors from time to time, may in their discretion elect or appoint. The corporation may also have such agents, if any, as the incorporators at their initial meeting, or the directors from time to time, may in their discretion appoint. Any officer may be but none need be a director or stockholder. The clerk shall be a resident of Massachusetts unless the corporation has a resident agent appointed for the purpose of service of process. Any two or more offices may be held by the same person. Any officer may be required by the directors to give bond for the faithful performance of his duties to the corporation in such amount and with such sureties as the directors may determine. 4.2. Powers. Subject to law, to the articles of organization and to the other provisions of these by-laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such duties and powers as the directors may from time to time designate. 4.3. Election. The president, the treasurer and the clerk shall be elected annually by the directors at their first meeting following the annual meeting of the stockholders. Other officers, if any, may be elected or appointed by the board of directors at said meeting or at any other time. 4.4. Tenure. Except as otherwise provided by law or by the articles of organization or by these by-laws, the president, the treasurer and the clerk shall hold office until the first meeting of the directors following the next annual meeting of the stockholders and until their respective successors are chosen and qualified, and each other officer shall hold office until the first meeting of the directors following the next annual meeting of the stockholders unless a shorter period shall have been specified by the terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes disqualified. Each agent shall retain his authority at the pleasure of the directors. 4.5. President and Vice Presidents. The president shall be the chief executive officer of the corporation and, subject to the control of the directors, shall have general charge and supervision of the business of the corporation. The president shall preside at all meetings of the stockholders and of the directors at which he is present, except as otherwise voted by the directors. Any vice presidents shall have such duties and powers as shall be designated from time to time by the directors. 4.6. Treasurer and Assistant Treasurers. Except as the Directors otherwise specify, the treasurer shall be the chief financial and accounting officer of the corporation and shall be in charge of its funds and valuable papers, books of account and accounting records, and shall have such other duties and powers as may be designated from time to time by the directors or by the president. Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the directors. 4.7. Clerk and Assistant Clerks. The clerk shall record all proceedings of the stockholders in a book or series of books to be kept therefor, which book or books shall be kept at the principal office of the corporation or at the office of its transfer agent or of its clerk and shall be open at all reasonable times to the inspection of any stockholder. In the absence of the clerk from any meeting of stockholders, an assistant clerk, or if there be none or he is absent, a temporary clerk chosen at the meeting, shall record the proceedings thereof in the aforesaid book. Unless a transfer agent has been appointed the clerk shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the amount of stock held by each. If no secretary is elected, the clerk shall keep a true record of the proceedings of all meetings of the directors and in his absence from any such meeting an assistant clerk, or if there be none or he is absent, a temporary clerk chosen at the meeting, shall record the proceedings thereof. Any assistant clerk shall have such duties and powers as shall be designated from time to time by the directors. 4.8. Secretary and Assistant Secretaries. If a secretary is elected, he shall keep a true record of the proceedings of all meetings of the directors and in his absence from any such meeting an assistant secretary, or if there be none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the directors. Section 5. RESIGNATIONS AND REMOVALS Any director or officer may resign at any time by delivering his resignation in writing to the president, the treasurer or the clerk or to a meeting of the directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time. A director (including persons elected by directors to fill vacancies in the board) may be removed from office (a) with or without cause by the vote of the holders of a majority of the shares issued and outstanding and entitled to vote in the election of directors, provided that the directors of a class elected by a particular class of stockholders may be removed only by the vote of the holders of a majority of the shares of such class, or (b) for cause by vote of a majority of the directors then in office. The directors may remove any officer elected by them with or without cause by the vote of a majority of the directors then in office. A director or officer may be removed for cause only after reasonable notice and opportunity to be heard before the body proposing to remove him. No director or officer resigning, and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no director or officer removed, shall have any right to any compensation as such director or officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise; unless in the case of a resignation, the directors, or in the case of a removal, the body acting on the removal, shall in their or its discretion provide for compensation. Section 6. VACANCIES Any vacancy in the board of directors, including a vacancy resulting from the enlargement of the board, may be filled by the stockholders or, in the absence of stockholder action, by the directors by vote of a majority of the directors then in office. If the office of the president or the treasurer or the clerk becomes vacant, the directors may elect a successor by vote of a majority of the directors then in office. If the office of any other officer becomes vacant, the directors may elect or appoint a successor by vote of a majority of the directors present. Each such successor shall hold office for the unexpired term, and in the case of the president, the treasurer and the clerk, until his successor is chosen and qualified, or in each case until he sooner dies, resigns, is removed or becomes disqualified. The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number. Section 7. CAPITAL STOCK 7.1. Number and Par Value. The total number of shares and the par value, if any, of each class of stock which the corporation is authorized to issue shall be as stated in the articles of organization. 7.2. Fractional Shares. The corporation shall not issue fractional shares of stock but may issue scrip in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon surrender of such scrip aggregating a full share, the terms and conditions and manner of issue of such scrip to be fixed by the directors. 7.3. Stock Certificates. Each stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity to law, be prescribed from time to time by the directors. Such certificate shall be signed by the president or a vice president and by the treasurer or an assistant treasurer. Such signatures may be facsimiles if the certificate is signed by a transfer agent, or by a registrar, other than a director, officer or employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the time of its issue. 7.4. Loss of Certificates. In the case of the alleged loss or destruction or the mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms as the directors may prescribe. Section 8. TRANSFER OF SHARES OF STOCK 8.1. Transfer on Books. Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the directors or the transfer agent of the corporation may reasonably require. Except as may be otherwise required by law, by the articles of organization or by these by-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred in the books of the corporation in accordance with the requirements of these by- laws. It shall be the duty of each stockholder to notify the corporation of his post office address. 8.2. Record Date and Closing Transfer Books. The directors may fix in advance a time, which shall not be more than sixty days before the date of any meeting of stockholders or the date for the payment of any dividend or making of any distribution to stockholders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution or the right to give such consent or dissent, and in such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date; or without fixing such record date the directors may for any of such purposes close the transfer books for all or any part of such period. Section 9. INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the extent legally permissible, indemnify each of its directors and officers (including persons who serve at its request as directors, officers or trustees of another organization in which it has any interest, as a shareholder, creditor or otherwise) against all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees, reasonably incurred by him in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, in which he may be involved or with which he may be threatened, while in office or thereafter, by reason of his being or having been such a director or officer, except with respect to any matter as to which he shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation; provided, however, that as to any matter disposed of by a compromise payment by such director or officer, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless such compromise shall be approved as in the best interests of the corporation, after notice that it involves such indemnification: (a) by a disinterested majority of the directors then in office; or (b) by a majority of the disinterested directors then in office, provided that there has been obtained an opinion in writing of independent legal counsel to the effect that such director or officer appears to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation; or (c) by the holders of a majority of the outstanding stock at the time entitled to vote for directors, voting as a single class, exclusive of any stock owned by any interested director or officer. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any director or officer may be entitled. As used in this Section, the terms "director" and "officer" include their respective heirs,executors and administrators, and an "interested" director or officer is one against whom in such capacity the proceedings in question or another proceeding on the same or similar grounds is then pending. Nothing contained in this Section shall affect any rights to indemnification to which corporate personnel other than directors and officers may be entitled by contract or otherwise under law. Section 10. CORPORATE SEAL The seal of the corporation shall, subject to alteration by the directors, consist of a flat-faced circular die with the word "Massachusetts", together with the name of the corporation and the year of its organization, cut or engraved thereon. Section 11. EXECUTION OF PAPERS Except as the directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the corporation shall be signed by the president or by one of the vice presidents or by the treasurer. Section 12. FISCAL YEAR Except as from time to time otherwise provided by the board of directors, the fiscal year of the corporation shall end on the last day of December of each year. Section 13. AMENDMENTS These by-laws may be altered, amended or repealed at any annual or special meeting of the stockholders called for the purpose, of which the notice shall specify the subject matter of the proposed alteration, amendment or repeal or the sections to be affected thereby, by vote of the stockholders, or if there shall be two or more classes or series of stock entitled to vote on the question, by vote of each such class or series. These by-laws may also be altered, amended or repealed by vote of the majority of the directors then in office, except that the directors shall not take any action which provides for indemnification of directors or affects the powers of directors or officers to contract with the corporation, nor any action to amend this Section 13, and except that the directors shall not take any action unless permitted by law. Any by-law so altered, amended or repealed by the directors may be further altered or amended or reinstated by the stockholders in the above manner. EX-4.1 4 0004.txt SPECIMEN STOCK CERTIFICATE EAGLE LOGO NUMBER SHARES BOS Cambex CORPORATION INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS CUSIP 132008 10 3 THIS CERTIFIES that SEE REVERSE FOR CERTAIN DEFINITIONS is the owner of fully-paid and non-assessable shares of the COMMON STOCK, $.10 par value, of CAMBEX CORPORATION transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and held subject to the laws of The Commonwealth of Massachusetts, the Articles of Organization of the Corporation, as amended, and the By-Laws of the Corporation, as amended. This Certificate is not valid until countersigned by the Transfer Agent. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed by the facsimile signatures of its duly authorized officers and sealed with the facsimile seal of the Corporation. Dated CAMBEX CORPORATION CORPORATE SEAL 1968 MASSACHUSETTS * CAMBEX CORPORATION /s/ David L. Cross /s/ Joseph F. Kruy TREASURER PRESIDENT COUNTERSIGNED: AMERICAN STOCK TRANSFER & TRUST COMPANY (NEW YORK, N.Y.) TRANSFER AGENT BY AUTHORIZED SIGNATURE The following abbreviations, when used in the Inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - _______ Custodian _________ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right under Uniform Gifts to Minors of survivorship and not as Act ______________________ tenants in common (State) Additional abbreviations may also be used though not in the above list. For value received, _______________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ___________________________________________ ___________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within named Corporation, with full power of substitution in the premises. Dated: _________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. EX-4.3 5 0005.txt REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of July 14, 2000, between Thumberland Limited ("Purchaser") and Cambex Corporation (the "Company"). WHEREAS, simultaneously with the execution and delivery of this Agreement, pursuant to a Common Stock Purchase Agreement dated the date hereof (the "Purchase Agreement") the Purchaser has committed to purchase up to $10,000,000 worth of the Company's Common Stock (terms not defined herein shall have the meanings ascribed to them in the Purchase Agreement); and WHEREAS, the Company desires to grant to the Purchaser the registration rights set forth herein with respect to the Shares and the Shares issuable upon exercise of the warrants from time to time (the "Warrant Shares") (hereinafter referred to collectively as the "Stock" or "Securities" of the Company). NOW, THEREFORE, in consideration of the covenants and mutual promises contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and intending to be legally bound hereby, the parties hereby agree as follows: Section 1. Registrable Securities. As used herein the term "Registrable Security" means the Securities until (i) all Securities have been disposed of pursuant to the Registration Statement, (ii) all Securities have been sold under circumstances under which all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") are met, (iii) all Securities have been otherwise transferred to persons who may trade such Securities without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such Securities not bearing a restrictive legend or (iv) such time as, in the opinion of counsel to the Company, all Securities may be sold without any time, volume or manner limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act. The term "Registrable Securities" means any and/or all of the securities falling within the foregoing definition of a "Registrable Security." In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be deemed to be made in the definition of "Registrable Security" as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Agreement. Section 2. Restrictions on Transfer. The Purchaser acknowledges and understands that in the absence of an effective Registration Statement authorizing the resale of the Securities as provided herein, the Securities are "restricted securities" as defined in Rule 144 promulgated under the Act. The Purchaser understands that no disposition or transfer of the Securities may be made by Purchaser in the absence of (i) an opinion of counsel to the Purchaser, in form and substance reasonably satisfactory to the Company, that such transfer may be made without registration under the Securities Act or (ii) such registration. With a view to making available to the Purchaser the benefits of Rule 144 under the Securities Act or any other similar rule or regulation of the Commission that may at any time permit the Purchaser to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (a) comply with the provisions of paragraph (c)(1) of Rule 144; and (b) file with the Commission in a timely manner all reports and other documents required to be filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act; and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Purchaser, make available other information as required by, and so long as necessary to permit sales of, its Registrable Securities pursuant to Rule 144. Section 3. Registration Rights With Respect to the Securities. (a) The Company agrees that it will prepare and file with the Securities and Exchange Commission ("Commission"), within forty-five (45) days after the date hereof, a registration statement (on Form SB-2, S-3 and/or S-1, or other appropriate form of registration statement) under the Securities Act (the "Registration Statement"), at the sole expense of the Company (except as provided in Section 3(c) hereof), in respect of Purchaser, so as to permit a public offering and resale of the Securities by Purchaser and other shares of Common Stock under the Act. The Company shall use its best efforts to cause the Registration Statement to become effective within five (5) days of SEC clearance to request acceleration of effectiveness. If the Registration Statement is not declared effective by October 31, 2000 this Agreement and the Purchase Agreement shall terminate. The Company will notify Purchaser of the effectiveness of the Registration Statement within one Trading Day of such event. (b) The Company will maintain the Registration Statement or post-effective amendment filed under this Section 3 hereof effective under the Securities Act until the earlier of (i) the date