-----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, U8OfiPHD3rdqtFf73P1SVwofCC3p650aPG19rhZ2NmBrJhV7jkRIoMXTuIWk954/ rm7zcAFMFivxu2h3kc2dNQ== 0000016590-02-000016.txt : 20020819 0000016590-02-000016.hdr.sgml : 20020819 20020819163218 ACCESSION NUMBER: 0000016590-02-000016 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020819 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMBEX CORP CENTRAL INDEX KEY: 0000016590 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 042442959 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-06933 FILM NUMBER: 02742731 BUSINESS ADDRESS: STREET 1: 360 SECOND AVE CITY: WALTHAM STATE: MA ZIP: 02451 BUSINESS PHONE: 7818906000 MAIL ADDRESS: STREET 1: 360 SECOND AVE STREET 2: 360 SECOND AVE CITY: WALTHAM STATE: MA ZIP: 02451 FORMER COMPANY: FORMER CONFORMED NAME: CAMBRIDGE MEMORIES INC DATE OF NAME CHANGE: 19801204 10QSB 1 q210q.txt FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Quarterly Report Under Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 For the Quarter Ended: June 30, 2002 Commission File No: 0-6933 CAMBEX CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-244-2959 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 360 Second Avenue, Waltham, Massachusetts (Address of principal executive offices) 02451 (Zip Code) Registrant's telephone number, including area code: (781) 890-6000 Indicate by "X" whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, As of the latest practicable date. Class Outstanding as of June 30, 2002 Preferred 245,463 shares Common 18,320,351 shares Part I. FINANCIAL INFORMATION Item 1. Financial Statements CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2002 AND DECEMBER 31, 2001 ASSETS JUNE 30, DECEMBER 31, 2002 2001 CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 63,758 $ 209,573 ACCOUNTS RECEIVABLE, Less Reserves of $88,000 in 2002 and $58,000 in 2001 2,453,536 240,384 INVENTORIES 642,732 472,910 PREPAID EXPENSES 67,196 56,729 TOTAL CURRENT ASSETS $ 3,227,222 $ 979,596 PROPERTY AND EQUIPMENT, at cost: MACHINERY AND EQUIPMENT $ 3,064,767 $ 3,052,887 FURNITURE AND FIXTURES 162,625 162,625 LEASEHOLD IMPROVEMENTS 602,092 602,092 $ 3,829,484 $ 3,817,604 LESS - ACCUMULATED DEPRECIATION AND AMORTIZATION 3,790,336 3,772,186 NET PROPERTY AND EQUIPMENT $ 39,148 $ 45,418 OTHER ASSETS DEFERRED OFFERING COSTS $ - $ 427,975 GOODWILL 313,670 - OTHER 45,630 37,830 TOTAL OTHER ASSETS $ 359,300 $ 465,805 TOTAL ASSETS $ 3,625,670 $ 1,490,819 2 CONSOLIDATED BALANCE SHEETS JUNE 30, 2002 AND DECEMBER 31, 2001 LIABILITIES AND STOCKHOLDERS' INVESTMENT JUNE 30, DECEMBER 31, 2002 2001 CURRENT LIABILITIES: LINE OF CREDIT $ 1,059,258 $ - LOAN AGREEMENT 1,092,218 1,057,991 NOTES PAYABLE 400,000 2,850,000 ACCOUNTS PAYABLE 1,993,675 826,852 OBLIGATIONS FOR TRADE-IN MEMORY 240,000 240,000 OTHER LIABILITIES-SHORT TERM PORTION 2,631,057 2,629,765 ACCRUED EXPENSES 1,249,680 1,950,672 TOTAL CURRENT LIABILITIES $ 8,665,888 $ 9,555,280 LONG TERM DEBT $ - $ 1,273,730 OTHER LIABILITIES-LONG TERM PORTION 67,637 84,642 DEFERRED REVENUE - - STOCKHOLDERS' INVESTMENT: PREFERRED STOCK, $ 1.00 PAR VALUE PER SHARE AUTHORIZED - 3,000,000 SHARES SERIES A - ISSUED - 98,223 shares in 2002 $ 98,223 $ - SERIES B - ISSUED - 147,240 shares in 2002 147,240 - COMMON STOCK, $ .10 PAR VALUE PER SHARE AUTHORIZED - 25,000,000 SHARES ISSUED -19,865,609 shares in 2002, and 11,484,738 shares in 2001 1,986,561 1,148,474 CAPITAL IN EXCESS OF PAR VALUE 20,498,545 16,268,677 ACCUMULATED OTHER COMPREHENSIVE INCOME 102,677 102,677 RETAINED EARNINGS (DEFICIT) (27,052,130) (26,053,690) LESS - COST OF SHARES HELD IN TREASURY 1,545,258 in 2002 and in 2001 (888,971) (888,971) TOTAL STOCKHOLDERS' INVESTMENT $ (5,107,855) $ (9,422,833) TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 3,625,670 $ 1,490,819 3 CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001 For the Quarter Ended For the Six Months Ended June 30, June 30, June 30, June 30, 2002 2001 2002 2001 REVENUES $5,845,369 $ 466,978 $8,074,077 $ 883,920 COST OF SALES 4,658,934 225,624 6,166,955 453,740 Gross profit $1,186,435 $ 241,354 $1,907,122 $ 430,180 OPERATING EXPENSES: Research and development $ 251,770 $ 277,130 $ 488,948 $ 568,694 Selling 1,114,372 133,166 1,543,884 279,688 General and administrative 372,944 152,861 507,775 267,250 Total operating expenses $1,739,086 $ 563,157 $2,540,607 $1,115,632 OPERATING INCOME (LOSS) $ (552,651)$(321,803)$ (633,485)$ (685,452) OTHER INCOME (EXPENSE): Interest expense (171,149) (137,000) (364,955) (269,000) Interest income - - - - Other income (expense) - - - - INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS $ (723,800)$(458,803)$ (998,440)$ (954,452) Provision for income taxes - - - - INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS $ (723,800)$(458,803)$ (998,440)$ (954,452) Extraordinary Items - - - - NET INCOME (LOSS) $ (723,800)$(458,803)$ (998,440)$ (954,452) OTHER COMPREHENSIVE INCOME, NET OF TAX: Foreign Currency translation Adjustments - - - - OTHER COMPREHENSIVE INCOME $ - $ - $ - $ - TOTAL COMPREHENSIVE INCOME (LOSS) $ (723,800)$(458,803)$ (998,440)$ (954,452) INCOME(LOSS) PER COMMON SHARE $ (0.05)$ (0.05)$ (0.08)$ (0.10) Weighted Average Common Shares Outstanding 13,500,000 9,900,000 13,000,000 9,845,000 Weighted Average Common and Common Equivalent Shares Outstanding 13,500,000 9,900,000 13,000,000 9,845,000 4 CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT Preferred Stock Common Stock Capital in Retained Cost of $1.00 $.10 Excess of Earnings Shares Par Value Par Value Par Value (Deficit) Held in Treasury BALANCE AT JANUARY 1, 2001 $ - $1,128,785 $16,024,049$(24,510,407)$(876,966) ADD: Net loss $ - $ - $ - $( 954,452)$ - Issuance of warrants - - 1,400 - - Issuance of common stock - 250 3,031 - - Purchase of shares for the treasury - - - - (12,005) Conversion of note payable - 19,439 164,322 - - BALANCE AT June 30, 2001 $ - $1,148,474 $16,192,802$(25,464,859)$(888,971) BALANCE AT JANUARY 1, 2002 $ - $1,148,474 $16,268,677$(26,053,690)$(888,971) ADD: Net loss $ - $ - $ - $( 998,440)$ - Conversion of long term debt - 754,087 904,905 - - Acquisition of business - 84,000 302,800 - - Conversion of notes payable 245,463 - 3,022,163 - - BALANCE AT JUNE 30, 2002 $245,463 $1,986,561 $20,498,545 $(27,052,130)$(888,971) Accumulated Other Comprehensive Income BALANCE AT January 1, 2001 $102,465 ADD - BALANCE AT JUNE 30, 2001 $102,465 BALANCE AT January 1, 2002 $102,677 ADD - BALANCE AT JUNE 30, 2002 $102,667 5 CAMBEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001 Six Months Ended June 30, June 30, 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $( 998,440)$( 954,452) Adjustments to reconcile net income(loss) to net cash provided by(used in) operating activities: Depreciation $ 18,150 $ 25,350 Amortization of prepaid expenses 4,048 7,225 Change in assets and liabilities: Decrease (increase) in accounts receivable 494,563 ( 5,953) Decrease(increase)in inventory 730,548 43,048 Decrease(increase)in prepaid expenses 3,491 4,891 Decrease(increase)in other assets 166 - Increase(decrease)in accounts payable ( 320,951) 100,444 Increase(decrease)in accrued expenses 301,319 238,937 Increase(decrease)in other liabilities ( 15,713) ( 20,480) Total adjustments $ 1,215,621 $ 393,462 Net cash provided by(used in) operating activities $ 217,181 $( 560,990) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment, net $ - $ - Net cash provided by(used in)investing activities $ - $ - CASH FLOWS FROM FINANCING ACTIVITIES: Increase(decrease) in notes payable $ 150,000 $ 350,000 Proceeds from sale of common stock and warrants - 4,681 Net borrowings (repayments)under line of credit ( 547,223) - Net borrowings (repayments)under loan agreement 34,227 15,362 Net cash provided by (used in) financing activities $( 362,996)$ 370,043 Effect of exchange rate changes on cash - - Net increase (decrease) in cash and cash equivalents $( 145,815)$( 190,947) Cash and cash equivalents at beginning of year 209,573 234,512 Cash and cash equivalents at end of period $ 63,758 $ 43,565 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 44,564 $ - Income Taxes - - Non-cash financing and investing activities: Conversion of notes payable and accrued interest into common stock, net of deferred offering costs $ - $ 171,756 Conversion of long term debt and accrued interest into common stock $1,658,992 $ - Net assets of business acquired and increase in goodwill financed via issuance of common stock and accrued expenses $ 511,800 $ - Conversion of notes payable and accrued interest into preferred stock, net of deferred offering costs $3,267,626 $ - 6 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Notes & Comments: (1)Significant Accounting Policies The accompanying consolidated financial statements include our accounts and our wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. The condensed financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. The information furnished includes all adjustments and accruals consisting only of normal recurring accrual adjustments which are, in our opinion, necessary for a fair presentation of results for the interim period. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in our latest annual report on Form 10-KSB. Inventories, which include raw materials, labor and manufacturing overhead are stated at the lower of cost (first-in, first-out) or market and consist of the following: June 30, December 31, 2002 2001 Raw materials $ 354,356 $ 367,570 Work-in-process 60,073 59,591 Finished goods 228,303 45,749 $ 642,732 $ 472,910 The increase in inventory is a result of the acquisition of Super PC Memory, Inc. on March 12, 2002(see footnote 5). 