that none of the Securities are or may become issued and outstanding, (ii) the date that all of the Securities have been sold pursuant to the Registration Statement, (iii) the date the holders thereof receive an opinion of counsel to the Company, which counsel shall be reasonably acceptable to the Purchaser, that the Securities may be sold under the provisions of Rule 144 without limitation as to volume, (iv) all Securities have been otherwise transferred to persons who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend, or (v) all Securities may be sold without any time, volume or manner limitations pursuant to Rule 144(k) or any similar provision then in effect under the Securities Act in the opinion of counsel to the Company, which counsel shall be reasonably acceptable to the Purchaser (the "Effectiveness Period"). (c) All fees, disbursements and out-of-pocket expenses and costs incurred by the Company in connection with the preparation and filing of the Registration Statement under subparagraph 3(a) and in complying with applicable securities and Blue Sky laws (including, without limitation, all attorneys' fees of the Company) shall be borne by the Company. The Purchaser shall bear the cost of underwriting and/or brokerage discounts, fees and commissions, if any, applicable to the Securities being registered and the fees and expenses of its counsel. The Purchaser and its counsel shall have a reasonable period, not to exceed five (5) Trading Days, to review the proposed Registration Statement or any amendment thereto, prior to filing with the Commission, and the Company shall provide each Purchaser with copies of any comment letters received from the Commission with respect thereto within two (2) Trading Days of receipt thereof. The Company shall make reasonably available for inspection by Purchaser, any underwriter participating in any disposition pursuant to the Registration Statement, and any attorney, accountant or other agent retained by such Purchaser or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the Company's officers, directors and employees to supply all information reasonably requested by such Purchaser or any such underwriter, attorney, accountant or agent in connection with the Registration Statement, in each case, as is customary for similar due diligence examinations; provided, however, that all records, information and documents that are designated in writing by the Company, in good faith, as confidential, proprietary or containing any material non-public information shall be kept confidential by such Purchaser and any such underwriter, attorney, accountant or agent (pursuant to an appropriate confidentiality agreement in the case of any such Purchaser or agent), unless such disclosure is made pursuant to judicial process in a court proceeding (after first giving the Company an opportunity promptly to seek a protective order or otherwise limit the scope of the information sought to be disclosed) or is required by law, or such records, information or documents become available to the public generally or through a third party not in violation of an accompanying obligation of confidentiality; and provided further that, if the foregoing inspection and information gathering would otherwise disrupt the Company's conduct of its business, such inspection and information gathering shall, to the maximum extent possible, be coordinated on behalf of the Purchaser and the other parties entitled thereto by one firm of counsel designed by and on behalf of the majority in interest of Purchaser and other parties. The Company shall qualify any of the securities for sale in such states as such Purchaser reasonably designates and shall furnish indemnification in the manner provided in Section 6 hereof. However, the Company shall not be required to qualify in any state which will require an escrow or other restriction relating to the Company and/or the sellers, or which will require the Company to qualify to do business in such state or require the Company to file therein any general consent to service of process. The Company at its expense will supply the Purchaser with copies of the Registration Statement and the prospectus included therein and other related documents in such quantities as may be reasonably requested by the Purchaser. (d) The Company shall not be required by this Section 3 to include a Purchaser's Securities in any Registration Statement which is to be filed if, in the opinion of counsel for both the Purchaser and the Company (or, should they not agree, in the opinion of another counsel experienced in securities law matters acceptable to counsel for the Purchaser and the Company) the proposed offering or other transfer as to which such registration is requested is exempt from applicable federal and state securities laws and would result in all purchasers or transferees obtaining securities which are not "restricted securities", as defined in Rule 144 under the Securities Act. (e) If at any time or from time to time after the effective date of the Registration Statement, the Company notifies the Purchaser in writing of the existence of a Potential Material Event (as defined in Section 3(f) below), the Purchaser shall not offer or sell any Securities or engage in any other transaction involving or relating to Securities, from the time of the giving of notice with respect to a Potential Material Event until such Purchaser receives written notice from the Company that such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event; provided, however, that if the Company so suspends the right to such holders of Securities for more than twenty (20) days in the aggregate during any twelve month period, during the periods the Registration Statement is required to be in effect then the Company must compensate the Purchaser for any net decline in market value of the Securities held by Purchaser at the beginning of such suspension through the end of such suspension. If a Potential Material Event shall occur prior to the date the Registration Statement is filed, then the Company's obligation to file the Registration Statement shall be delayed without penalty for not more than thirty (30) days. The Company must give Purchaser notice in writing at least two (2) Trading Days prior to the first day of the blackout period, if lawful to do so. (f) "Potential Material Event" means any of the following: (a) the possession by the Company of material information that is not ripe for disclosure in a registration statement, as determined in good faith by the Chief Executive Officer or the Board of Directors of the Company or that disclosure of such information in the Registration Statement would be detrimental to the business and affairs of the Company; or (b) any material engagement or activity by the Company which would, in the good faith determination of the Chief Executive Officer or the Board of Directors of the Company, be adversely affected by disclosure in a registration statement at such time, which determination shall be accompanied by a good faith determination by the Chief Executive Officer or the Board of Directors of the Company that the Registration Statement would be materially misleading absent the inclusion of such information. Section 4. Cooperation with Company. Purchaser will cooperate with the Company in all respects in connection with this Agreement, including timely supplying all information reasonably requested by the Company (which shall include all information regarding the Purchaser and proposed manner of sale of the Registrable Securities required to be disclosed in the Registration Statement) and executing and returning all documents reasonably requested in connection with the registration and sale of the Registrable Securities and entering into and performing its obligations under any underwriting agreement, if the offering is an underwritten offering, in usual and customary form, with the managing underwriter or underwriters of such underwritten offering. The Purchaser hereby does consent to be named as an underwriter in the Registration Statement. Purchaser acknowledges that in accordance with current Commission policy, the Purchaser will be named as the underwriter of the Securities in the Registration Statement. Section 5. Registration Procedures. If and whenever the Company is required by any of the provisions of this Agreement to effect the registration of any of the Registrable Securities under the Act, the Company shall (except as otherwise provided in this Agreement), as expeditiously as possible, subject to the Purchaser's assistance and cooperation as reasonably required. (a) prepare and file with the Commission such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the Purchaser of such Registrable Securities shall desire to sell or otherwise dispose of the same (including prospectus supplements with respect to the sales of securities from time to time in connection with a registration statement pursuant to Rule 415 promulgated under the Act) and (ii) take all lawful action such that each of (A) the Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, not misleading and (B) the Prospectus forming part of the Registration Statement, and any amendment or supplement thereto, does not at any time during the Registration Period include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) prior to the filing with the Commission of any Registration Statement (including any amendments thereto) and the distribution or delivery of any prospectus (including any supplements thereto), provide draft copies thereof to the Purchasers and reflect in such documents all such comments as the Purchasers (and their counsel) reasonably may propose and (ii) furnish to each Purchaser such numbers of copies of a prospectus including a preliminary prospectus or any amendment or supplement to any prospectus, as applicable, in conformity with the requirements of the Act, and such other documents, as such Purchaser may reasonably request in order to facilitate the public sale or other disposition of the securities owned by such Purchaser; (c) register and qualify the Registrable Securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as the Purchaser shall reasonably request (subject to the limitations set forth in Section 3(d) above), and do any and all other acts and things which may be necessary or advisable to enable each Purchaser to consummate the public sale or other disposition in such jurisdiction of the securities owned by such Purchaser, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or to file therein any general consent to service of process; (d) list such Registrable Securities on the Principal Market, and any other exchange on which the Common Stock of the Company is then listed, if the listing of such Registrable Securities is then permitted under the rules of such exchange or the Nasdaq Stock Market; (e) notify each Purchaser at any time when a prospectus relating thereto covered by the Registration Statement is required to be delivered under the Act, of the happening of any event of which it has knowledge as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and the Company shall prepare and file a curative amendment under Section 5(a) as quickly as commercially possible; (f) as promptly as practicable after becoming aware of such event, notify each Purchaser who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the Commission or any state authority of any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time and take all lawful action to effect the withdrawal, recession or removal of such stop order or other suspension; (g) cooperate with the Purchasers to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Purchasers reasonably may request and registered in such names as the Purchaser may request; and, within three (3) Trading Days after a Registration Statement which includes Registrable Securities is declared effective by the Commission, deliver and cause legal counsel selected by the Company to deliver to the transfer agent for the Registrable Securities (with copies to the Purchasers whose Registrable Securities are included in such Registration Statement) an appropriate instruction and, to the extent necessary, an opinion of such counsel; (h) take all such other lawful actions reasonably necessary to expedite and facilitate the disposition by the Purchasers of their Registrable Securities in accordance with the intended methods therefor provided in the prospectus which are customary for issuers to perform under the circumstances; (i) in the event of an underwritten offering, promptly include or incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the managers reasonably agree should be included therein and to which the Company does not reasonably object and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after it is notified of the matters to be included or incorporated in such Prospectus supplement or post-effective amendment; and (j) maintain a transfer agent and registrar for its Common Stock. Section 6. Indemnification. (a) The Company agrees to indemnify and hold harmless the Purchaser and each person, if any, who controls the Purchaser within the meaning of the Securities Act ("Distributing Purchaser") 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 reasonable costs of defense and investigation and all reasonable attorneys' fees), to which the Distributing Purchaser may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any related preliminary prospectus, final prospectus or amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, preliminary prospectus, final prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by the Distributing Purchaser, specifically for use in the preparation thereof. This Section 6(a) shall not inure to the benefit of any Distributing Purchaser with respect to any person asserting such loss, claim, damage or liability who purchased the Registrable Securities which are the subject thereof if the Distributing Purchaser failed to send or give (in violation of the Securities Act or the rules and regulations promulgated thereunder) a copy of the prospectus contained in such Registration Statement to such person at or prior to the written confirmation to such person of the sale of such Registrable Securities, where the Distributing Purchaser was obligated to do so under the Securities Act or the rules and regulations promulgated thereunder. This indemnity agreement will be in addition to any liability, which the Company may otherwise have. (b) Each Distributing Purchaser 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 reasonable costs of defense and investigation and all reasonable attorneys' fees) to which the Company or any such officer, director or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any related preliminary prospectus, final prospectus or amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, preliminary prospectus, final prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by such Distributing Purchaser, specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability, which the Distributing Purchaser may otherwise have. Notwithstanding anything to the contrary herein, the Distributing Investor shall not be liable under this Section 6(b) for any amount in excess of the net proceeds to such Distributing Investor as a result of the sale of Registrable Securities pursuant to the Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 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 6, 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 except to the extent of actual prejudice demonstrated by the indemnifying party. 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 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless the indemnifying party shall not pursue the action to its final conclusion. The indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel reasonably satisfactory to the indemnified party; provided that if the indemnified party is the Distributing Purchaser, the fees and expenses of such counsel shall be at the expense of the indemnifying party if (i) the employment of such counsel has been specifically authorized in writing by the indemnifying party, or (ii) the named parties to any such action (including any impleaded parties) include both the Distributing Purchaser and the indemnifying party and the Distributing Purchaser shall have been advised by such counsel that there may be one or more legal defenses available to the indemnifying party different from or in conflict with any legal defenses which may be available to the Distributing Purchaser (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the Distributing Purchaser, it being understood, however, that the indemnifying party shall, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable only for the reasonable fees and expenses of one separate firm of attorneys for the Distributing Purchaser, which firm shall be designated in writing by the Distributing Purchaser). 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. All fees and expenses of the indemnified party (including reasonable costs of defense and investigation in a manner not inconsistent with this Section and all reasonable attorneys' fees and expenses) shall be paid to the indemnified party, as incurred, within ten (10) Trading Days of written notice thereof to the indemnifying party (regardless of whether it is ultimately determined that an indemnified party is not entitled to indemnification hereunder; provided, that the indemnifying party may require such indemnified party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such indemnified party is not entitled to indemnification hereunder). Section 7. 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 6 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 6 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 Distributing Purchaser 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 reasonable costs of defense and investigation and all reasonable attorneys' fees), in either such case (after contribution from others) on the basis of relative fault as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the applicable Distributing Purchaser on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Distributing Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 7. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding any other provision of this Section 7, in no event shall any (i) Purchaser be required to undertake liability to any person under this Section 7 for any amounts in excess of the dollar amount of the net proceeds to be received by such Purchaser from the sale of such Purchaser's Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) pursuant to any Registration Statement under which such Registrable Securities are to be registered under the Securities Act and (ii) underwriter be required to undertake liability to any person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it and distributed pursuant to the Registration Statement. Section 8. 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 delivered as set forth in the Purchase Agreement. Section 9. Assignment. Neither this Agreement nor any rights of the Purchaser or the Company hereunder may be assigned by either party to any other person. Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure to the benefit of, and be enforceable by, any transferee of any of the Common Stock purchased by the Purchaser pursuant to the Purchase Agreement other than through open-market sales, and (b) upon the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed in the case of an assignment to an affiliate of the Purchaser, the Purchaser's interest in this Agreement may be assigned at any time, in whole or in part, to any other person or entity (including any affiliate of the Purchaser) who agrees to be bound hereby. Section 10. Counterparts/Facsimile. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when together shall constitute but one and the same instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party. In lieu of the original, a facsimile transmission or copy of the original shall be as effective and enforceable as the original. Section 11. Remedies. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. Section 12. Conflicting Agreements. The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise prevents the Company from complying with all of its obligations hereunder. Section 13. Headings. The headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made in New York by persons domiciled in New York City and without regard to its principles of conflicts of laws. Any action may be brought as set forth in the Purchase Agreement. Any party shall have the right to seek injunctive relief from any court of competent jurisdiction in any case where such relief is available. Any dispute under this Agreement shall be submitted to arbitration under the American Arbitration Association (the "AAA") in New York City, New York, and shall be finally and conclusively determined by the decision of a board of arbitration consisting of three (3) members (hereinafter referred to as the "Board of Arbitration") selected as according to the rules governing the AAA. The Board of Arbitration shall meet on consecutive business days in New York City, New York, and shall reach and render a decision in writing (concurred in by a majority of the members of the Board of Arbitration) with respect to the amount, if any, which the losing party is required to pay to the other party in respect of a claim filed. In connection with rendering its decisions, the Board of Arbitration shall adopt and follow the laws of the State of New York. To the extent practical, decisions of the Board of Arbitration shall be rendered no more than thirty (30) calendar days following commencement of proceedings with respect thereto. The Board of Arbitration shall cause its written decision to be delivered to all parties involved in the dispute. The Board of Arbitration shall be authorized and is directed to enter a default judgment against any party refusing to participate in the arbitration proceeding with thirty days of any deadline for such participation. Any decision made by the Board of Arbitration (either prior to or after the expiration of such thirty (30) calendar day period) shall be final, binding and conclusive on the parties to the dispute, and entitled to be enforced to the fullest extent permitted by law and entered in any court of competent jurisdiction. The prevailing party shall be awarded its costs, including reasonable attorneys' fees, from the non-prevailing party as part of the arbitration award. Any party shall have the right to seek injunctive relief from any court of competent jurisdiction in any case where such relief is available. The prevailing party in such injunctive action shall be awarded its costs, including reasonable attorney's fees, from the non-prevailing party. IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed, on this 14th day of July, 2000. CAMBEX CORPORATION By: /s/ Joseph Kruy Name: Joseph Kruy Its: Chairman, President and Chief Executive Officer Thumberland Limited By: /s/ Hans Gassner Hans Gassner, Authorized Signatory EX-10.2 6 0006.txt INCENTIVE BONUS PLAN CAMBEX CORPORATION Incentive Bonus Plan The Cambex Corporation Incentive Bonus Plan is intended to advance the interests of Cambex Corporation and its wholly owned subsidiaries (the "Company") by providing incentives for its employees to increase the Company's profitability. The terms of the Incentive Bonus Plan are as follows: 1. Term. The Plan shall continue through the fiscal year ending August 31, 19__. It may be continued after that time by action of the Cambex's Board of Directors. 2. Awards. The Board of Directors may from time to time make awards to such key employees of the Company as are selected by the Board of Directors in its discretion. Each award shall represent the right to earn a percentage of the pretax profit, as defined, of the Company or one of its business segments. All awards shall be made effective as of the beginning of a fiscal quarter and shall continue until the end of the fiscal year. It is intended, although not required, that awards shall generally be made annually and shall be effective for a full fiscal year. 3. Pre-Tax Profits. In general, awards to employees will be made based on pretax profits on the entire Company. If so determined by the Board, awards may be made on the basis of the contribution to pretax profits form a particular segment of the Company's business. In any such case, the awards shall specify the method of attributing pretax profits to the segment. The maximum aggregate incentive bonus awards for any fiscal year shall be 15% of the Company's pretax profits for such year, except as provided in paragraphs 4 and 5. For the purposes of the Plan, the Company's "pretax profit" shall mean its net income before taxes, as such net income appears in its financial statements, adjusted to eliminate items occurring outside the ordinary course of business, such as any profit or loss associated with the closedown of an operation, the sale of a material amount of assets outside the ordinary course, the adjustment of indebtedness arising prior to August 1, 1976 and the like, and adjusted to eliminate as well the effect of any award under the Plan. 4. Payments. Advance payments against the payment of awards shall be made to employees promptly after the Company's finalization of its results for each of its first three fiscal quarters in each year. Such advance payments shall be cumulative and shall be in an amount equal to thirty percent of each employee's awarded percentage of pretax profits for the first quarter in a fiscal year, forty percent of each employee's awarded percentage of pretax profits for the first two quarters of such year and fifty percent of pretax profits for the first three quarters of such year. Final payment of awards shall be made promptly after the Company's audited financial statements for a fiscal year are available. The amount of the advance payments shall be credited against the amount of final payment. If the advance payments actually paid to an employee exceed the amount of the final payment, the employee shall nonetheless be entitled to retain such advance payments actually made but not to receive any deferred payments not subsequently earned. 5. Deferral. The Board of Directors may defer without interest any amount payable to an employee hereunder until such time as the Board of Directors in its sole discretion determines that the Company's cash resources permit such payment. However, payment will not be withheld if at the payment time the Company's payments to its trade creditors are less than sixty days. 6. Termination. If the employment of an employee should be terminated by the Company other than for cause, such employee shall be entitled after the availability of the Company's yearly audited financial statements to that portion of the award which he would have earned for the full fiscal year which the number of full weeks of his employment during the fiscal year is of fifty-two or if the advance payments actually paid to an employee exceed such amount, the employee shall nonetheless be entitled to retain such advance payments actually made but not to receive any deferred payments not subsequently earned. If an employee terminates voluntarily, he shall be entitled to receive, when the Company's cash resources permit, the amount of any advance payments accrued for his account as of the date of termination of his employment, but no further amounts. If an employee is terminated for cause, he shall receive no further payments hereunder for any reason unless the Board of Directors in its discretion shall otherwise determine, but he shall be entitled to retain any advance payments actually made to him. 7. No Employment or Other Rights. No allocation of an award participation to an employee shall impose any obligation on the Company or any subsidiary to continue such employee's employment nor shall it affect in any way the right of the Company or any subsidiary to terminate the employment relationship. Moreover, the loss of any expected benefits under this Plan shall not be an element of damage arising from any alleged wrongful termination of employment. 8. Administration of the Plan. The Plan shall be administered by the Board of Directors which subject to the express provisions of this Plan shall interpret its provisions and decide all questions and resolve all disputes which may arise in connection therewith. Such determinations shall be conclusive and shall bind all parties. 9. Nontransferability of Awards. No award, nor any interest therein, shall be transferable (by sale, pledge, gift or otherwise), and payments shall be made only to the employee, or in the case of his death, to his estate. Adopted: April 2, 1980 EX-10.22 7 0007.txt COMMON STOCK PURCHASE AGREEMENT - THUMBERLAND COMMON STOCK PURCHASE AGREEMENT This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of July 14, 2000 by and between Cambex Corporation, a Massachusetts corporation (the "Company"), and Thumberland Limited, a British Virgin Islands Corporation (the "Purchaser"). NOW, THEREFORE, in consideration of the covenants and mutual promises contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and intending to be legally bound hereby, the parties hereby agree as follows: ARTICLE I Definitions Section 1.1 Certain Definitions. (a) "Average Daily Price" shall be the price based on the VWAP of the Company on the OTC Bulletin Board or, if the OTC Bulletin Board is not the Principal Market, on the Principal Market. (b) "Draw Down" shall have the meaning assigned to such term in Section 6.1(a) hereof. (c) "Draw Down Exercise Date" shall have the meaning assigned to such term in Section 6.1(b) hereof. (d) "Draw Down Pricing Period" shall mean a period of twenty-two (22) consecutive Trading Days beginning on the date specified in the Draw Down Notice. (e) "Effective Date" shall mean the date the Registration Statement of the Company covering the Shares being subscribed for hereby is declared effective. (f) "Investment Amount" shall have the meaning assigned to such term in Section 6.1(e) hereof. (g) "Material Adverse Effect" shall mean any adverse effect on the business, operations, properties 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 materially interfere with the ability of the Company to perform any of its material obligations under this Agreement or the Registration Rights Agreement or to perform its obligations under any other material agreement. (h) "Principal Market" shall mean initially the OTC Bulletin Board, and shall include the American Stock Exchange, the Nasdaq National Market, the Nasdaq SmallCap Market or the New York Stock Exchange if the Company's shares of Common Stock hereafter are listed and trades on such market or exchange. (i) "Registration Statement" shall mean the registration statement under the Securities Act of 1933, as amended, to be filed with the Securities and Exchange Commission for the registration of the Shares pursuant to the Registration Rights Agreement attached hereto as Exhibit A. (j) "SEC Documents" shall mean the Company's latest Form 10-K as of the time in question, all Forms 10-Q and 8-K 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. (k) "Shares" shall mean, collectively, the shares of Common Stock of the Company being subscribed for hereunder and those shares of Common Stock issuable to the Purchaser upon exercise of the Warrants. (l) "Threshold Price" is the lowest Average Daily Price at which the Company will sell its Common Stock with respect to this Agreement. (m) "Trading Day" shall mean any day on which the Principal Market is open for business. (n) "VWAP" shall mean the daily volume weighted average price of the Company's Common Stock on the OTC Bulletin Board or on any Principal Market as reported by Bloomberg Financial using the AQR function. ARTICLE II Purchase and Sale of Common Stock Section 2.1 Purchase and Sale of Stock. Subject to the terms and conditions of this Agreement, the Company, at its sole and exclusive option, may issue and sell to the Purchaser and the Purchaser shall purchase from the Company up to Ten Million Dollars ($10,000,000) (the "Commitment Amount") of the Company's Common Stock, $0.10 par value per share (the "Common Stock"), based on up to eighteen (18) Draw Downs of (i) as to the first Draw Down only, up to Two Million Dollars ($2,000,000) and (ii) as to any subsequent Draw Downs, up to One Million Dollars ($1,000,000) per Draw Down. Section 2.2 The Shares. The Company has authorized and has reserved and covenants to continue to reserve, free of preemptive rights and other similar contractual rights of stockholders, a sufficient number of its authorized but unissued shares of its Common Stock to cover the Shares to be issued in connection with all Draw Downs requested under this Agreement. Anything in this Agreement to the contrary notwithstanding, the Company may not make a Draw Down to the extent that, after such purchase by the Purchaser, the sum of the number of shares of Common Stock beneficially owned by the Purchaser and its affiliates would result in beneficial ownership by the Purchaser and its affiliates of more than 9.9%. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities and Exchange Act of 1934, as amended, and the Regulations promulgated thereunder. Section 2.3 Purchase Price and Closing. The Company agrees to issue and sell to the Purchaser and, in consideration of and in express reliance upon the representation, warranties, covenants, terms and conditions of this Agreement, the Purchaser agrees to purchase that number of the Shares to be issued in connection with each Draw Down. The delivery of executed documents under this Agreement and the other agreements referred to herein and the payment of fees set forth in Articles II of the Escrow Agreement (the "Closing") shall take place at the offices of Epstein Becker & Green, P.C., 250 Park Avenue, New York, New York 10177 within fifteen (15) days of the date hereof, or (ii) such other time and place or on such date as the Purchaser and the Company may agree upon (the "Closing Date"). Each party shall deliver all documents, instruments and writings required to be delivered by such party pursuant to this Agreement at or prior to the Closing. ARTICLE III Representations and Warranties Section 3.1 Representation and Warranties of the Company. The Company hereby makes the following representations and warranties to the Purchaser: (a) Organization, Good Standing and Power. The Company is a corporation duly incorporated validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has all requisite corporate authority to own, lease and operate its properties and assets and to carry on its business as now being conducted. Except as set forth in the SEC Documents or on Schedule 3.1(a), the Company does not have any subsidiaries and does not own more that fifty percent (50%) of or control any other business entity. Except as set forth in the SEC Documents or on Schedule 3.1(a), the Company is duly qualified and is in good standing as a foreign corporation to do business in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those in which the failure so to qualify would not have a Material Adverse Effect. (b) Authorization, Enforcement. (i) The Company has the requisite corporate power and corporate authority to enter into and perform its obligations under this Agreement, the Registration Rights Agreement, the Escrow Agreement and to issue the Shares pursuant to the respective terms of such agreements, (ii) the execution and delivery of this Agreement, the Registration Rights Agreement and the Escrow Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors or stockholders is required, and (iii) this Agreement, the Registration Rights Agreement and the Escrow Agreement have been duly executed and delivered by the Company and at the initial Closing shall constitute valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. The Company has duly and validly authorized and reserved for issuance shares of Common Stock sufficient in number for the issuance of the Shares. (c) Capitalization. As of March 28, 2000, the authorized capital stock of the Company consists of 25,000,000 shares of Common Stock, of which 9,635,259 shares are issued and outstanding and 3,000,000 shares of preferred stock, $1.00 par value per share, none of which have been issued. All of the outstanding shares of the Company's Common Stock have been duly and validly authorized and are fully-paid and non- assessable. Except as set forth in this Agreement and the Registration Rights Agreement and as set forth in the SEC Documents or on Schedule 3.1(c) hereto, no shares of Common Stock are entitled to preemptive rights or registration rights and there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company. Furthermore, except as set forth in this Agreement and as set forth in the SEC Documents or on Schedule 3.1(c) hereto, there are no contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of the capital stock of the Company or options, securities or rights convertible into shares of capital stock of the Company. Except as set forth in the SEC Documents or on Schedule 3.1(c) hereto, the Company is not a party to any agreement granting registration rights to any person with respect to any of its equity or debt securities. The Company is not a party to, and it has no knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of the Company. Except as set forth in the SEC Documents or on Schedule 3.1(c) hereto, the offer and sale of all capital stock, convertible securities, rights, warrants, or options of the Company issued prior to the Closing complied with all applicable federal and state securities laws, and no stockholder has a right of rescission or damages with respect thereto which would have a Material Adverse Effect