7 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Notes & Comments (Continued): (2) Income and Dividends Per Share Per share amounts are based on the weighted average number of shares outstanding during each year plus applicable common stock equivalents. There were no material differences for per share amounts assuming full dilution in either period. Common share equivalents were not included in diluted income (loss) per share because we incurred a loss for the period. The inclusion of common stock equivalents would have had an antidilutive effect on the computation of diluted income (loss) per share. (3) Short Term Borrowings We have a line of credit of $2,000,000 available from GE Capital Commercial Services, Inc., limited to 75% of the eligible receivables of Super PC Memories, Inc. At June 30, 2002 we had a balance of $1,059,000 under this line of credit. We also have a loan and security agreement with B.A. Associates, Inc. which is a corporation owned by Bruce D. Rozelle, a son-in- law of Joseph F. Kruy, our Chairman, President and Chief Executive Officer. The outstanding balance due to B.A. Associates, Inc. was $1,092,218 and $1,057,991 at June 30, 2002 and December 31, 2001, respectively. Notes payable of $400,000 at June 30, 2002 include $250,000 of advances payable which are due on demand. The $250,000 of advances payable includes amounts of $150,000 from related parties. . In the second quarter of 2002, related party holders of secured notes converted $1,000,000 of principal plus $227,801 of accrued interest into 98,223 shares of Series A Convertible Preferred stock. The Series A Convertible Preferred shares pay a 12% annual dividend. The purchase price per share of the Series A Convertible Preferred stock was $12.50. The Series A Preferred stock is convertible into shares of common stock, at any time at the holder's option. The holders of the 98,223 shares of Series A Preferred stock could convert their preferred shares into 982,230 shares of common stock. The balance of $150,000, due on demand, represents Series 1 bridge financing notes issued in 2000. 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 matured in the third quarter of 2000. We received net proceeds equal to $1,737,900 from the 8 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Notes & Comments (Continued): (3) Short Term Borrowings (Continued) Sovereign Lenders as a result of this bridge financing. The series 1 bridge financing notes bore interest at the rate of 8% per annum prior to maturity. Since maturity, interest is accruing on these notes at a rate of 12% per annum. The remaining bridge notes are convertible into shares of our common stock at any time at a share price of $6.09. Because the bridge notes matured before we registered, under the Securities Act of 1933, as amended, the offer and resale of shares of our common stock issuable upon conversion of the bridge notes and exercise of the repricing warrants and the common stock purchase warrants described above, the Sovereign Lenders became entitled to premiums and penalties totaling approximately $607,000 (in addition to the repayment of principal and interest). Following conversion of the bridge notes, if the Sovereign Lenders do not realize at least a 20% gain on shares of common stock that they choose to sell 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 price of $4.54 per share. There is no value associated with these warrants recorded on our books. In the fourth quarter of 2000, one of our lenders, converted a portion of its Series 1 Bridge Financing Note ($50,000 of unpaid principal plus interest, premiums and penalties) into 18,232 shares of our common stock at a conversion price of $3.79.In the first quarter of 2001, the same lender, converted the balance of its Series 1 Bridge Financing Note ($200,000 of unpaid principal plus interest, premiums and penalties) into 74,335 shares of our common stock at a conversion price of $3.79. They also exercised a repricing warrant and received 112,778 shares of our common stock. In the second quarter of 2002, one of our lenders converted $1,600,000 of principal, $487,067 of premium and penalties, $430,733 of interest, and all attached repricing warrants into 147,240 shares of Series B Convertible Preferred stock. The Series B Convertible Preferred shares pay a 12% annual dividend. The purchase price per share of the Series B Convertible Preferred stock was $17.10. The Series B Preferred stock is convertible into shares of common stock, at any time at the holder's option. 9 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Notes & Comments (Continued): (3) Short Term Borrowings (Continued) The holders of the 147,240 shares of Series B Preferred stock could convert their Preferred shares into 1,525,939 shares of common stock. The holders of the Series B Convertible Preferred stock were granted registration rights for the underlying common stock into which the Preferred is convertible. (4) Long-Term Debt and Related Matters Long-term debt at June 30, 2002 and December 31, 2001 consists of the following: June 30, December 31, 2002 2001 Subordinated Convertible Notes with interest rate of 10% due April 30, 2003 $ - $1,273,730 Under the terms of these 10% notes, the holders converted the 10% notes and accrued interest into 7,540,871 shares of common stock at a conversion price of $0.22 per share. Of the advances received for the notes, approximately $1,070,000 was received from related parties. (5) Acquisition of Super PC Memory, Inc. On March 12, 2002, Cambex Corporation completed the acquisition of 100% of the outstanding common stock of Super PC Memory, Inc. and Super PC Memory, Inc. became a wholly-owned subsidiary of Cambex Corporation. The results of Super PC Memory, Inc.'s operations have been included in the consolidated financial statements since that date. Super PC Memory is a leading provider of memory products for servers, workstations, desktop PCs and laptops. 10 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Notes & Comments (Continued): (5) Acquisition of Super PC Memory, Inc. (continued) The purchase price included the issuance of 560,000 shares of Cambex common stock and payments based on the gross profit of the subsidiary over the next three years. The 560,000 shares are valued at $291,200 based on the closing price on March 12, 2002 of $0.52 per share of Cambex common stock. The Sellers, Son T. Pham, Simon Le and Richard G. Schaefer received 560,000 shares of Cambex Corporation common stock and were to receive fifteen percent (15%) of Super PC Memory, Inc.'s gross profit for the period from March 12, 2002 through December 31, 2004, payable in quarterly installment payments pursuant to the terms of the Stock Purchase and Sale Agreement. On July 29, 2002, we amended the agreement with the Sellers for the purchase of 100% of the outstanding common stock of Super PC Memory, Inc. We issued an additional 280,000 shares of Cambex common stock and in return the Sellers agreed that they were no longer entitled to receive 15% of Super PC's gross profit for the period from March 12, 2002 through December 31, 2004 or any other additional consideration for the sale of 100% of the outstanding common stock of Super PC Memory, Inc. The additional 280,000 shares are valued at $145,600 based on the closing price on the date of the acquisition of $0.52 per share of Cambex common stock. We have recorded the net assets of Super PC on our books at $198,000, after allowances for bad debts and inventory valuation, and have recorded goodwill in the amount of $314,000. Certain costs and expenses have not been completely determined at this point in time and may be adjusted in the future. 11 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Notes & Comments (Continued): (5) Acquisition of Super PC Memory, Inc.(Continued) Had the results of operations for Super PC Memory, Inc. been included for the whole six months ended June 30, 2002 and for the six months ended June 30, 2001, our revenue, net income(loss) and income(loss) per share would have been changed to the following pro forma amounts: Six Months ended Six Months ended June 30, June 30, 2002 2001 Revenue: As Reported (000's) $ 8,074 $ 884 Pro Forma 12,897 14,111 Net Income(Loss): As Reported (000's) ( 998) ( 954) Pro Forma ( 991) ( 889) Basic and Diluted EPS:As Reported ( 0.08) ( 0.10) Pro Forma ( 0.08) ( 0.08) 12 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The statements contained in "Management Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere throughout this Report on Form 10-QSB that are not historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those reflected in the forward-looking statements. These forward-looking statements reflect management's analysis, judgment, belief or expectation only as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof or to publicly release the results of any revisions to such forward-looking statements that may be made to reflect events or circumstances after the date hereof. In addition to the disclosure contained herein, readers should carefully review any disclosure of risks and uncertainties contained in other documents we file or have filed from time to time with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. We are a supplier of advanced memory products that cost- effectively enhance the performance and reliability of computer systems and storage networks. We design and supply memories for computers and 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. We supplement our own fibre channel product offerings by reselling fibre channel SAN hardware and software solutions from leading manufacturers. 13 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Comparison of the quarter ended June 30, 2002 and the quarter ended June 30, 2001 Our revenues were $5,845,000 for the quarter ended June 30, 2002 and $467,000 for the quarter ended June 30, 2001. Revenues for the three months ended June 30, 2002 increased 1151% compared to revenues for the same three months in the prior year due to memory sales of approximately $5,593,000 by our subsidiary which was acquired during the first quarter of 2002. Gross profit rate was 20% of sales for the three months ended June 30, 2002 and 52% for the three months ended June 30, 2001 due to the product mix as there are lower gross margins on memory products than fibre channel connectivity products. Operating expenses for the three months ended June 30, 2002 increased by 209% in comparison to operating expenses for the comparable three months of the prior year. Selling expenses for the three months ended June 30, 2002 increased by 737% compared to the amount of these expenses in the second quarter of fiscal 2001 due to the acquisition of Super PC Memory, Inc. which had a 25 person sales force, which is many times larger than the Cambex sales force. Interest expense increased by 25% for the three months ended June 30, 2002 compared to the three months ended June 30, 2001. This increase in interest expense was primarily due to funds borrowed in 2000, 2001 and 2002. We borrowed $2,000,000 in January and February 2000 in exchange for, among other things, our issuance of series 1 bridge financing notes that accrued interest at the rate of 8% per annum until their maturity in the third quarter of 2000. Since their maturity, these notes are accruing interest at the rate of 12% per annum. During 2002 and 2001, we borrowed $150,000 and $550,000, respectively, in exchange for, among other things, our issuance of 12% promissory notes. We have a line of credit of $2,000,000 available from GE Capital Commercial Services, Inc., limited to 75% of