on the Company's financial condition or operating results. The Company has made available to the Purchaser true and correct copies of the Company's Articles of Organization as in effect on the date hereof (the "Articles"), and the Company's Bylaws as in effect on the date hereof (the "Bylaws"). The Principal Market for the Common Stock in the United States is the OTC Bulletin Board, and the Company has not received any notice from such market questioning or threatening the continued inclusion of the Common Stock on such market. (d) Issuance of Shares. The Shares to be issued under this Agreement have been duly authorized by all necessary corporate action and, when paid for or issued in accordance with the terms hereof, the Shares shall be validly issued and outstanding, fully paid and non-assessable, and the Purchaser shall be entitled to all rights accorded to a holder of Common Stock. (e) No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated herein do not and will not (i) violate any provision of the Company's Articles or Bylaws, (ii) conflict with, or constitute a default (or an event which 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, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Company is a party, (iii) create or impose a lien, charge or encumbrance on any property of the Company under any agreement or any commitment to which the Company is a party or by which the Company is bound or by which any of its respective properties or assets are bound, or (iv) result in a violation of any federal, state, local or other foreign statute, rule, regulation, order, judgment or decree (including any federal or state securities laws and regulations) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries are bound or affected, except, in all cases, for such conflicts, defaults, termination, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect. The Company is not required under any 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 Shares in accordance with the terms hereof (other than any filings which may be required to be made by the Company with the Securities and Exchange Commission (the "Commission") or state securities administrators subsequent to the Closing and any registration statement which may be filed pursuant hereto); provided that, for purpose of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of the Purchaser herein. (f) SEC Documents, Financial Statements. The Common Stock of the Company is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, except as disclosed in the SEC Documents or on Schedule 3.1(f) hereto, since December 31, 1998, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the Commission pursuant to the reporting requirements of the Exchange Act, including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act. The Company has delivered or made available to the Purchaser true and complete copies of the SEC Documents filed with the Commission since December 31, 1998. The Company has not provided to the Purchaser any information which, according to applicable law, rule or regulation, should have been disclosed publicly by the Company but which has not been so disclosed, other than with respect to the transactions contemplated by this Agreement. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder applicable to such documents, and, as of their respective dates, none of the SEC Documents contained any untrue statement of a material fact or omitted 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 Commission or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") 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 and its subsidiaries 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). (g) Subsidiaries. The SEC Documents or Schedule 3.1(g) hereto sets forth each subsidiary of the Company, showing the jurisdiction of its incorporation or organization and showing the percentage of each person's ownership of the outstanding stock or other interests of such subsidiary. For the purposes of this Agreement, "subsidiary" shall mean any corporation or other entity of which at least a majority of the securities or other ownership interests having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by the Company and/or any of its other subsidiaries. All of the outstanding shares of capital stock of each subsidiary have been duly authorized and validly issued, and are fully paid and non-assessable. There are no outstanding preemptive, conversion or other rights, options, warrants or agreements granted or issued by or binding upon any subsidiary for the purchase or acquisition of any shares of capital stock of any subsidiary or any other securities convertible into, exchangeable for or evidencing the rights to subscribe for any shares of such capital stock. Neither the Company nor any subsidiary is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of the capital stock of any subsidiary or any convertible securities, rights, warrants or options of the type described in the preceding sentence. Neither the Company nor any subsidiary is a party to, nor has any knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of any subsidiary. (h) No Material Adverse Effect. Since April 1, 2000, no Material Adverse Effect has occurred or exists with respect to the Company, except as disclosed in the SEC Documents or on Schedule 3.1(h) hereof. (i) No Undisclosed Liabilities. Except as disclosed in the SEC Documents or on Schedule 3.1(i) hereto, neither the Company nor any of its subsidiaries has any liabilities, obligations, claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise) that would be required to be disclosed on a balance sheet of the Company or any subsidiary (including the notes thereto) in conformity with GAAP which are not disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company's or its subsidiaries respective businesses since such date and which, individually or in the aggregate, do not or would not have a Material Adverse Effect on the Company or its subsidiaries. (j) No Undisclosed Events or Circumstances. Since April 1, 2000, 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. (k) Indebtedness. The SEC Documents or Schedule 3.1(k) hereto sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any subsidiary, or for which the Company or any subsidiary has commitments. For the purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed money or amounts owed in excess of $250,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company's balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $250,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any subsidiary is in default with respect to any Indebtedness. (l) Title to Assets. Each of the Company and the subsidiaries has good and marketable title to all of its real and personal property reflected in the SEC Documents, free of any mortgages, pledges, charges, liens, security interests or other encumbrances, except for those indicated in the SEC Documents or on Schedule 3.1(1) hereto or such that do not cause a Material Adverse Effect on the Company's financial condition or operating results. All said leases of the Company and each of its subsidiaries are valid and subsisting and in full force and effect. (m) Actions Pending. There is no action, suit, claim, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company or any subsidiary which questions the validity of this Agreement or the transactions contemplated hereby or any action taken or to be taken pursuant hereto or thereto. Except as set forth in the SEC Documents or on Schedule 3.1(m) hereto, there is no action, suit, claim, investigation or proceeding pending or, to the knowledge of the Company, threatened, against or involving the Company, any subsidiary or any of their respective properties or assets. There are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or governmental or regulatory body against the Company or any subsidiary. (n) Compliance with Law. The business of the Company and its subsidiaries has been and is presently being conducted in accordance with all applicable federal, state and local governmental laws, rules, regulations and ordinances, except as set forth in the SEC Documents or on Schedule 3.1(n) hereto, except for possible violation which singularly or in the aggregate do not and will not cause a Material Adverse Effect. The Company and each of its subsidiaries have all franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals necessary for the conduct of their respective businesses as now being conducted by them unless the failure to possess such franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (o) Taxes. Since December 31, 1998, the Company and each subsidiary has filed all Tax Returns which it is required to file under applicable laws; all such Tax Returns are true and accurate in all material respects and have been prepared in compliance with all applicable laws; the Company has paid all Taxes due and owing by it or any subsidiary (whether or not such Taxes are required to be shown on a Tax Return) and have withheld and paid over to the appropriate taxing authorities all Taxes which it is required to withhold from amounts paid or owing to any employee, stockholder, creditor or other third parties, and since December 31, 1998, the charges, accruals and reserves for Taxes with respect to the Company (including any provisions for deferred income taxes) reflected on the books of the Company are adequate to cover any Tax liabilities of the Company if its current tax year were treated as ending on the date hereof. To the Company's knowledge, no claim has been made by a taxing authority in a jurisdiction where the Company does not file tax returns that the Company or any subsidiary is or may be subject to taxation by that jurisdiction. There are no foreign, federal, state or local tax audits or administrative or judicial proceedings pending or being conducted with respect to the Company or any subsidiary; no information related to Tax matters has been requested by any foreign, federal, state or local taxing authority; and, except as disclosed above, no written notice indicating an intent to open an audit or other review has been received by the Company or any subsidiary from any foreign, federal, state or local taxing authority. There are no material unresolved questions or claims concerning the Company's Tax liability. The Company (A) has not executed or entered into a closing agreement pursuant to 7121 of the Internal Revenue Code or any predecessor provision thereof or any similar provision of state, local or foreign law; and (B) has not agreed to or is required to make any adjustments pursuant to 481 (a) of the Internal Revenue Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by the Company or any of its subsidiaries or has any knowledge that the IRS has proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of the Company. The Company has not been a United States real property holding corporation within the meaning of 897(c)(2) of the Internal Revenue Code during the applicable period specified in 897(c)(1)(A)(ii) of the Internal Revenue Code. The Company has not made an election under 341(f) of the Internal Revenue Code. The Company is not liable for the Taxes of another person that is not a subsidiary of the Company under (A) Treas. Reg. 1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a transferee or successor, (C) by contract or indemnity or (D) otherwise. The Company is not a party to any tax sharing agreement. The Company has not made any payments, is not obligated to make payments or is not a party to an agreement that could obligate it to make any payments that would not be deductible under 280G of the Internal Revenue Code. For purposes of this Section 3.1(o): "IRS" means the United States Internal Revenue Service. "Tax" or "Taxes" means federal, state, county, local, foreign, or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, environmental, communications, real or personal property, capital stock, license, payroll, wage or other withholding, employment, social security, severance, stamp, occupation, alternative or add-on minimum, estimated and other taxes of any kind whatsoever (including, without limitation, deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or not. "Tax Return" means any return, information report or filing with respect to Taxes, including any schedules attached thereto and including any amendment thereof. (p) Certain Fees. Except as set forth on Schedule 3.1(p) hereto, no brokers, finders or financial advisory fees or commissions will be payable by the Company or any subsidiary with respect to the transactions contemplated by this Agreement. (q) Disclosure. To the best of the Company's knowledge, neither this Agreement or the Schedules hereto nor any other documents, certificates or instruments furnished to the Purchaser by or on behalf of the Company or any subsidiary in connection with the transactions contemplated by this Agreement contain any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made herein or therein, in the light of the circumstances under which they were made herein or therein, not misleading. (r) Operation of Business. The Company and each of the subsidiaries owns or possesses all patents, trademarks, service marks, trade names, copyrights, licenses and authorizations as set forth in the SEC Documents or on Schedule 3.1(r) hereto, and all rights with respect to the foregoing, which are necessary for the conduct of its business as now conducted without any conflict with the rights of others. (s) Regulatory Compliance. The Company has all necessary licenses, registrations and permits to conduct its business as now being conducted in all states where the Company conducts its business. (t) Books and Records. The records and documents of the Company and its subsidiaries accurately reflect in all material respects the information relating to the business of the Company and the subsidiaries, the location and collection of their assets, and the nature of all transactions giving rise to the obligations or accounts receivable of the Company or any subsidiary. (u) Material Agreements. Except as set forth in the SEC Documents, or on Schedule 3.1(u) hereto, neither the Company nor any subsidiary is a party to any written or oral contract, instrument, agreement, commitment, obligation, plan, or arrangement, a copy of which would be required to be filed with the Commission as an exhibit to a registration statement on Form 10-K or other applicable form (collectively, "Material Agreements") if the Company or any subsidiary were registering securities under the Securities Act of 1933, as amended ( the "Securities Act"). The Company and each of its subsidiaries has in all material respects performed all the obligations required to be performed by them to date under the foregoing agreements, have received no notice of default and, to the best of the Company's knowledge are not in default under any Material Agreement now in effect, the result of which could cause a Material Adverse Effect. Except as set forth in the SEC Documents or on Schedule 3.1(u) hereto, no written or oral contract, instruments, agreement, commitment, obligation, plan or arrangement of the Company or of any subsidiary limits or shall limit the payment of dividends on the Company's Common Stock. (v) Transactions with Affiliates. Except as set forth in the SEC Documents or on Schedule 3.1(v) hereto, there are no loans, leases, agreements, contracts, royalty agreements, management contracts or arrangements or other continuing transactions exceeding $100,000 between (a) the Company, any subsidiary or any of their respective customers or suppliers on the one hand, and (b) on the other hand, any officer, employee, consultant or director of the Company, or any of its subsidiaries, or any person owning any capital stock of the Company or any subsidiary or any member of the immediately family of such officer, employee, consultant, director or stockholder or any corporation or other entity controlled by such officer, employee, consultant, director or stockholder, or a member of the immediate family of such officer, employee, consultant, director or stockholder. (w) Securities Act of 1933. The Company has complied with all applicable federal and state securities laws in connection with the offer, issuance and sale of the Shares hereunder. Neither the Company nor anyone acting on its behalf, directly or indirectly, has or will sell, offer to sell or solicit offers to buy the Shares or similar securities to, or solicit offers with respect thereto from, or enter into any preliminary conversations or negotiations relating thereto with, any person (other than the Purchaser), so as to bring the issuance and sale of the Shares and/or Warrants under the registration provisions of the Securities Act and applicable state securities laws. Neither the Company nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Shares. (x) [INTENTIONALLY DELETED] (y) Employees. Neither the Company nor any subsidiary has any collective bargaining arrangements or agreements covering any of its employees, except as set forth in the SEC Documents or on Schedule 3(y) hereto. Except as set forth in the SEC Documents or on Schedule 3(y) hereto, neither the Company nor any subsidiary is in material breach of any employment contract, agreement regarding proprietary information, noncompetition agreement, nonsolicitation agreement, confidentiality agreement, or any other similar contract or restrictive covenant, relating to the right of any officer, employee or consultant to be employed or engaged by the Company or such subsidiary. Since the date of the December 31, 1999, Form 10-K, no officer, consultant or key employee of the Company or any subsidiary whose termination, either individually or in the aggregate, could have a Material Adverse Effect, has terminated or, to the knowledge of the Company, has any present intention of terminating his or her employment or engagement with the Company or any subsidiary. (z) Absence of Certain Developments. Except as provided in SEC Documents or in Schedule 3.1(z) hereto, since April 1, 2000 neither the Company nor any subsidiary has: (i) issued any stock, bonds or other corporate securities or any rights, options or warrants with respect thereto; (ii) borrowed any amount or incurred or become subject to any liabilities (absolute or contingent) except current liabilities incurred in the ordinary course of business which are comparable in nature and amount to the current liabilities incurred in the ordinary course of business during the comparable portion of its prior fiscal year, as adjusted to reflect the current nature and volume of the Company's or such subsidiary's business; (iii) discharged or satisfied any lien or encumbrance or paid any obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business; (iv) declared or made any payment or distribution of cash or other property to stockholders with respect to its stock, or purchased or redeemed, or made any agreements so to purchase or redeem, any shares of its capital stock; (v) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business; (vi) sold, assigned or transferred any patent rights, trademarks, trade names, copyrights, trade secrets or other intangible assets or intellectual property rights, or disclosed any proprietary confidential information to any person except to customers in the ordinary course of business or to the Purchaser or its representatives; (vii) 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 prospective business; (viii) made any changes in employee compensation except in the ordinary course of business and consistent with past practices; (ix) made capital expenditures or commitments therefor in excess of $500,000; (x) entered into any other material transaction not in the ordinary course of business; (xi) suffered any material damage, destruction or casualty loss, whether or not covered by insurance; (xii) experienced any material problems with labor or management in connection with the terms and conditions of their employment; or (xiii) effected any two or more events of the foregoing kind which in the aggregate would be material to the Company or its subsidiaries. (aa) Use of Proceeds. The proceeds from the sale of the Shares will be used by the Company and its subsidiaries for general corporate purposes, including for working capital and the prepayment and repayment of debt. (bb) Acknowledgment Regarding Purchaser's Purchase of Shares. Company acknowledges and agrees that Purchaser is acting solely in the capacity of arm's length purchaser with respect to this Agreement and the transactions contemplated hereunder. The Company further acknowledges that the Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereunder and any advice given by the Purchaser or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereunder is merely incidental to the Purchaser's purchase of the Shares. The Company further represents to the Purchaser that the Company's decision to enter into this Agreement has been based solely on the independent evaluation by the Company and its own representatives and counsel. Section 3.2 Representations and Warranties of the Purchaser. The Purchaser hereby makes the following representations and warranties to the Company: (a) Organization and Standing of the Purchaser. The Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of British Virgin Islands. (b) Authorization and Power. The Purchaser has the requisite power and authority to enter into and perform this Agreement and to purchase the Shares being sold to it hereunder. The execution, delivery and performance of this Agreement by Purchaser and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action. (c) No Conflicts. The execution, delivery and performance of this Agreement and the consummation by the Purchaser of the transactions contemplated hereby or relating hereto do not and will not (i) result in a violation of such Purchaser's charter documents or bylaws or (ii) conflict with, or constitute a default (or an event which 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, indenture or instrument to which the Purchaser is a party, or result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to the Purchaser or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a Material Adverse Effect on Purchaser). The Purchaser is not required 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 to purchase the Shares in accordance with the terms hereof, provided that for purposes of the representation made in this sentence, the Purchaser is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein. (d) Financial Risks. The Purchaser acknowledges that it is able to bear the financial risks associated with an investment in the Shares and that it has been given full access to such records of the Company and the subsidiaries and to the officers of the Company and the subsidiaries as it has deemed necessary or appropriate to conduct its due diligence investigation. The Purchaser is capable of evaluating the risks and merits of an investment in the Shares by virtue of its experience as an investor and its knowledge, experience, and sophistication in financial and business matters and the Purchaser is capable of bearing the entire loss of its investment in the Shares. (e) Accredited Investor. The Purchaser is an "accredited investor" as defined in Regulation D promulgated under the Securities Act. (f) Compliance With Law. The Purchaser's trading and distribution activities with respect to the Shares will be in compliance with all applicable state and federal securities laws, rules and regulations and the rules and regulations of the Principal Market. (g) General. The Purchaser understands that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the suitability of the Purchaser to acquire the Shares. ARTICLE IV Covenants The Company covenants with the Purchaser as follows: Section 4.1 Securities Compliance. If applicable, the Company shall notify the NASD, in accordance with their rules and regulations, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Shares and the Warrants to the Purchaser or subsequent holders. Section 4.2 Registration and Listing. The Company will use reasonable efforts to cause its Common Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in all respects with its reporting and filing obligations under the Exchange Act, will comply with all requirements related to any registration statement filed pursuant to this Agreement, and will not take any action or file any document (whether or not permitted by the Securities Act or the rules promulgated thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under the Exchange Act or Securities Act, except as permitted herein. The Company will take all commercially reasonable action to continue the listing or trading of its Common Stock on the OTC Bulletin Board or another Principal Market and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the NASD and the OTC Bulletin Board. Section 4.3 Registration Statement. The Company shall use its reasonable best efforts to cause to be filed the Registration Statement, which Registration Statement shall provide for the resale of the Shares by the Purchaser to the public in accordance with this Agreement. The Company shall cause such Registration Statement to be declared effective by the Commission as expeditiously as practicable. Before the Purchaser shall be obligated to accept a Draw Down request from the Company, the Company shall have caused a sufficient number of shares of Common Stock to be registered to cover the Shares to be issued in connection with such Draw Down. Section 4.4 Escrow Arrangement. The Company shall enter into an escrow arrangement with the Purchaser and Epstein Becker & Green, P.C. (the "Escrow Agent") in the Form of Exhibit B hereto respecting payment against delivery of the Shares. Section 4.5 Compliance with Laws. The Company shall comply, and cause each subsidiary to comply, with all applicable laws, rules, regulations and orders, noncompliance with which could have a Material Adverse Effect. Section 4.6 Keeping of Records and Books of Account. The Company shall keep and cause each subsidiary to keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Company and its subsidiaries, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made. Section 4.7 Amendments. The Company shall not amend or waive any provision of its Articles of Organization or Bylaws of the Company in any way that would adversely affect the dividend rights or voting rights of the holders of the Shares. Section 4.8 Other Agreements. The Company shall not enter into any agreement the terms of which such agreement would restrict or impair the right to perform of the Company or any subsidiary under this Agreement. Section 4.9 Notice of Certain Events Affecting Registration; Suspension of Right to Request a Draw Down. The Company will immediately notify the Purchaser upon the occurrence of any of the following events in respect of the Registration Statement or related prospectus in respect of the Shares: (i) receipt of any request for additional information from the Commission or any other federal or state governmental authority during the period of effectiveness of the Registration Statement the response to which would require any amendments or supplements to the Registration Statement or related prospectus; (ii) the issuance by the Commission 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 Shares 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; and the Company will promptly make available to the Purchaser any such supplement or amendment to the related prospectus. The Company shall not deliver to the Purchaser any Draw Down Notice during the continuation of any of the foregoing events. Section 4.10 Consolidation; Merger. 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 or by operation of law the obligation to deliver to the Purchaser such shares of stock and/or securities as the Purchaser may be entitled to receive pursuant to this Agreement. Section 4.11 Limitation on Future Financing. The Company agrees that, except as set forth below, it will not enter into any sale of its securities for cash at a discount to the current market price until the earlier of (i) eighteen (18) months from the effective date of the Registration (ii) thirty (30) days after the entire $10,000,000 of Shares (excluding the Shares underlying the Warrants) has been purchased by Purchaser or (iii) thirty (30) days after termination of this Agreement pursuant to the provisions of Sections 7.1, 7.2(a) or 7.2(b) hereof. The foregoing shall not prevent or limit the Company from engaging in any sale of securities (i) in a registered public offering by the Company which is underwritten by one or more established investment banks, (ii) in one or more private placements where the purchasers do not have registration rights, (iii) pursuant to any presently existing or future employee benefit plan which plan has been or is approved by the Company's stockholders, (iv) pursuant to any compensatory plan for a full-time employee or key consultant, (v) in connection with a strategic partnership or other business transaction, the principal purpose of which is not simply to raise money or (vi) to which Purchaser gives its written approval. The Purchaser covenants with the Company as follows: 4.12 No Short Sales. The Purchaser and its affiliates shall not engage in short sales of the Company's Common Stock (as defined in applicable SEC and NASD rules) during the term of this Agreement. 4.13 Notice of Beneficial Ownership. At the request of the Company, upon delivering a Draw Down Notice to the Purchaser, the Purchaser shall inform the Company of the current number of shares of Common Stock and Warrants beneficially owned by the Purchaser and its affiliates. ARTICLE V Conditions to Closing and Draw Downs Section 5.1 Conditions Precedent to the Obligation of the Company to Sell the Shares. The obligation hereunder of the Company to issue and sell the Shares to the Purchaser is subject to the satisfaction or waiver, at or before the Closing and as of each Draw Down Exercise Date, of each of the conditions set forth below. These conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion. (a) Accuracy of the Purchaser's Representations and Warranties. The representations and warranties of the Purchaser shall be true and correct in all material respects as of the date when made and as of the Closing and as of each Draw Down Exercise Date as though made at that time, except for representations and warranties that speak as of a particular date. (b) Performance by the Purchaser. The Purchaser shall have performed, satisfied and complied in all material respects with all material covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Purchaser at or prior to the Closing and as of each Draw Down Exercise Date. (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. Section 5.2 Conditions Precedent to the Obligation of the Purchaser to Close at the Closing. The obligation hereunder of the Purchaser to perform its obligations under this Agreement and to purchase the Shares is subject to the satisfaction or waiver, at or before the Closing, of each of the conditions set forth below. These conditions are for the Purchaser's sole benefit and may be waived by the Purchaser at any time in its sole discretion. (a) Accuracy of the Company's Representations and Warranties. Each of the representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing as though made at that time (except for representations and warranties that speak as of a particular date). (b) Performance by the Company. The Company shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing. (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. (d) No Proceedings or Litigation. No action, suit or proceeding before any arbitrator or any governmental authority shall have been commenced, and no investigation by any governmental authority shall have been threatened, against the Purchaser or the Company or any subsidiary, or any of the officers, directors or affiliates of the Company or any subsidiary seeking to restrain, prevent or change the transactions contemplated by this Agreement, or seeking damages in connection with such transactions. (e) Opinion of Counsel, Etc. At the Closing, the Purchaser shall have received an opinion of counsel to the Company, dated the date of Closing, in the form of Exhibit C hereto, and such other customary closing certificates and documents as the Purchaser or its counsel shall reasonably require incident to the Closing. (f) Warrants. In lieu of a minimum Draw Down commitment by the Company, the Purchaser shall receive a warrant certificate to purchase up to a number of shares determined by dividing $500,000 by the average VWAP on the five (5) Trading Days immediately prior to the Closing Date (the "Warrants"). The Warrants shall have an exercise price equal to 115% of the average VWAP on the five (5) Trading Days immediately preceding the Closing Date and a term of three (3) years. The Common Stock underlying the Warrant will be registered in the Registration Statement referred to in Section 4.3 hereof. The Warrant shall be in the form of Exhibit E hereof. Section 5.3 Conditions Precedent to the Obligation of the Purchaser to Accept a Draw Down and Purchase the Shares. The obligation hereunder of the Purchaser to accept a Draw Down request and to acquire and pay for the Shares is subject to the satisfaction, at or before each Draw Down Exercise Date, of each of the conditions set forth below. (a) Satisfaction of Conditions to Closing. The Company shall have satisfied, or the Purchaser shall have waived at the Closing, the conditions set forth in Section 5.2 hereof (b) Effective Registration Statement. The Registration Statement registering the Shares shall have been declared effective by the Commission and shall remain effective on each Draw Down Exercise Date. (c) No Suspension. Trading in the Company's Common Stock shall not have been suspended by the Commission or the Principal Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the delivery of each Draw Down Notice), and, at any time prior to such Draw Down Notice, trading in securities generally as reported on the Principal Market shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported on the Principal Market (unless the general suspension or limitation shall have been terminated prior to the delivery of such Draw Down Notice). (d) Material Adverse Effect. No Material Adverse Effect and no Consolidation Event where the successor entity has not agreed to perform the Company's obligations shall have occurred. (e) Opinion of Counsel The Purchaser shall have received a "down-to-date" letter from the Company's counsel, confirming that there is no change from the counsel's previously delivered opinion, or else specifying with particularity the reason for any change. (f) Future Financing. The Company shall have not completed any financing prohibited by Section 4.11 unless, prior to the Company delivering a Draw Down Notice after any such financing, the Company pays the Purchaser the sum of $100,000 as liquidated damages. ARTICLE VI Draw Down Terms Section 6.1 Draw Down Terms. Subject to the satisfaction of the conditions set forth in this Agreement, the parties agree as follows: (a) The Company, may, in its sole discretion, issue a notice to the Purchaser of the Company's intent to sell Shares to the Purchaser (a "Draw Down") during each Draw Down Pricing Period, which Draw Down the Purchaser is obligated to accept. (b) Only one Draw Down shall be allowed in each Draw Down Pricing Period. The price per share paid by the Purchaser shall be the Average Daily Price on each separate Trading Day during the Draw Down Pricing Period. The number of shares of Common Stock purchased by the Purchaser with respect to each Draw Down shall be determined on a daily basis during each Draw Down Pricing Period and settled on, (i) as to the 1st through the 11th Trading Days after a Draw Down Pricing Period commences, on the 13th Trading Day after a Draw Down Pricing Period commences, and (ii) as to the 12th through the 22nd Trading Days after a Draw Down Pricing Period commences, the 24th Trading Day after a Draw Down Pricing Period (each, a "Draw Down Exercise Date"). In connection with each Draw Down Pricing Period, the Company may set an Average Daily Price below which the Company will not sell any Shares (the "Threshold Price"). If the Average Daily Price on any day within the Draw Down Pricing Period is less than the Threshold Price, the Company shall not sell and the Purchaser shall not be obligated to purchase the Shares otherwise to be purchased for such day. The Company shall have the right to issue and exercise a Draw Down of up to (i) as to the first Draw Down only, $2,000,000 (ii) as to all subsequent Draw Downs, $1,0000,000 per Draw Down of the Company's Common. Each Draw Down is subject to the limitations set forth immediately below, until the aggregate amount purchased under this Agreement equals Ten Million Dollars ($10,000,000). (c) The minimum Draw Down shall be $250,000, except that if the remaining Commitment Amount is less than $250,000, the Investment Amount (as defined below) shall be equal to such remaining Commitment Amount. (d) The maximum dollar amount of each Draw Down during any Draw Down Pricing Period shall be limited pursuant to the following formula: Average Stock Price: Average of the Average Daily Prices for the 22 Trading Days prior to the Draw Down Notice date. Average Trading Volume: Average daily trading volume for the 45 Trading Days prior to the Draw Down Notice date. Maximum dollar amount of each Draw Down: 20% of (Average Stock Price x (Average Trading Volume x 22)) the number of Shares of Common Stock to be issued in connection with each Draw Down shall be equal to the sum of the quotients (for each trading