the eligible receivables of Super PC Memories, Inc. At June 30, 2002 we had a balance of $1,059,000 under this line of credit. We also have a loan and security agreement with B.A. Associates, Inc. which is a corporation owned by Bruce D. Rozelle, a son-in-law of Joseph F. Kruy, our Chairman, President and Chief Executive Officer. The outstanding balance due to B.A. Associates, Inc. was $1,092,218 and $1,057,991 at June 30, 2002 and December 31, 2001, 14 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) respectively. The borrowings which led to the 25% interest expense increase were necessary to finance the development of new products and for working capital purposes. Total comprehensive net loss for the second quarter of fiscal 2002 was $724,000, or $0.05 per share, as compared with $459,000, or $0.05 per share, for the second quarter of fiscal 2001. Inflation We did not experience any material adverse effects in the second quarter of 2001 or in the second quarter of 2002 due to general inflation. Liquidity and Capital Resources We have suffered substantial recurring losses from operations for the last seven consecutive years. Consequently, our ability to continue as a going concern, is dependent upon several factors including, but not limited to our ability to generate revenues and gross profit in significantly greater amounts than in the past four fiscal years, our ability to raise additional capital and the assumption that certain of our lenders will accept shares of our common or preferred stock instead of cash in satisfaction of our obligations. Our working capital deficit is a significant threat to our ability to continue as a going concern. Management continues to work to establish new strategic alliances that it believes will result in increases in revenues in the future through the sale of a greater volume of products. Management has also been active in trying to secure additional capital. We cannot give any assurances that the actions taken to date will increase revenues or raise additional capital. 15 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Recent Developments During the first quarter of 2002, Cambex Corporation completed the acquisition of Super PC Memory, Inc., a memory supplier for desktop and laptop personal computers and workstations. Effective as of March 12, 2002, Super PC Memory, Inc. is a wholly-owned subsidiary of Cambex Corporation. The Stock Purchase and Sale Agreement was amended on July 29, 2002. As amended, the sellers, Son T. Pham, Simon Le and Richard G. Schaefer received 840,000 shares of Cambex Corporation common stock for 100% of the outstanding common stock of Super PC Memory, Inc.. Since Super PC presently has an 18 person sales force, which is many times larger than the size of the Cambex sales force, we believe that as a result of the acquisition Cambex sales will increase from present levels thereby reducing the current cash burn rate. However, there is no assurance that the expected burn rate reduction will occur in 2002. Therefore, we will continue our efforts to raise additional capital to finance operations. Requirements During the first quarter of 2000, we borrowed $2,000,000 in cash in exchange for, among other things, our issuance of Series 1 bridge financing notes that matured in August and September 2000. We received net proceeds equal to $1,737,900 as a result of this bridge financing. The series 1 bridge financing notes bore interest at the rate of 8% per annum prior to their respective maturity dates. Since their respective maturity dates, interest is accruing at a rate of 12% per annum. These bridge notes are convertible into shares of our common stock at a weighted average per share price of $4.08. Because the bridge notes matured before we registered, under the Securities Act of 1933, as amended, the offer and resale of shares of our common stock issuable upon conversion of the bridge notes and exercise of the repricing warrants and the common stock purchase warrants, we owe premiums and penalties totaling approximately $607,000 (in addition to the repayment of principal and interest). Following conversion of the bridge notes, if the lenders do not realize at least a 20% gain 16 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) on shares of common stock that they choose to sell during the 90 days following conversion, then the 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 price of $4.54 per share. In the second quarter of 2002, SovCap Equity Partners, Ltd. converted Series 1 Bridge Financing Notes ($1,600,000 of unpaid principal plus interest, premiums and penalties) into 147,240 shares of Series B Convertible Preferred stock. The Series B Convertible Preferred Shares pay a 12% annual dividend. The Series B Preferred stock is convertible into shares of common stock, at any time at the holder's option. The holders of the 147,240 shares of Series B Preferred stock could convert their Preferred shares into 1,525,939 shares of common stock. 17 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Resources Our cash and marketable securities were $64,000 and $210,000 at June 30, 2002 and December 31, 2001, respectively. Working capital was a deficit of $5,439,000 and $8,576,000 at June 30, 2002 and at December 31, 2001, respectively. During the quarter ended June 30, 2002, we did not expend any funds for capital equipment. During fiscal 2002, we expect to acquire less than $100,000 of capital equipment. We have a line of credit of $2,000,000 available from GE Capital Commercial Services, Inc., limited to 75% of the eligible receivables of Super PC Memories, Inc. At June 30, 2002 we had a balance of $1,059,000 under this line of credit. We also have a revolving credit facility under which we may borrow up to $1,100,000. At June 30, 2002 we had a balance of $1,092,000 outstanding under this revolving credit facility. During the third quarter of fiscal 2000, we signed a common stock purchase agreement with Thumberland Limited, a private investor, for the future issuance and purchase of shares of our common stock. The common stock purchase agreement expired in June 2002. We need additional capital and additional financing may not be available. We believe that the combination of current existing cash, available borrowing capacity and our ability to obtain additional long-term indebtedness may not be adequate to finance our operations for our current activities and foreseeable future. Currently, our cash burn rate is approximately $60,000 per month or $720,000 per year at the current sales levels. We believe that as a result of the acquisition of Super PC Memory, Inc. Cambex sales and gross profit will increase from the present levels thereby reducing the cash burn rate from the previously expected $60,000 per month or $720,000 in 2002. However, there is no assurance that the expected burn rate reduction will occur in 2002. For each 10 percent reduction in sales, our cash burn rate would increase by approximately $30,000 per month. Conversely, for each 10 percent increase in sales volume, our cash burn rate would decrease by approximately $30,000 per month. The time period for which we believe our capital is sufficient 18 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) and the burn rate are estimates. The actual time period and burn rate may differ materially as a result of a number of factors, risks and uncertainties that are described herein. We are actively pursuing raising additional capital and if we are unable to raise additional capital, we may not be able to meet our anticipated working capital requirements. We are attempting to raise additional capital to cover the burn rate not covered by incremental gross profit. This amount is dependent upon sales. If sales do not increase or capital cannot be raised to cover the current burn rate, we intend to reduce operating expenses as much as practicable to continue operations until balance is established. If we are not successful in raising additional capital or increasing our sales to adequate levels, we will not be able to continue our current operations and there is substantial doubt as to our ability to continue as a going concern. There can be no assurance that we will be successful in raising such additional capital at all or on terms commercially acceptable to us or our shareholders. In addition, the sale of equity securities could result in the dilution of the percentage ownership of existing shareholders and could also adversely affect the market price of our common stock. 19 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Part II. OTHER INFORMATION Item 1. Legal Proceedings The Company is a party to litigation and claims arising in the normal course of its business. Barring unforeseen circumstances, management does not expect the results of these actions to have a material adverse effect on the Company's business or financial condition. Item 2. Change in Securities and Use of Proceeds On March 12, 2002, Cambex Corporation completed the acquisition of Super PC Memory, Inc., pursuant to the terms of the Stock Purchase and Sale Agreement dated as of January 31, 2002 and amended as of July 29, 2002 by and among Cambex Corporation, a Massachusetts corporation, Super PC Memory, Inc., a California corporation, Son T. Pham, Simon Le and Richard G. Schaefer. Effective as of March 12, 2002, Super PC Memory, Inc. is a wholly-owned subsidiary of Cambex Corporation. The sellers, Son T. Pham, Simon Le and Richard G. Schaefer received 840,000 shares of Cambex Corporation common stock. On June 28, 2002, in transactions exempt under Section 4(2) of the Securities Act, Joseph F. Kruy, Richard E. Calvert, H. Terry Snowday, Jr., and Philip Hankins converted Loan and Security Agreements with an aggregate principal amount of $1,000,000 plus accrued interest into Series A Convertible Preferred stock. They were issued 98,223 shares of Series A Convertible Preferred stock. The Series A Preferred stock is convertible into shares of common stock, at any time at the holder's option. The holders of the 98,223 shares of Series A Preferred stock could convert their preferred shares into 982,230 shares of common stock. On June 28, 2002, in transactions exempt under Section 4(2) of the Securities Act, SovCap Equity Partners, Ltd. converted Series 1 Bridge Financing Note ($1,600,000 of unpaid principal plus interest, premiums and penalties) into 147,240 shares of Series B Convertible Preferred stock. The Series B Preferred stock is convertible into shares of common stock, at any time at the holder's option. The holders of the 147,240 shares of Series B Preferred stock could convert their Preferred shares into 1,525,939 shares of common stock. 