day within the Draw Down Pricing Period) of (x) 1/22nd of the Draw Down amount and (y) 93% of the Average Daily Price of the Common Stock on each Trading Day within the Draw Down Pricing Period. If the Average Daily Price on a given Trading Day is less than the Threshold Price, then the Purchaser's Draw Down will be reduced by 1/22nd and that day shall be withdrawn from the Draw Down Pricing Period, except that the Purchaser in its sole discretion may purchase such shares at the Threshold Price. (e) The Company must inform the Purchaser of the amount of the Draw Down (the "Investment Amount") by delivering a Draw Down Notice, in the form of Exhibit D hereto, via facsimile transmission as to the amount of the Draw Down the Company wishes to exercise before the first day of the Draw Down Pricing Period (the "Draw Down Notice"). The Company may set the Threshold Price, if any, prior to the commencement of each Draw Down Pricing Period. At no time shall the Purchaser be required to purchase more than the maximum Draw Down amount for a given Draw Down Pricing Period so that if the Company chooses not to exercise the maximum permitted Draw Down in a given Draw Down Pricing Period the Purchaser is not obligated to and shall not purchase more than the scheduled maximum amount in a subsequent Draw Down Pricing Period. (f) On or before each Draw Down Exercise Date, the Shares purchased by the Purchaser shall be delivered to The Depository Trust Company ("DTC") on the Purchaser's behalf. The Shares shall be credited by the Company to the DTC account designated by the Purchaser upon receipt by the Escrow Agent of payment for the Draw Down into the Escrow Agent's trust account as provided in the Escrow Agreement. The Escrow Agent shall be directed to pay 95% of the purchase price to the Company, net of One Thousand Five Hundred Dollars ($1,500) per Draw Down as escrow expenses to the Escrow Agent, and 5% of the Purchase Price to the placement agent as set forth in the Escrow Agreement. The delivery of the Shares into the Purchaser's DTC account in exchange for payment therefor shall be referred to herein as "Settlement". ARTICLE VII Termination Section 7.1 Termination by Mutual Consent. The term of this Agreement shall be eighteen (18) months from the Effective Date. Section 7.2 Other Termination. (a) The Purchaser may terminate this Agreement upon one (1) Trading Day's notice if (i) an event resulting in a Material Adverse Effect has occurred, (ii) the Common Stock is de-listed from the OTC Bulletin Board unless such de-listing is in connection with the listing of the Common Stock on the American Stock Exchange, the Nasdaq National Market, Nasdaq SmallCap Market, or the New York Stock Exchange, or (iii) the Company files for protection from creditors under any applicable law. (b) The Company may terminate this Agreement upon one (1) Trading Day's notice if the Purchaser shall fail to fund more than one properly noticed Draw Down within three (3) Trading Days of the date payment for such Draw Down is due. Except as to (i) 10% of the Warrants issued to the Purchaser and (ii) any Warrants already exercised by the Purchaser, in the event that the Purchaser fails to honor more than one properly noticed Draw Down as set forth above, the Purchaser shall return to the Company for cancellation a pro-rata portion of the remaining Warrants, based upon the portion of the Commitment Amount that has not been previously honored. Section 7.3 Effect of Termination. In the event of termination by the company or the Purchaser, written notice thereof shall forthwith be given to the other party and the transactions contemplated by this Agreement shall be terminated without further action by either party. If this Agreement is terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become void and of no further force and effect, except for Sections 7.2(b), 9.1 and 9.2, and Article VIII herein. Nothing in this Section 7.3 shall be deemed to release the Company or the Purchaser from any liability for any breach under this Agreement, or to impair the rights to the Company and the Purchaser to compel specific performance by the other party of its obligations under this Agreement. ARTICLE VIII Indemnification Section 8.1 General Indemnity. The Company agrees to indemnify and hold harmless the Purchaser (and its directors, officers, affiliates, agents, successors and assigns) from and against any and all losses, liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable attorney's fees, charges and disbursements) incurred by the Purchaser as a result of any inaccuracy in or breach of the representations, warranties or covenants made by the Company herein; provided, however, this Section 8.1 shall not inure to the benefit of the Purchaser with respect to any person asserting such loss, claim, damage or liability who purchased the Registrable Securities (as defined in Section 1 of the Registration Rights Agreement) which are the subject thereof if the Purchaser failed to send or give (in violation of the Securities Act or the rules and regulations promulgated thereunder) a copy of the prospectus contained in the Registration Statement to such person at or prior to the written confirmation to such person of the sale of such Registrable Securities, where the Purchaser or other underwriter distributing the Registrable Securities was obligated to do so under the Securities Act or the rules and regulations promulgated thereunder. The Purchaser agrees to indemnify and hold harmless the Company and its directors, officers, affiliates, agents, successors and assigns from and against any and all losses, liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable attorneys fees, charges and disbursements) incurred by the Company as result of any inaccuracy in or breach of the representations, warranties or covenants made by the Purchaser herein. Notwithstanding anything to the contrary herein, the Purchaser shall be liable under this Section 8.1 for only that amount as does not exceed the net proceeds to such Purchaser as a result of the sale of Shares pursuant to the Registration Statement. 8.2 Contribution. In order to provide for just and equitable contribution under the Securities Act in any case in which (i) the indemnified party (as defined below) makes a claim for indemnification pursuant to Article VIII 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 Article VIII 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 Purchaser 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 reasonable costs of defense and investigation and all reasonable attorneys' fees), in either such case (after contribution from others) on the basis of relative fault as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Purchaser on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 8.2 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 8.2. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 8.2 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 contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding any other provision of this Section 8.2, in no event shall any (i) Purchaser be required to undertake liability to any person under this Section 8.2 for any amounts in excess of the dollar amount of the net proceeds to be received by such Purchaser from the sale of such Purchaser's Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) pursuant to any Registration Statement under which such Registrable Securities are to be registered under the Securities Act and (ii) underwriter be required to undertake liability to any person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it and distributed pursuant to the Registration Statement. Section 8.3 Indemnification Procedure. Any party entitled to indemnification under this Article VIII (an "indemnified party") will give written notice to the indemnifying party of any matters giving rise to a claim for indemnification; provided, that the failure of any party entitled to indemnification hereunder to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Article VIII except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any action, proceeding or claim is brought against an indemnified party in respect of which indemnification is sought hereunder, the indemnifying party shall be entitled to participate in and, unless in the reasonable judgment of counsel to the indemnified party a conflict of interest between it and the indemnifying party may exist with respect of such action, proceeding or claim, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. In the event that the indemnifying party advises an indemnified party that it will contest such a claim for indemnification hereunder, or fails, within thirty (30) days of receipt of any indemnification notice to notify, in writing, such person of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense), then the indemnified party may, at its option, defend, settle or otherwise compromise or pay such action or claim. In any event, unless and until the indemnifying party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the indemnified party's costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder. The indemnified party shall cooperate fully with the indemnifying party in connection with any settlement negotiations or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the indemnified party, which relates to such action or claim. The indemnifying party shall keep the indemnified party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. If the indemnifying party elects to defend any such action or claim, then the indemnified party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense. The indemnifying party shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent. Notwithstanding anything in this Article VIII to the contrary, the indemnifying party shall not, without the indemnified party's prior written consent, settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes any future obligation on the indemnified party or which does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the indemnified party of a release from all liability in respect of such claim. The indemnification required by this Article VIII shall be made by periodic payments of the amount thereof during the course of investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred, within ten (10) Trading Days of written notice thereof to the indemnifying party so long as the indemnified party irrevocably agrees to refund such moneys if it is ultimately determined by a court of competent jurisdiction that such party was not entitled to indemnification. The indemnity agreements contained herein shall be in addition to (a) any cause of action or similar rights of the indemnified party against the indemnifying party or others, and (b) any liabilities the indemnifying party may be subject to. ARTICLE IX Miscellaneous Section 9.1 Fees and Expenses. The Company and the Purchaser shall pay all of their own fees and expenses related to the transactions contemplated by this Agreement; provided, however, that the Company shall pay, at the Closing, attorneys and escrow fees and expenses (exclusive of disbursements and out-of-pocket expenses) incurred by the Purchaser of $10,000 in connection with the preparation, negotiation, execution and delivery of this Agreement and the transactions contemplated hereunder. In addition, the Company shall pay all reasonable fees and expenses incurred by the Purchaser in connection with any subsequent amendments, modifications or waivers of this Agreement, the Escrow Agreement or the Registration Rights Agreement by the Company or incurred in connection with the enforcement of this Agreement, the Escrow Agreement and the Registration Rights Agreement, including, without limitation, all reasonable attorneys fees and expenses. The Company shall pay all stamp or other similar taxes and duties levied in connection with issuance of the Shares pursuant hereto. Section 9.2 Specific Enforcement. The Company and the Purchaser acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity. Section 9.3 Entire Agreement; Amendment. This Agreement, together with the Registration Rights Agreement and the Escrow Agreement contains the entire understanding of the parties with respect to the matters covered hereby and, except as specifically set forth herein, neither the Company nor the Purchaser makes any representations, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by a written instrument signed by the party against whom enforcement of any such amendment or waiver is sought and no condition to closing any Draw Down in favor of the Purchaser may be waived by the Purchaser. Section 9.4 Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery or facsimile 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 express 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: Cambex Corporation 360 Second Avenue Waltham, MA 02451 Telephone: (781) 890-6000 Facsimile: (781) 890-2899 Attention: Peter J. Kruy With copies to: Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C. One Financial Center Boston, Massachusetts 02111 Tel: (617) 348-1809 Fax: (617) 542-2241 Attention: Neil H. Aronson, Esq. If to Purchaser: c/o Dr. Dr. Batliner & Partner Aeulestrasse 74 FL-9490 Vaduz, Liechtenstein Fax: 011-075-236-0405 Attn: Hans Gassner, Authorized Signatory with copies to: Epstein Becker & Green, P.C. 250 Park Avenue New York, New York 10177 Telephone Number: (212) 351- 4924 Fax: (212) 661-0989 Attention: Robert F. Charron Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto in accordance herewith. Section 9.5 Waivers. No waiver by either party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provisions, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. Section 9.6 Headings. The article, section and subsection headings in this Agreement are for convenience only and shall not constitute a part of this Agreement for any other purpose and shall not be deemed to limit or affect any of the provisions hereof. Section 9.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. After the Closing, the assignment by a party to this Agreement of any rights hereunder shall not affect the obligations of such party under this Agreement. Section 9.8 No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. Section 9.9 Governing Law/Arbitration. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to the choice of law provisions. Any dispute under this Agreement or any Exhibit attached hereto shall be submitted to arbitration under the American Arbitration Association (the "AAA") in New York City, New York, and shall be finally and conclusively determined by the decision of a board of arbitration consisting of three (3) members (hereinafter referred to as the "Board of Arbitration") selected as according to the rules governing the AAA. The Board of Arbitration shall meet on consecutive business days in New York City, New York, and shall reach and render a decision in writing (concurred in by a majority of the members of the Board of Arbitration) with respect to the amount, if any, which the losing party is required to pay to the other party in respect of a claim filed. In connection with rendering its decisions, the Board of Arbitration shall adopt and follow the laws of the State of New York. To the extent practical, decisions of the Board of Arbitration shall be rendered no more than thirty (30) calendar days following commencement of proceedings with respect thereto. The Board of Arbitration shall cause its written decision to be delivered to all parties involved in the dispute. The Board of Arbitration shall be authorized and is directed to enter a default judgment against any party refusing to participate in the arbitration proceeding within thirty days of any deadline for such participation. Any decision made by the Board of Arbitration (either prior to or after the expiration of such thirty (30) calendar day period) shall be final, binding and conclusive on the parties to the dispute, and entitled to be enforced to the fullest extent permitted by law and entered in any court of competent jurisdiction. The prevailing party shall be awarded its costs, including attorneys' fees, from the non-prevailing party as part of the arbitration award. Any party shall have the right to seek injunctive relief from any court of competent jurisdiction in any case where such relief is available. The prevailing party in such injunctive action shall be awarded its costs, including attorney's fees, from the non-prevailing party. Section 9.10 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. Execution may be made by delivery by facsimile. Section 9.11 Publicity. Prior to the Closing, neither the Company nor the Purchaser shall issue any press release or otherwise make any public statement or announcement with respect to this Agreement or the transactions contemplated hereby or the existence of this Agreement. After the Closing, the Company may issue a press release or otherwise make a public statement or announcement with respect to this Agreement or the transactions contemplated hereby or the existence of this Agreement; provided, that prior to issuing any such press release, making any such public statement or announcement, the Company obtains the prior consent of the Purchaser, which consent shall not be withheld or delayed for more than three (3) Trading Days. Section 9.12 Severability. The provisions of this Agreement are severable and, in the event that any court or affiliates of any regulatory agency of competent jurisdiction shall determine that any one or more of the provisions or part of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement and this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid, legal and enforceable to the maximum extent possible, so long as such construction does not materially adversely effect the economic rights of either parties hereto. Section 9.13 Further Assurances. From and after the date of this Agreement, upon the request of the Purchaser or the Company, each of the Company and the Purchaser shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement. Section 9.14 Controlling Document. In the event of any conflict between the terms of the exhibits attached hereto and this Purchase Agreement, this Purchase Agreement shall control. Section 9.15 Effectiveness of Agreement. This Agreement shall become effective only upon satisfaction of the conditions precedent to the Closing in Article I of the Escrow Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorize officer as of this 14th day of July, 2000. CAMBEX CORPORATION By: /s/ Joseph Kruy Joseph Kruy, Chairman, President and CEO Thumberland Limited By: /s/ Hans Gassner Hans Gassner, Authorized Signatory EX-10.23 8 0008.txt ESCROW AGREEMENT - EPSTEIN BECKER ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Agreement") is made as of July 14, 2000, by and among Cambex Corporation, a corporation incorporated under the laws of Massachusetts, (the "Company"), Thumberland Limited ("Purchaser"), and Epstein Becker & Green, P.C., having an address at 250 Park Avenue, New York, NY 10177 (the "Escrow Agent"). Capitalized terms used but not defined herein shall have the meanings set forth in the Common Stock Purchase Agreement referred to in the first recital. WHEREAS, the Purchaser will from time to time as requested by the Company, purchase shares of the Company's Common Stock from the Company as set forth in that certain Common Stock Purchase Agreement (the "Purchase Agreement") dated the date hereof between the Purchaser and the Company, which will be issued as per the terms and conditions contained herein and in the Purchase Agreement; and WHEREAS, the Company and the Purchaser have requested that the Escrow Agent hold in escrow and then distribute the initial documents and certain funds which are conditions precedent to the effectiveness of the Purchase Agreement, and have further requested that upon each exercise of a Draw Down, the Escrow Agent hold the relevant documents and the applicable purchase price pending receipt by Purchaser of certificates representing the securities issuable upon such Draw Down; NOW, THEREFORE, in consideration of the covenants and mutual promises contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and intending to be legally bound hereby, the parties hereby agree as follows: ARTICLE 1 TERMS OF THE ESCROW FOR THE INITIAL CLOSING 1.1. The parties hereby agree to establish an escrow account with the Escrow Agent whereby the Escrow Agent shall hold the funds and documents, which are referenced in Section 5.2 of the Purchase Agreement. 