20 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Item 2. Change in Securities and Use of Proceeds(continued) Son T. Pham, Simon Le, Richard G. Schaefer, Joseph F. Kruy, Richard E. Calvert, H. Terry Snowday, Jr., Philip Hankins, and SovCap Equity Partners, Ltd. are all accredited investors and have provided us written representations to that effect. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits EXHIBIT INDEX The following exhibits are filed herewith or incorporated by reference herein. Exhibit 3.1 Restated Articles of Organization of Cambex Corporation (included as Exhibit 3.1 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 3.2 Restated By-laws of Cambex Corporation (included as Exhibit 3.2 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 4.1 Specimen Stock Certificate (included as Exhibit 4.1 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 21 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Item 6. Exhibit Index (continued) 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 (included as Exhibit 4.3 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 4.4 Amendment to Registration Rights Agreement between the Company and Thumberland Limited dated as of November 8, 2000 (included as Exhibit 4.4 to the Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 2001 and incorporated herein by reference). 4.5 Registration Rights Agreement among the Company and the Purchasers identified therein (SovCap Equity Partners, Ltd.) dated as of June 28, 2002. 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 (included as Exhibit 10.2 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 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). 22 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Item 6. Exhibit Index (continued) 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). 23 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Item 6. Exhibit Index (continued) 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 (included as Exhibit 10.22 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 10.23 Amendment to Common Stock Purchase Agreement between the Company and Thumberland Limited, dated as of November 8, 2000 (included as Exhibit 10.23 to the Company's Quarterly Report on 10QSB for the quarter ended March 31, 2001, and incorporated herein by reference). 10.24 Escrow Agreement among the Company, Thumberland Limited and Epstein, Becker & Green, P.C., dated as of July 14, 2000 (included as Exhibit 10.23 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 10.25 Stock Purchase Warrant in favor of Thumberland Limited dated as of July 14, 2000 (included as Exhibit 10.24 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 10.26 Stock Purchase Warrant in favor of Ladenburg Thalmann & Co. Inc. dated as of July 14, 2000 (included as Exhibit 10.25 to the Company's Registration Statement on Form SB-2, declared effective with the Commission on November 7, 2000, Reg. No. 333-43294, and incorporated herein by reference). 24 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Item 6. Exhibit Index (continued) 10.27 Loan and Security Agreement, as amended, by and between the Company and BA Associates, Inc. (included as Exhibit 10.27 to the Company's Registration Statement on Form SB-2 filed with the Commission on November 29, 2000, Reg. No. 333-50936, and incorporated herein by reference.) 10.28 Fifth Amendment to Loan and Security Agreement, as amended, by and between the Company and B.A. Associates, Inc., dated as of December 27, 2000 (included as Exhibit 10.28 to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2000 and incorporated herein by reference). 10.29 Form of Warrant Certificate between the Company and B.A. Associates, Inc. (included as Exhibit 10.28 to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2000 and incorporated herein by reference). 10.30 Sixth Amendment to Loan and Security Agreement, as amended, by and between the Company and B.A. Associates, Inc., dated as of December 27, 2001(included as Exhibit 10.30 to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001 and incorporated herein by reference). 10.31 Stock Purchase and Sale Agreement dated as of January 31, 2002 by and among Cambex Corporation, Super PC Memory, Inc., Son T. Pham, Simon Le and Richard G. Schaefer (included as Exhibit 2.1 to the Company's Current Report on Form 8-K dated March 27, 2002, and incorporated herein by reference). 10.32 Amendment to the Stock Purchase and Sale Agreement dated as of July 29, 2002 by and among Cambex Corporation, Super PC Memory, Inc., Son T. Pham, Simon Le and Richard G. Schaefer. 10.33 Securities Exchange Agreement dated as of June 28, 2002 by and among the Company and Richard Calvert. 10.34 Securities Exchange Agreement dated as of June 28, 2002 by and among the Company and H. Terry Snowday. 10.35 Securities Exchange Agreement dated as of June 28, 2002 by and among the Company and The Hankins Family Trust. 10.36 Securities Exchange Agreement dated as of June 28, 2002 by and among the Company and Joseph Kruy. 10.37 Series A Preferred Stock Certificate of Designations. 10.38 Securities Exchange Agreement dated as of June 28, 2002 by and among the Company and SovCap Equity Partners, Ltd. 10.39 Series B Preferred Stock Certificate of Designations. 25 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 Item 6. Exhibits and Reports on Form 8-K (continued) (b) Reports on Form 8-K On November 7, 2001, we filed a Report on Form 8-K disclosing that we have entered into a letter of intent with Super PC Memory, Inc., a privately-held company, pursuant to which Super PC Memory would become a wholly-owned subsidiary of Cambex Corporation. On March 27, 2002, we filed a Report on Form 8-K disclosing that we had completed the acquisition of Super PC Memory, Inc. On May 30, 2002, we filed an amendment to the Report on Form 8-K in order to include financial statements and pro forma financial information required by Item 7 of Form 8-K. 26 FORM 10-QSB CAMBEX CORPORATION AND SUBSIDIARIES For The Quarter Ended: June 30, 2002 Commission File: 0-6933 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAMBEX CORPORATION By: /s/ Joseph F. Kruy Joseph F. Kruy President and Treasurer Dated: August 19, 2002 27 EX-4.5 3 sovcapreg.txt EXHIBIT B REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT ("Agreement"), is made and entered into as of the day of June 28, 2002, by and among CAMBEX CORPORATION, a Massachusetts corporation (the "Company"), and the Persons listed on the Purchaser Signature Pages hereto (each of whom is individually referred to as a "Purchaser" and all of whom collectively are referred to as the "Purchasers"). Defined terms used and not otherwise defined in this Agreement shall have the meanings ascribed to them in the Securities Exchange Agreement (defined below). Background In connection with the consummation of the transactions contemplated by that Securities Exchange Agreement (the "Exchange Agreement") of even date herewith by and among the Company and the Purchasers, the Company has agreed, upon the terms and subject to the conditions of the Exchange Agreement, to issue to the Purchasers Preferred Shares in exchange for Series 1 Bridge Financing Notes including all accrued but unpaid interest and penalties due under the notes and the Repricing Warrants attached to the notes (the "Notes"). The Preferred Shares are convertible into shares of the Company's common stock, $.10 par value per share (the "Common Stock"). The Common Stock issuable upon conversion of the Preferred Shares is hereinafter referred to as the "Conversion Shares". To induce Purchasers to execute and deliver the Exchange Agreement, the Company has agreed to file a Registration Statement covering the Conversion Shares, under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 Act"), and applicable state securities laws. Agreement For and in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Purchasers hereby agree as follows: Section 1. Definitions. As used in this Agreement, the following capitalized terms are used with the meanings there after ascribed: (a) "Investor" means any Purchaser and any transferee or assignee thereof to whom any Purchaser assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9. (b) "Person" means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof, or a governmental agency. (c) "Register," "registered," and "registration" refer to a registration effected by preparing and filing one or more Registration Statements in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on 1 a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the "SEC"). (d) "Registrable Securities" means the Conversion Shares and any shares of capital stock issued or issuable with respect to the Conversion Shares as a result of any stock split, stock dividend, recapitalization, exchange, or similar event. (e) "Registration Statement" means a registration statement of the Company filed under the 1933 Act. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Exchange Agreement. Section 2. Registration. (a) Mandatory Registration. The Company shall prepare and file with the SEC an amendment to its current Registration Statement dated November 7, 2000 to cover the resale of all of the Registrable Securities, within one hundred and twenty (120) days of the date of the Exchange Agreement (the "Filing Deadline"). If the Company is unable to file an amended Registration Statement, but must file a new Registration Statement, such new Registration Statement will be filed within one hundred and fifty (150) days of the date of the Exchange Agreement (the "Extended Filing Deadline"). The Company shall permit the registration statement to become effective within five (5) business days after receipt of a "no review" notice from the SEC. Such Registration Statement shall be kept current and effective for a period of twelve (12) months from the Closing Date. (b) Underwritten Offering. If any offering pursuant to a Registration Statement pursuant to Section 2(a) involves an underwritten offering, the Purchasers shall have the right to select one legal counsel and an investment banker or bankers and manager or managers to administer their interest in the offering, which investment banker or bankers or manager or managers shall be reasonably satisfactory to the Company. (c) Piggy-Back Registrations. If at any time prior to the expiration of the Registration Period (as hereinafter defined) the Company proposes to file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the 1933 Act of any of its securities (other than on Form S-4 or Form S-8 or their then equivalents