1.2. At the Closing, the Company shall deliver to the Escrow Agent: (i) the original executed Registration Rights Agreement in the form of Exhibit A to the Purchase Agreement; (ii) the original executed opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC, in the form of Exhibit C to the Purchase Agreement; (iii) the sum of $7,500 for the non-accountable expenses of Ladenburg Thalmann & Co. Inc.; (iv) the sum of $10,000 for the fees and expenses of the Purchaser's counsel; (v) the original executed Company counterpart of this Escrow Agreement; (vi) the original executed Company counterpart of the Purchase Agreement; (vii) the original executed Warrant in the form of Exhibit E to the Purchase Agreement; and (viii) a warrant certificate to purchase shares of the Company's Common Stock issued to Ladenburg Thalmann & Co. Inc. (the "LT Warrant"). The number of warrant shares shall be determined by dividing $500,000 by the average of the VWAP on the five (5) Trading Days immediately prior to the Closing Date. The LT Warrants shall have an exercise price of 115% of the average of the VWAP on the five (5) Trading Days immediately preceding the Closing and a term of three (3) years. 1.3. Upon receipt of the foregoing, and receipt of executed counterparts from Purchaser of the Purchase Agreement, the Registration Rights Agreement and this Escrow Agreement, the Escrow Agent shall calculate the exercise price and enter the exercise price, the issuance date and termination date on the face of the LT Warrant, as appropriate, and immediately transfer the sum of Ten Thousand Dollars ($10,000) to Epstein Becker & Green, P.C. ("EB&G"), 250 Park Avenue, New York, New York 10177 for the Purchaser's legal, administrative and escrow costs, the sum of Seven Thousand Five Hundred Dollars ($7,500), as a non-accountable expense allowance to Ladenburg Thalmann & Co. Inc., and deliver the LT Warrant to Ladenburg Thalmann & Co. Inc. and the Escrow Agent shall then arrange to have the Purchase Agreement, this Escrow Agreement, the Registration Rights Agreement, the Warrant and the opinion of counsel delivered to the appropriate parties. ARTICLE 2 TERMS OF THE ESCROW FOR EACH DRAW DOWN 2.1. Each time the Company shall send a Draw Down Notice to the Purchaser as provided in the Purchase Agreement, it shall send a copy, by facsimile, to the Escrow Agent. 2.2. Each time the Purchaser shall purchase Shares pursuant to a Draw Down, the Purchaser shall send the applicable purchase price of the Draw Down Shares to the Escrow Agent, the Company and its counsel, which shall advise the Company in writing that it has received the purchase price for such Draw Down Shares. The Company shall promptly, but no later than three (3) Trading Days after receipt of such funding notice from the Escrow Agent, cause its transfer agent to issue the Draw Down Shares to the Purchaser via DTC deposit to the account specified by the Purchaser from time to time. Upon receipt of written confirmation from the transfer agent or from the Purchaser that such Draw Down Shares have been so deposited the Escrow Agent shall within one (1) Trading Day wire 95% of the purchase price per the written instructions of the Company, net of One Thousand Five Hundred Dollars ($1,500) per Draw Down as escrow expenses to the Escrow Agent and net of Seventeen Thousand Five Hundred Dollars ($17,500) as a non-accountable expense allowance to Ladenburg Thalmann & Co. Inc. (only as to the initial Draw Down only), and the remaining 5% of the purchase price as directed by Ladenburg Thalmann & Co. Inc. ARTICLE 3 MISCELLANEOUS 3.1. No waiver or any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act. 3.2. All notices or other communications required or permitted hereunder shall be in writing, and shall be sent by fax, overnight courier, registered or certified mail, postage prepaid, return receipt requested, and shall be deemed received upon receipt thereof, as set forth in the Purchase Agreement. 3.3. This Escrow Agreement shall be binding upon and shall inure to the benefit of the permitted successors and permitted assigns of the parties hereto. 3.4. This Escrow Agreement is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. This Escrow Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the parties to be charged or by their respective agents duly authorized in writing or as otherwise expressly permitted herein. 3.5. Whenever required by the context of this Escrow Agreement, the singular shall include the plural and masculine shall include the feminine. This Escrow Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if both parties had prepared the same. Unless otherwise indicated, all references to Articles are to this Escrow Agreement. 3.6. The parties hereto expressly agree that this Escrow Agreement shall be governed by, interpreted under and construed and enforced in accordance with the laws of the State of New York. Except as expressly set forth herein, any action to enforce, arising out of, or relating in any way to, any provisions of this Escrow Agreement shall brought in the Federal or state courts of New York, New York as is more fully set forth in the Purchase Agreement. 3.7. The Escrow Agent's duties hereunder may be altered, amended, modified or revoked only by a writing signed by the Company, Purchaser and the Escrow Agent. 3.8. The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by the Escrow Agent to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be personally liable for any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while acting in good faith, excepting only its own gross negligence or willful misconduct, and any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow Agent's attorneys-at- law (other than Escrow Agent itself) shall be conclusive evidence of such good faith. 3.9. The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case the Escrow Agent obeys or complies with any such order, judgment or decree, the Escrow Agent shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 3.10. The Escrow Agent shall not be liable in any respect on account of the identity, authorization or rights of the parties executing or delivering or purporting to execute or deliver the Purchase Agreement or any documents or papers deposited or called for thereunder or hereunder. 3.11. The Escrow Agent shall be entitled to employ such legal counsel and other experts as the Escrow Agent may deem necessary properly to advise the Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. The Escrow Agent has acted as legal counsel for the Purchaser, and may continue to act as legal counsel for the Purchaser, from time to time, notwithstanding its duties as the Escrow Agent hereunder. The Company consents to the Escrow Agent in such capacity as legal counsel for the Purchaser and waives any claim that such representation represents a conflict of interest on the part of the Escrow Agent. The Company understands that the Purchaser and the Escrow Agent are relying explicitly on the foregoing provision in entering into this Escrow Agreement. 3.12. The Escrow Agent's responsibilities as escrow agent hereunder shall terminate if the Escrow Agent shall resign by written notice to the Company and the Purchaser. In the event of any such resignation, the Purchaser and the Company shall appoint a successor Escrow Agent. 3.13. If the Escrow Agent reasonably requires other or further instruments in connection with this Escrow Agreement or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 3.14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the documents or the escrow funds held by the Escrow Agent hereunder, the Escrow Agent is authorized and directed in the Escrow Agent's sole discretion (1) to retain in the Escrow Agent's possession without liability to anyone all or any part of said documents or the escrow funds until such disputes shall have been settled either by mutual written agreement of the parties concerned by a final order, decree or judgment or a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but the Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings or (2) to deliver the escrow funds and any other property and documents held by the Escrow Agent hereunder to a state or Federal court having competent subject matter jurisdiction and located in the State and City of New York in accordance with the applicable procedure therefor. 3.15. The Company and the Purchaser agree jointly and severally to indemnify and hold harmless the Escrow Agent and its partners, employees, agents and representatives from any and all claims, liabilities, costs or expenses in any way arising from or relating to the duties or performance of the Escrow Agent hereunder or the transactions contemplated hereby or by the Purchase Agreement other than any such claim, liability, cost or expense to the extent the same shall have been determined by final, unappealable judgment of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Escrow Agent. IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of this 14th day of July, 2000. CAMBEX CORPORATION By: /s/ Joseph Kruy Name: Joseph Kruy Its: Chairman, President & CEO Thumberland Limited: By: /s/ Hans Gassner Hans Gassner, Authorized Signatory ESCROW AGENT: Epstein Becker & Green, P.C. By: /s/ Robert F. Charron Robert F. Charron Authorized Signatory EX-10.24 9 0009.txt THUMBERLAND WARRANT NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT. STOCK PURCHASE WARRANT To Purchase 195,771 Shares of Common Stock of CAMBEX CORPORATION THIS CERTIFIES that, for value received, Thumberland Limited (the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after July 20, 2000 (the "Issuance Date") and on or prior to the close of business on July 20, 2003 (the "Termination Date") but not thereafter, to subscribe for and purchase from Cambex Corporation., a Massachusetts corporation (the "Company"), up to 195,771 shares (the "Warrant Shares") of Common Stock, $.10 par value, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be $2.9376 (115% of the average of the VWAP on the five (5) Trading Days immediately preceding the Closing Date). The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. In the event of any conflict between the terms of this Warrant and the Common Stock Purchase Agreement, dated July 14, 2000 pursuant to which this Warrant has been issued (the "Purchase Agreement"), the terms included in the Purchase Agreement shall control, including, without limitation, the provisions of Section 7.2(b) of the Purchase Agreement. Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement. Title to Warrant. Prior to the Termination Date hereof and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. Authorization of Shares. The Company covenants that all shares of Common Stock which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant in accordance with its terms, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). Exercise of Warrant. Except as provided in Section 4 herein, exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Issuance Date and before the close of business on the Termination Date hereof. Exercise of this Warrant or any part hereof shall be effected by the surrender of this Warrant and the Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank, the holder of this Warrant shall be entitled to receive a certificate for the number of shares of Common Stock so purchased. Certificates for shares purchased hereunder shall be delivered to the holder hereof within three (3) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. If a registration statement is not effective for the resale of the Warrant Shares at any time after one year from the date of this Warrant, this Warrant may also be exercised by means of a "cashless exercise" in which the holder shall be entitled to receive a certificate for the number of shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: (A) = the average of the high and low trading prices per share of Common Stock on the Trading Day preceding the date of such election; (B) = the Exercise Price of the Warrants; and (X) = the number of shares issuable upon exercise of the Warrants in accordance with the terms of this Warrant. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment (which may be effected as a reduction of the amount paid by the Holder upon such exercise) in respect of such final fraction in an amount equal to the Exercise Price. Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant. Transfer, Division and Combination. The Holder acknowledges that this Warrant and the Warrant Shares have not been registered under the Securities Act or applicable state law. The Holder agrees, by acceptance of this Warrant, (i) that no sale, transfer or distribution of this Warrant or the Warrant Shares shall be made except in compliance with the Securities Act and the rules and regulations promulgated thereunder, including, without limitation, any applicable prospectus delivery requirements and (ii) that if distribution of this Warrant or any Warrant Shares is proposed to be made by it otherwise than by delivery of a prospectus meeting the requirements of Section 10 of the Securities Act, such action shall be taken only after submission to the Company of an opinion of counsel, reasonably satisfactory in form and substances to the Company's counsel, to the effect that the proposed distribution will not be in violation of the Securities Act or applicable state law. If the Company reasonably determines that the proposed assignment is permitted pursuant to the provisions hereof, upon surrender by the Holder of this Warrant to the Company at its principal office with the Assignment Form attached hereto duly completed, the Company shall register the assignment of this Warrant in accordance with the information contained in the Assignment Form and execute and deliver a new Warrant or Warrants in the name of the assignee or assignees named in such Assignment Form (and, if applicable, a new Warrant in the name of the Holder evidencing any remaining portion of the Warrant not theretofore exercised, transferred or assigned) and this Warrant shall promptly be canceled. Conditions to the transfer of this Warrant or any portion thereof shall be that the proposed transferee deliver to the Company his or its written agreement to accept and be bound by all of the terms and conditions of this Warrant. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. (b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. (c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7. (d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants. No Rights as Shareholder until Exercise. This Warrant does not confer not upon the Holder any rights as a shareholder of the Company, either at law or in equity. The rights of the Holder are limited to those expressed herein and the Holder, by acceptance hereof, consents to and agrees to be bound by and to comply with all the provisions of this Warrant. Each Holder, by acceptance of this Warrant, agrees that the Company and its transfer agent, if any, may, prior to any presentation of this Warrant for registration of transfer, deem and treat the person in whose name this Warrant is registered as the absolute, true and lawful owner of this Warrant for all purposes whatsoever and neither the Company nor any transfer agent shall be affected by any notice to the contrary. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. Adjustments of Exercise Price and Number of Warrant Shares. (a) Stock Splits, etc. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to purchase the kind and number of Warrant Shares or other securities of the Company which he would have owned or have been entitled to purchase had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the holder of this Warrant shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then Holder shall have the right thereafter to receive, upon exercise of this Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 11. For purposes of this Section 11, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 11 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by resolution of the Board of Directors of the Company. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the holder of this Warrant notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such notice, in the absence of manifest error, shall be conclusive evidence of the correctness of such adjustment. Notice of Corporate Action. If at any time: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least 30 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 30 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 16(d). Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Principal Market upon which the Common Stock may be listed. The Company shall not by any action, including, without limitation, amending its certificate 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 Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) 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 Common Stock upon the exercise of this Warrant, and (c) use reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Before taking any action which would cause an adjustment reducing the current Exercise Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and non- assessable shares of such Common Stock at such adjusted Exercise Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. Miscellaneous. Jurisdiction. This Warrant shall be binding upon any successors or assigns of the Company. This Warrant shall constitute a contract under the laws of New York without regard to its conflict of law principles or rules, and be subject to arbitration pursuant to the terms set forth in the Purchase Agreement. Restrictions. The holder hereof acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date hereof. If the Company willfully fails to comply with any material provision of this Warrant, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. Limitation of Liability. No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder. Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. Counterparts. This Warrant may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. Execution may be made by delivery by facsimile. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: July 14, 2000 CAMBEX CORPORATION By: /s/ Joseph Kruy Name: Joseph Kruy Its: Chairman, President and CEO Agreed to and accepted: Thumberland Limited: By: /s/ Hans Gassner Hans Gassner, Authorized Signatory NOTICE OF EXERCISE To: Cambex Corporation (1) The undersigned hereby elects to purchase ________ shares of Common Stock (the "Common Stock"), of Cambex Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: _______________________________ (Name) _______________________________ (Address) _______________________________ Dated: ______________________________ Signature ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to _______________________________________________ whose address is ______________________________________________________________ _. ______________________________________________________________ _ Dated: ______________, _______ Holder's Signature: _____________________________ Holder's Address: _____________________________ _____________________________ Signature Guaranteed: ___________________________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in an fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. EX-10.25 10 0010.txt LADENBURG THALMAN WARRANT NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT. STOCK PURCHASE WARRANT To Purchase 195,771 Shares of Common Stock of CAMBEX CORPORATION THIS CERTIFIES that, for value received, Ladenburg Thalmann & Co. Inc., (the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after July 20, 2000 (the "Issuance Date") and on or prior to the close of business on July 20, 2003 (the "Termination Date") but not thereafter, to subscribe for and purchase from Cambex Corporation, a Massachusetts corporation (the "Company"), up to 195,771 shares (the "Warrant Shares") of Common Stock, $0.10 par value, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be $2.9376 (115% of the average of the VWAP on the five (5) business days immediately preceding the initial closing date of that certain Common Stock Purchase Agreement, dated July 6, 2000, by and between the Company and Thumberland Limited). The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. In the event of any conflict between the terms of this Warrant and terms applicable to warrants included in that certain Common Stock Purchase Agreement, dated July 14, 2000, between Thumberland Limited and the Company (the "Purchase Agreement"), such terms included in the Purchase Agreement shall control (even though the Holder of this Warrant is not a party to the Purchase Agreement). Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement. Title to Warrant. Prior to the Termination Date hereof and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. Authorization of Shares. The Company covenants that all shares of Common Stock which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant in accordance with its terms, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). Exercise of Warrant. Except as provided in Section 4 herein, exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Issuance Date and before the close of business on the Termination Date hereof; provided, however, in the event that the Purchase Agreement is terminated by the Company for the Purchaser's failure to fund a Draw Down, the Holder may only exercise a pro-rata portion of this Warrant, based upon the portion of the maximum amount that may be purchased pursuant to the Purchase Agreement and that has not been previously honored. Exercise of this Warrant or any part hereof shall be effected by the surrender of this Warrant and the Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank, the holder of this Warrant shall be entitled to receive a certificate for the number of shares of Common Stock so purchased. Certificates for shares purchased hereunder shall be delivered to the holder hereof within three (3) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. If a registration statement is not effective for the resale of Warrant Shares at any time after one year from the date of this Warrant, this Warrant may also be exercised by means of a "cashless exercise" in which the holder shall be entitled to receive a certificate for the number of shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: (A) = the average of the high and low trading prices per share of Common Stock on the Trading Day preceding the date of such election; (B) = the Exercise Price of the Warrants; and (X) = the number of shares issuable upon exercise of the Warrants in accordance with the terms of this Warrant. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment (which may be effected as a reduction of the amount paid by the Holder upon such exercise) in respect of such final fraction in an amount equal to the Exercise Price. Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant. Transfer, Division and Combination. The Holder acknowledges that this Warrant and the Warrant Shares have not been registered under the Securities Act or applicable state law. The Holder agrees, by acceptance of this Warrant, (i) that no sale, transfer or distribution of this Warrant or the Warrant Shares shall be made except in compliance with the Securities Act and the rules and regulations promulgated thereunder, including, without limitation, any applicable prospectus delivery requirements and (ii) that if distribution of this Warrant or any Warrant Shares is proposed to be made by it otherwise than by delivery of a prospectus meeting the requirements of Section 10 of the Securities Act, such action shall be taken only after submission to the Company of an opinion of counsel, reasonably satisfactory in form and substances to the Company's counsel, to the effect that the proposed distribution will not be in violation of the Securities Act or applicable state law. If the Company reasonably determines that the proposed assignment is permitted pursuant to the provisions hereof, upon surrender by the Holder of this Warrant to the Company at its principal office with the Assignment Form attached hereto duly completed, the Company shall register the assignment of this Warrant in accordance with the information contained in the Assignment Form and execute and deliver a new Warrant or Warrants in the name of the assignee or assignees named in such Assignment Form (and, if applicable, a new Warrant in the name of the Holder evidencing any remaining portion of the Warrant not theretofore exercised, transferred or assigned) and this Warrant shall promptly be canceled. Conditions to the transfer of this Warrant or any portion thereof shall be that the proposed transferee deliver to the Company his or its written agreement to accept and be bound by all of the terms and conditions of this Warrant. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. (b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. (c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7. (d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants. No Rights as Shareholder until Exercise. This Warrant does not confer upon the Holder any rights as a shareholder of the Company, either at law or in equity. The rights of the Holder are limited to those expressed herein and the Holder, by acceptance hereof, consents to and agrees to be bound by and to comply with all the provisions of this Warrant. Each Holder, by acceptance of this Warrant, agrees that the Company and its transfer agent, if any, may, prior to any presentation of this Warrant for registration of transfer, deem and treat the person in whose name this Warrant is registered as the absolute, true and lawful owner of this Warrant for all purposes whatsoever and neither the Company nor any transfer agent shall be affected by any notice to the contrary. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. Adjustments of Exercise Price and Number of Warrant Shares. (a) Stock Splits, etc. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to purchase the kind and number of Warrant Shares or other securities of the Company which he would have owned or have been entitled to purchase had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the holder of this Warrant shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then Holder shall have the right thereafter to receive, upon exercise of this Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 11. For purposes of this Section 11, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 11 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by resolution of the Board of Directors of the Company. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the holder of this Warrant notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such notice, in the absence of manifest error, shall be conclusive evidence of the correctness of such adjustment. Notice of Corporate Action. If at any time: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least 30 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 30 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 16(d). Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Principal Market upon which the Common Stock may be listed. The Company shall not by any action, including, without limitation, amending its certificate 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 Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) 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 Common Stock upon the exercise of this Warrant, and (c) use reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Before taking any action which would cause an adjustment reducing the current Exercise Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and non- assessable shares of such Common Stock at such adjusted Exercise Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. Miscellaneous. Jurisdiction. This Warrant shall be binding upon any successors or assigns of the Company. This Warrant shall constitute a contract under the laws of New York without regard to its conflict of law principles or rules, and be subject to arbitration pursuant to the terms set forth in the Purchase Agreement. Restrictions. The holder hereof acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date hereof. If the Company willfully fails to comply with any material provision of this Warrant, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. Limitation of Liability. No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder. Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. Counterparts. This Warrant may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. Execution may be made by delivery by facsimile. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: July 14, 2000 CAMBEX CORPORATION By: /s/ Joseph Kruy Name: Joseph Kruy Its: Chairman, President and CEO Agreed to and accepted: LADENBURG THALMANN & CO. INC. By: /s/ Joseph A. Smith Name: Joseph A. Smith Title: Managing Director NOTICE OF EXERCISE To: Cambex Corporation (3) The undersigned hereby elects to purchase ________ shares of Common Stock (the "Common Stock"), of Cambex Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (4) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: _______________________________ (Name) _______________________________ (Address) _______________________________ Dated: ______________________________ Signature ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to _______________________________________________ whose address is ______________________________________________________________ _. ______________________________________________________________ _ Dated: ______________, _______ Holder's Signature: _____________________________ Holder's Address: _____________________________ _____________________________ Signature Guaranteed: ___________________________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in an fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. EX-21.1 11 0011.txt LIST OF SUBSIDIARIES List of Subsidiaries Subsidiary Jurisdiction Cambex Investment Corporation Delaware Cambex Securities Corporation Massachusetts Cambex Foreign Sales Corporation U.S. Virgin Islands Cambex Europe, B.V. The Netherlands Cambex GmbH Germany Cambex UK Ltd. England Cambex Europe S.a.r.l. France EX-23.2 12 0012.txt CONSENT OF BELANGER & COMPANY, P.C. INDEPENDENT AUDITOR'S CONSENT We hereby consent to the inclusion in the Registration Statement on Form SB-2 of Cambex Corporation of our report dated March 29, 2000 relating to the financial statements of Cambex Corporation and subsidiaries for the years ended December 31, 1999, 1998 and 1997. We also hereby consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ Belanger & Company, P.C. Belanger & Company, P.C. Certified Public Accountants Chelmsford, Massachusetts August 8, 2000 EX-27.1 13 0013.txt FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1000 3-MOS DEC-31-2000 APR-01-2000 1008 0 345 100 562 3818 3660 2077 4733 0 0 0 1117 (7081) 2077 655 655 361 361 0 0 88 (471) 0 (471) 0 102 0 (369) (0.04) (0.04)
EX-99.1 14 0014.txt AUDIT COMMITTEE CHARTER CAMBEX CORPORATION AUDIT COMMITTEE CHARTER AS ADOPTED JULY 10, 2000 Organization This charter governs the operations of the audit committee. The committee shall review and reassess the charter at least annually and obtain the approval of the board of directors. The committee shall be appointed by the board of directors and shall be comprised of a majority of independent directors, each of whom are independent of management and the Company. Members of the committee shall be considered independent if they have no relationship that may interfere with the exercise of their independence from management and the Company. All committee members shall be financially literate, and at least one member shall have accounting or related financial management expertise. Unless a chairperson is elected by the full board, the members of the audit committee may designate a Chairperson by a majority vote of the full audit committee. Statement of Policy The audit committee shall provide assistance to the board of directors in fulfilling their oversight responsibility to the shareholders, potential shareholders, the investment community, and others relating to the Company's financial statements and the financial reporting process, the systems of internal accounting and financial controls, the annual independent audit of the Company's financial statements, and the legal compliance and ethics programs as established by management and the board. In so doing, it is the responsibility of the committee to maintain free and open communication between the committee, independent auditors and management of the Company. In discharging its oversight role, the committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the Company and the power to retain outside counsel, or other experts for this purpose. Responsibilities and Processes The primary responsibility of the audit committee is to oversee the Company's financial reporting process on behalf of the board and report the results of their activities to the board. Management is responsible for preparing the Company's financial statements, and the independent auditors are responsible for auditing those financial statements. The committee, in carrying out its responsibilities, believes its policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The committee should take the appropriate actions to set the overall corporate "tone" for quality financial reporting, sound business risk practices, and ethical behavior. The following shall be the principal recurring processes of the audit committee in carrying out its oversight responsibilities. The processes are set forth as a guide with the understanding that the committee may supplement them as appropriate. ? The committee shall have a clear understanding with management and the independent auditors that the independent auditors are ultimately accountable to the board and the audit committee, as representatives of the Company's shareholders. The board, with the advice and input of the audit committee, shall have the ultimate authority and responsibility to evaluate and, where appropriate, replace the independent auditors. The committee shall discuss with the auditors their independence from management and the Company and the matters included in the written disclosures required by the Independence Standards Board. Annually, the committee shall review and recommend to the board the selection of the Company's independent auditors. ? The committee shall discuss with the independent auditors the overall scope and plans for each audit including the adequacy of staffing and compensation. Also, the committee shall discuss with management and the independent auditors the adequacy and effectiveness of the accounting and financial controls, including the Company's system to monitor and manage business risk, and legal and ethical compliance programs. Further, the committee shall meet separately and the independent auditors, with and without management present, to discuss the results of their examinations. ? The committee shall review the interim financial statements with management and the independent auditors prior to the filing of the Company's Quarterly Report on Form 10-Q (or other applicable form) with the Securities and Exchange Commission. Also, the committee shall discuss the results of the quarterly review and any other matters required to be communicated to the committee by the independent auditors under generally accepted auditing standards. The chair of the committee may represent the entire committee for the purposes of this review. ? The committee shall review with management and the independent auditors the financial statements to be included in the Company's Annual Report on Form 10-K (or other applicable form), (prior to the filing with the Securities and Exchange Commission), including judgment about the quality, not just acceptability, of accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. Also, the committee shall discuss the results of the annual audit and any other matters required to be communicated to the committee by the independent auditors under generally accepted auditing standards. -----END PRIVACY-ENHANCED MESSAGE-----