relating to securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans) the Company shall promptly send to each Investor who is entitled to registration rights under this Section 2(c) written notice of the Company's intention to file a Registration Statement and of such Investor's rights under this Section 2(c) and, if within twenty (20) days after receipt of such notice, such Investor shall so request in writing, the Company shall include in such Registration Statement all or any part of the Registrable Securities such Investor requests to be registered, subject to the priorities set forth in Section 2(d) below. No right to registration of Registrable Securities under this Section 2(c) shall be construed to limit any registration required under Section 2(a) hereof. The obligations of the Company under this Section 2(c) may be waived by Investors holding a majority of the Registrable Securities. If an offering in connection with which an Investor is entitled to registration under this Section 2(c) is an underwritten offering, then each Investor whose Registrable Securities are included in such Registration Statement shall, unless otherwise agreed by 2 the Company, offer and sell such Registrable Securities in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering. (d) Priority in Piggy-Back Registration Rights in connection with Registrations for Company Account. If the registration referred to in Section 2(c) is to be an underwritten public offering for the account of the Company and the managing underwriter(s) advise the Company in writing, that in their reasonable good faith opinion, marketing or other factors dictate that a limitation on the number of shares of Common Stock which may be included in the Registration Statement is necessary to facilitate and not adversely affect the proposed offering, then the Company shall include in such registration: (i) first, all securities the Company proposes to sell for its own account, (ii) second, up to the full number of securities proposed to be registered for the account of the holders of securities entitled to inclusion of their securities in the Registration Statement by reason of demand registration rights, and (iii) third, the securities requested to be registered by the Investors and other holders of securities entitled to participate in the registration, drawn from them pro rata based on the number each has requested to be included in such registration. Section 3. Related Obligations. Whenever an Investor has requested that any Registrable Securities be registered pursuant to Section 2 hereof, or at such time as the Company is obligated to file a Registration Statement with the SEC pursuant to Section 2(a) hereof, the Company will use its best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations: (a) The Company shall promptly prepare and file with the SEC a Registration Statement with respect to the Registrable Securities (on or prior to the Filing Deadline or Extended Filing Deadline), for the registration of Registrable Securities pursuant to Section 2(a) and use its best efforts to cause such Registration Statement(s) relating to Registrable Securities to become effective as soon as possible after such filing, and keep the Registration Statement(s) effective pursuant to Rule 415 at all times until the later of (i) the date as of which the Investors may sell all of the Registrable Securities without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) or (ii) the date on which (A) the Investors shall have sold all the Registrable Securities and (B) none of the Preferred Shares are outstanding (the "Registration Period"), which Registration Statement(s) (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any 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 in which they were made, not misleading. In the event that the Company's Registration Statement is not filed on or before the Filing Deadline in the case of an amended Registration Statement or by the Extended Filing Deadline in the case of a new Registration Statement, then the Company agrees to pay to the holder of the Series B Preferred Stock a penalty equal to two percent (2%) of the outstanding principal amount of the Series B Preferred Stock. In such event, this registration penalty shall become immediately payable by the Company without demand at the sole option of each such Holder, either in cash or by a number of shares of freely tradable Common Stock of the Company equal to the outstanding principal amount then due divided by the average Closing Bid Price of the Company's Common Stock for the five trading days prior to the date such penalty payments are due. Such registration penalties are due at the end of each thirty (30) day period beyond the Filing Deadline or Extended Filing Deadline, whichever is applicable, pro-rated for partial months, until the Registration Statement is filed. 3 The Company will respond to all SEC comment letters within thirty (30) days of receipt of such letters (the "SEC Response Deadline") by the Company. In the event that the Company does not respond to SEC comment letters on or before the SEC Response Deadline, then the Company agrees to pay to the holder of the Series B Preferred Stock a penalty equal to two percent (2%) of the outstanding principal amount of the Series B Preferred Stock. In such event, this response penalty shall become immediately payable by the Company without demand at the sole option of each such Holder, either in cash or by a number of shares of freely tradable Common Stock of the Company equal to the outstanding principal amount then due divided by the average Closing Bid Price of the Company's Common Stock for the five trading days prior to the date such penalty payments are due. Such response penalties are due at the end of each thirty (30) day period beyond the SEC Response Deadline, pro- rated for partial months, until the Company responds to the SEC comment letter. (b) The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement(s) and the prospectus (es) used in connection with the Registration Statement(s), which prospectus (es) are to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep the Registration Statement(s) effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement(s) until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement(s). In the event the number of shares available under a Registration Statement filed pursuant to this Agreement is insufficient to cover all of the Registrable Securities, the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover all of the Registrable Securities, in each case, as soon as practicable, but in any event within fifteen (15) days after the necessity therefor arises (based on the market price of the Common Stock and other relevant factors on which the Company reasonably elects to rely). The Company shall use its best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. (c) The Company shall furnish to each Investor whose Registrable Securities are included in the Registration Statement(s) and its legal counsel, without charge, (i) promptly after the same is prepared and filed with the SEC at least one copy of the Registration Statement and any amendment thereto, including financial statements and schedules, all documents incorporated therein by reference, and all exhibits, the prospectus (es) included in such Registration Statement(s) (including each preliminary prospectus) and all correspondence by or on behalf of the Company to the SEC or the staff of the SEC and all correspondence from the SEC or the staff of the SEC to the Company or its representatives, related to such Registration Statement(s), (ii) upon the effectiveness of any Registration Statement, ten (10) copies of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request), and (iii) such other documents, including any preliminary prospectus, as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor. (d) The Company shall use reasonable efforts to (i) register and qualify the Registrable Securities covered by the Registration Statement(s) under such other securities or "blue sky" laws of such jurisdictions in the United States as any Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and 4 supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided however, that the Company shall not be required in connection therewith or as a condition thereto to (A) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d) hereof, (B) subject itself to general taxation in any such jurisdiction, or (C) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify each Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose. (e) In the event Investors who hold a majority of the Registrable Securities being offered in the offering select underwriters for the offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the underwriters of such offering. (f) As promptly as practicable after becoming aware of such event, the Company shall notify each Investor in writing of the happening of any event, of which the Company has knowledge, as a result of which, the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission 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, and promptly prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to each Investor (or such other number of copies as such Investor may reasonably request). The Company shall also promptly notify each Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to each Investor by facsimile on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. (g) The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment, and to notify each Investor who holds Registrable Securities being sold (and, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof, or its receipt of actual notice of the initiation, or threatened initiation of any proceeding for such purpose. (h) The Company shall permit each Investor a single firm of counsel or such other counsel as thereafter designated as selling stockholders' counsel by the Investors who hold a majority of the Registrable Securities being sold, to review and comment upon the Registration 5 Statement(s) and all amendments and supplements thereto at least seven (7) days prior to their filing with the SEC, and not file any document in a form to which such counsel reasonably objects. The Company shall not submit a request for acceleration of the effectiveness of a Registration Statement(s) or any amendment or supplement thereto without the prior approval of such counsel, which consent shall not be unreasonably withheld. (i) At the request of the Investors who hold a majority of the Registrable Securities being sold, the Company shall furnish, on the date that Registrable Securities are delivered to an underwriter, if any, for sale in connection with the Registration Statement (i) if required by an underwriter, a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope, and substance as is customarily given in an underwritten public offering, addressed to the underwriters and the Investors. (j) The Company shall make available for inspection by (i) any Investor, (ii) any underwriter participating in any disposition pursuant to a Registration Statement, (iii) one firm of attorneys and one firm of accountants or other agents retained by the Investors, and (iv) one firm of attorneys retained by all such underwriters (collectively, the "Inspectors") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably deemed necessary by each Inspector to enable each Inspector to exercise its due diligence responsibility, and cause the Company's officers, directors, and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence provided however, that each Inspector shall hold in strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (A) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (B) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (C) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement. Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. (k) The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non- appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at the Investor's expense, to undertake appropriate action to prevent disclosure of, or to obtain a 6 protective order for, such information. (l) The Company shall use its best efforts either to (i) cause all the Registrable Securities covered by a Registration Statement to be listed on each national securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, (ii) to secure designation and quotation of all the Registrable Securities covered by the Registration Statement on the NASDAQ National or Small Cap Market, (iii) if, despite the Company's best efforts to satisfy the preceding clause (i) or (ii), the Company is unsuccessful in satisfying the preceding clause (i) or (ii) to secure the inclusion for quotation on the NASDAQ National or Small Cap Market for such Registrable Securities or, (iv) if, despite the Company's best efforts to satisfy the preceding clause (iii), the Company is unsuccessful in satisfying the preceding clause (iii), to secure the inclusion for quotation on the over-the-counter market for such Registrable Securities, and, without limiting the generality of the foregoing, in the case of clause (iii) or (iv), to arrange for at least two market makers to register with the National Association of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable Securities. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(1). (m) The Company shall cooperate with the Investors who hold Registrable Securities being offered and, to the extent applicable, any managing underwriter or underwriters, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the managing underwriter or underwriters, if any, or, if there is no managing underwriter or underwriters, the Investors may reasonably request and registered in such names as the managing underwriter or underwriters, if any, or the Investors may request. Not later than the date on which any Registration Statement registering the resale of Registrable Securities is declared effective, the Company shall deliver to its transfer agent instructions, accompanied by any reasonably required opinion of counsel, that permit sales of unlegended securities in a timely fashion that complies with then mandated securities settlement procedures for regular way market transactions. (n) The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to a Registration Statement. (o) The Company shall provide a transfer agent and registrar of all such Registrable Securities not later than the effective date of such Registration Statement. (p) If requested by the managing underwriters or an Investor, the Company shall immediately incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriters and the Investors agree should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters, and with respect to any other terms of the underwritten (or best efforts underwritten) offering of the Registrable Securities to be sold in such offering; make all required filings of such prospectus supplement or post- effective amendment as soon as notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and supplement or make amendments to any Registration Statement if requested by a shareholder or any underwriter of such Registrable Securities. 7 (q) The Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities. (r) The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder. Section 4. Obligations of the Investors. (a) At least seven (7) days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Investor in writing of the information the Company requires from each such Investor if such Investor elects to have any of such Investor's Registrable Securities included in the Registration Statement. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities, and shall execute such documents in connection with such registration as the Company may reasonably request. (b) Each Investor by such Investor's acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement(s) hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from the Registration Statement. (c) In the event Investors holding a majority of the Registrable Securities being registered determine to engage the services of an underwriter, each Investor agrees to enter into and perform such Investor's obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities, unless such Investor notifies the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from the Registration Statement(s). (d) Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(g) or the first sentence of 3(f), such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement(s) covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(g) or the first sentence of 3(f) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy all copies in such Investor's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. (e) No Investor may participate in any underwritten registration hereunder unless such Investor (i) agrees to sell such Investor's Registrable Securities on the basis provided in any underwriting arrangements approved by the Investors entitled hereunder to approve such arrangements, (ii) completes and executes all questionnaires, powers of attorney, indemnities, 8 underwriting agreements, and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions. Section 5. Expenses of Registration. All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings, or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and printing fees, accounting fees, and fees and disbursements of counsel for the Company shall be borne by the Company. Section 6. Indemnification. In the event any Registrable Securities are included in a Registration Statement under this Agreement: (a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless, and defend each Investor who holds such Registrable Securities, the directors, officers, partners, employees, agents, and each Person, if any, who controls any Investor within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), and any underwriter (as defined in the 1933 Act) for the Investors, and the directors and officers of, and each Person, if any, who controls, any such underwriter within the meaning of the 1933 Act or the 1934 Act (each, an "Indemnified Person"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint or several, (collectively, "Claims") incurred in investigating, preparing, or defending any action, claim, suit, inquiry, proceeding, investigation, or appeal taken from the foregoing by or before any court or governmental, administrative, or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("Indemnified Damages"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which Registrable Securities are offered ("Blue Sky Filing"), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which the statements therein were made, not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or, (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject to the restrictions set forth in Section 6(d) with respect to the number of legal counsel, the Company shall reimburse the Investors and each such underwriter or controlling person, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in 9 conformity with information furnished in writing to the Company by any Indemnified Person or underwriter for such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(c); (ii) with respect to any preliminary prospectus, shall not inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or mission of material fact contained in the preliminary prospectus was corrected in the prospectus, as then amended or supplemented, if such prospectus was timely made available by the Company pursuant to Section 3(c), and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified Person, notwithstanding such advice, used (iii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, and (iv) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. (b) In connection with any Registration Statement in which an Investor is participating, each such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (collectively and together with an Indemnified Person, an "Indemnified Party"), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act, or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(d), such Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided however, that the indemnity agreement contained in this Section 6(b) and Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided further however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. (c) The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers, and similar securities industry professionals participating in any distribution, to the same extent as provided above, with respect to information such persons so furnished in writing expressly for inclusion in the Registration Statement. 10 (d) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Company shall pay reasonable fees for only one separate legal counsel for the Investors, and such legal counsel shall be selected by the Investors holding a majority in interest of the Registrable Securities included in the Registration Statement to which the Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation 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 or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its written consent, provided however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms, or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. (e) The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred. (f) The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. Section 7. Contribution. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect 11 to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided however, that: (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6; (ii) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation, and (iii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. Section 8. Reports Under The 1934 Act. With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the investors to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 4.b of the Exchange Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and (c) furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act, and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the investors to sell such securities pursuant to Rule 144 without registration. Section 9. Assignment of Registration Rights. The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (A) the name and address of such transferee or assignee, and (B) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; (v) such transfer shall have been made in accordance with the applicable requirements of the Exchange Agreement; (vi) such transferee shall be an "accredited investor" as that term is defined in Rule 501 of Regulation D promulgated under the 1933 Act; and (vii) in the event the assignment occurs subsequent to the date of effectiveness of the Registration Statement required to be filed pursuant to Section 2(a), the transferee agrees to pay all reasonable expenses of amending or supplementing such Registration Statement to reflect such assignment. Section 10. Amendment of Registration Rights. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either 12 retroactively or prospectively), only with the written consent of the Company and Investors who hold two-thirds of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. Section 11. Miscellaneous. (a) A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices, or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice, or election received from the registered owner of such Registrable Securities. (b) Any notices consents, waivers, or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days after being sent by U.S. certified mall, return receipt requested, or (iv) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: Cambex Corporation 360 Second Avenue Waltham, Massachusetts 02451 Attn: President Telephone: (781) 890-6000 Facsimile: (781) 890-2899 with a copy (which shall not constitute notice) to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, Massachusetts 02111 Telephone: (617) 542-6000 Facsimile: (617) 542-2241 Attention: Neil H. Aronson, Esq. If to a Purchaser, to its address and facsimile number on the Schedule of Purchasers, with copies to such Purchaser's counsel as set forth on the Schedule of Purchasers. Each party shall provide five (5) days prior written notice to the other party of any change in address or facsimile number. (c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (d) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, irrespective of the choice of law provisions thereof. The parties agree that any action brought by one party against the other shall be in any appropriate 13 state court or any federal Court located in the County where the party against whom the action is brought is principally located, and both parties agree that such courts shall have exclusive jurisdiction of such case or controversy arising under or in connection with this Agreement and shall be a proper forum in which to adjudicate such case or controversy. The parties consent to the jurisdiction of such courts. (e) This Agreement and the Exchange Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties, or undertakings, other than those set forth or referred to herein and therein. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. (f) Subject to the requirements of Section 9, this Agreement shall inure to the benefit and of and be binding upon the permitted successors and assigns of each of the parties hereto. (g) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) This Agreement may be executed in two or more identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. (i) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments, and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 14 COMPANY SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and year first above written. COMPANY: CAMBEX CORPORATION By: /s/ Joseph F. Kruy President [Purchasers' Signatures on Following Pages] 15 PURCHASER SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT PURCHASER: By:/s/ Barry W. Herman Name: Barry W. Herman Title: President Purchaser Name ("Purchaser") Address and Facsimile Number SOVCAP EQUITY PARTNERS, LTD. Cumberland House 27 Cumberland Street P.O. Box N-10818 Nassau, New Providence The Bahamas 242-356-0037 Securities Purchased $2,517,800 Purchase Price $17.10 per share Purchaser's Legal Counsel Address and Facsimile Number EX-10.32 4 superpcamend.txt AMENDMENT TO THE STOCK PURCHASE AND SALE AGREEMENT BY AND AMONG CAMBEX CORPORATION, SUPER PC MEMORY, INC., SON T. PHAM, SIMON LE AND RICHARD G. SCHAEFER This Amendment, dated as of the 29th day of July, 2002 (the "Amendment"), is made to the Stock Purchase and Sale Agreement, dated as of January 31, 2002 (the "Agreement"), by and among Cambex Corporation, a Massachusetts corporation (the "Buyer"), Super PC Memory, Inc., a California corporation (the "Company"), Son T. Pham, Simon Le and Richard G. Schaefer, (each individually a "Seller" and collectively, the "Sellers"). WHEREAS the parties to this Amendment entered into the Agreement as of January 31, 2002 and closed on the transactions contemplated in the Agreement as of March 12, 2002; WHEREAS the parties to the Agreement desire to amend certain provisions thereof and to memorialize such changes in this Amendment; and WHEREAS Section 10.03 of the Agreement provides that the Agreement may be amended by written agreement executed by all of the parties to the Agreement. NOW, THEREFORE, in consideration of these premises, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. To amend the Agreement as follows: (a) SECTION 1.02 Purchase Price. Section 1.02 is deleted in its entirety and replaced with the following: SECTION 1.02 Purchase Price. The total consideration to be delivered to the Sellers, collectively, in exchange for the Shares (the "Purchase Price") is 840,000 shares of unregistered common stock, par value $0.01 per share (the "Common Stock") of the Buyer (the "Cambex Shares"). The Purchase Price will be paid to the Sellers, with each Seller being provided with his pro rata share of the Purchase Price based on his ownership interest in the Company. (b) SECTION 1.03 Purchase Price Adjustments. Section 1.03 is deleted in its entirety and replaced with the following: SECTION 1.03 Net Assets on the Closing Date. Within 60 days of Closing, Sellers shall deliver to Buyer an audited balance sheet of the Company as of the Closing Date prepared by Weinberg & Co., S.E.C. qualified accountants (the "Closing Date Balance Sheet"), prepared in accordance with generally accepted accounting principles, prepared on a basis consistent with the preparation of the Balance Sheet (as defined in Section 2.08 hereof). The Purchase Price to be paid by Buyer to Sellers for the Shares is premised upon the Company having total assets minus liabilities ("Net Assets") as of the Closing Date of at least Two Million One Hundred Thousand Dollars ($2,100,000.00) (the "Minimum Net Asset Amount") as set forth on the Company's Closing Date Balance Sheet. For purposes of this determination, Net Assets shall be the sum of all current assets plus other assets all as set forth in the Closing Date Balance Sheet, reduced by the amount of all current liabilities and long term liabilities as set forth in the Closing Date Balance Sheet. In the event that the Company does not have Net Assets on the Closing Date of at least the Minimum Net Asset Amount, then Buyer shall have the right to reduce the monies, including accrued interest, owing to the officers of the Company pursuant to the "Loan to Officers" referred to on the Closing Date Balance Sheet (the "Officers' Loan") by the difference between the Minimum Net Asset Amount and the Net Assets (such difference, the "Net Asset Shortfall"). Son T. Pham, who is the sole creditor under the Officers' Loan, hereby agrees to any such reduction in the principal payments and any accrued interest owing to him in connection with the Officers' Loan in accordance with the terms of this Section 1.03. If the Net Asset Shortfall exceeds the amount of the Officers' Loan, plus accrued interest on the Officers' Loan, then the Officers' Loan and any accrued interest on the Officers' Loan will be offset in its entirety. The terms of this Section 1.03 shall survive the Closing. (c) SECTION 1.04 Closing. Subsection 1.04(B)(iv) is deleted in its entirety. The Security Agreement attached as Exhibit 1.04B is deleted in its entirety. The Pledge Agreements attached as Exhibit 1.04C are deleted in their entirety. The Escrow Agreements attached as Exhibit 1.04D are deleted in their entirety. (d) SECTION 2.08 Financial Statements. The reference in lines 5 and 6 to "Section 1.03(b)" is deleted and replaced with the words "Section 1.03". (e) SECTION 5.12 No Merger. Section 5.12 is deleted in its entirety. (f) EXHIBIT 1.02 is deleted in its entirety. 2. Except as otherwise expressly provided herein, the Agreement is hereby ratified and confirmed and shall remain in full force and effect. 3. This Amendment may be executed in any number of counterparts, each such counterpart shall be deemed to be an original instrument, and all such counterparts together shall constitute but one agreement. 4. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement. 5. Except as specifically provided herein, nothing in this Amendment shall be deemed a waiver of any of the rights or obligations of the parties under the Agreement. [The remainder of this page has been intentionally left blank.] IN WITNESS WHEREOF, the Buyer and the Company have caused this Amendment to be executed by their authorized representatives, and the Sellers have executed this Amendment, as of the day and year first above written. THE BUYER: ATTEST: CAMBEX CORPORATION /s/Lois P. Lehberger /s/ Joseph F. Kruy By: Joseph F. Kruy Its: President THE COMPANY: ATTEST: SUPER PC MEMORY, INC. . /s/ Lois P. Lehberger /s/ Joseph F. Kruuy By: Joseph F. Kruy Its: President THE SELLERS /s/Son T. Pham SON T. PHAM /s/ Simon Le SIMON LE /s/ Richard G. Schaefer RICHARD G. SCHAEFER EX-10.33 5 agreerc.txt SECURITIES EXCHANGE AGREEMENT SECURITIES EXCHANGE AGREEMENT (the "Agreement"), dated as of June 28, 2002 by and among Cambex Corporation, a Massachusetts corporation, with headquarters located at 360 Second Avenue, Waltham, Massachusetts 02451 (the "Company"), and the investor listed on the Schedule of Purchasers attached hereto (the "Purchaser"). WHEREAS: A. The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"). B. The Company has authorized the following new series of its preferred stock, par value $1.00 per share: the Company's Series A Convertible Preferred Stock ("Preferred Stock") which shall be convertible into shares of the Company's Common Stock, $.10 par value per share (the "Common Stock") (as converted, the "Conversion Shares"), in accordance with the terms of the Company's Certificate of Designations: Rights, Preferences, Privileges and Restrictions of the Preferred Stock in the form attached hereto as Exhibit A (the "Certificate of Designations"). C. The Purchaser wishes to exchange a note evidenced by a Loan and Security Agreements dated November 22, 1999, May 1, 2001, and September 4, 2001 with a total principal amount of $500,000, along with all accrued but unpaid interest (collectively the "Notes") upon the terms and conditions stated in this Agreement for an aggregate of 46,920 (forty six thousand nine hundred and twenty) shares of convertible Preferred Stock (the "Preferred Shares"). D. The location of defined terms in this Agreement is set forth on the Index of Terms attached hereto. NOW, THEREFORE, the Company and the Purchaser hereby agree as follows: 1. EXCHANGE OF NOTES INTO SHARES. a. Exchange of Notes. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue to the Purchaser the respective number of Preferred Shares set forth opposite the Purchaser's name on the Schedule of Purchasers (the "Closing"). The Purchase Price (the "Purchase Price") of Preferred Shares shall be $12.50. On the Closing Date (as defined below), the Company shall deliver to each Purchaser a stock certificate(s) representing such number of Preferred Shares which such Purchaser is then receiving (as indicated opposite such Purchaser's name on the Schedule of Purchasers), duly executed on behalf of the Company and registered in the name of such Purchaser or its designee (the "Stock Certificates"). b. Closing Date. The date and time of the Closing (the "Closing Date") shall be 10:00 a.m. Eastern Standard Time on June 28, 2002, subject to the satisfaction (or waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and the Purchaser). c. Form of Payment. On the Closing Date, each Purchaser shall deliver to the Company the Notes in exchange for the Preferred Shares to be issued to such Purchaser at the Closing. 2. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Each Purchaser represents and warrants with respect to only itself that: a. Investment Purpose. Such Purchaser (i) is acquiring the Preferred Shares and (ii) upon conversion of the Preferred Shares, will acquire the Conversion Shares then issuable (the Preferred Shares and the Conversion Shares, collectively, are referred to herein as the "Securities") for its own account for investment only and not with a present view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such Purchaser does not agree to hold any Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. b. Accredited Investor Status. Such Purchaser is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D under the 1933 Act. c. Reliance on Exemptions. Such Purchaser understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of the United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and such Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities. d. Information. Such Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Purchaser. Such Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of and receive answers from the Company. Neither such inquiries nor any other due diligence investigations conducted by such Purchaser or its advisors, if any, or its representatives shall modify, amend or affect such Purchaser's right to rely on the Company's representations and warranties contained in this Agreement. Purchaser understands that its investment in the Securities involves a high degree of risk. Purchaser has sought such accounting, legal, and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. e. No Governmental Review. Such Purchaser understands that no United States federal or state agency or any other government or governmental agency has 2 passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. f. Transfer or Resale. Such Purchaser understands that: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) they are offered, sold, assigned or transferred pursuant to an effective registration statement under the 1933 Act, (B) such Purchaser shall have delivered to the Company an opinion of counsel, in a form and from counsel reasonably acceptable to the Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Purchaser provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. g. Legends. Purchaser understands that the certificates or other instruments representing the Preferred Shares and, until such time as the sale of the Conversion Shares have been registered under the 1933 Act, the stock certificates representing the Conversion Shares shall bear a restrictive legend in substantially the following form (and a stop transfer order may be placed against transfer of such stock certificates): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Preferred Shares and the Conversion Shares, upon which it is stamped, if, unless otherwise required by state securities laws, (a) the sale of the Conversion Shares is registered under the 1933 Act, (b) in connection with a sale transaction, such holder provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment, or transfer of the Preferred Shares and the Conversion Shares may be made without registration under the 1933 Act, or (c) such holder provides the Company with reasonable assurances that the Preferred Shares and the Conversion Shares can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold. 3 h. Authorization; Enforcement; Validity. Such Purchaser has full power and authority to enter into and perform in accordance with its and their terms, this Agreement and each other Transaction Agreement (as defined below). This Agreement and each of the other Transaction Agreements have been duly and validly authorized, executed and delivered on behalf of such Purchaser and is a valid and binding agreement of such Purchaser enforceable against such Purchaser in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. i. Residency. Such Purchaser is a resident of that country or state specified in its address on the Schedule of Purchasers. j. Scheme to Evade Registration. Purchaser represents and warrants to the Company, as to Itself only, that the acquisition of the Securities is not a transaction (or any element of a series of transactions) that is part of a plan or scheme by the Purchaser to evade the registration provisions of the 1933 Act and that i. such Purchaser is an "accredited investor" within the meaning of Rule 501 under the Securities Act; ii. such Purchaser has sufficient knowledge and experience to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof; iii. such Purchaser has had an opportunity to ask questions of and receive answers from and to discuss the Company's business, management, and financial affairs with the Company's management; iv. the Securities are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof; v. such Purchaser was not offered nor made aware of the Company's interest in issuing the Preferred Shares by any means of public advertisement or solicitation; vi. in connection with such Purchaser's purchase of the Securities, it has been solely responsible for its own (x) due diligence investigation of the Company and (y) investment decision, and has not engaged or relied upon any agent or "purchaser representative" to review or analyze the Company's business and affairs or advise Purchaser with respect to the merits of the investment; vii. such Purchaser has full power and authority to execute, deliver, and perform this Agreement; and this Agreement constitutes the legal, valid, and binding obligation of such Purchaser, enforceable against it in accordance with their respective terms; and viii. if such Purchaser proposes to sell the Securities pursuant to Rule 144A under the Securities Act, it will (x) take reasonable steps to obtain the information required by such Rule to establish a reasonable belief that the prospective purchaser is a "qualified institutional buyer" as such term is defined in Rule 144A and (y) advise the prospective purchaser that the Purchaser is relying on the exemption from the registration provisions of the Securities Act available pursuant to Rule 144A. 4 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Purchaser, except as referenced on Schedule 1 hereto (the "Disclosure Schedule"), which reference shall set forth the specific section to which the qualification relates and the statement which constitutes the qualification, that: a. Organization and Qualification. The Company and its subsidiaries are corporations duly organized, validly existing, and in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted. Each of the Company and each subsidiary is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole. b. Authorization, Enforcement, Compliance with Other Instruments. i. The Company has the requisite corporate power and authority to enter into and perform each of this Agreement, any and all amendments thereto, and any related agreements (collectively, the "Transaction Agreements" and individually a "Transaction Agreement"), and to issue the Securities thereof; ii. the execution and delivery by the Company of each of the Transaction Agreements and the consummation by it of the transactions contemplated thereby, including without limitation the issuance of the Preferred Shares and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion of the Preferred Shares have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors, or its stockholders; iii. each of the Transaction Agreements have been duly and validly executed and delivered by the Company; and iv. each of the Transaction Agreements constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. c. Capitalization. Immediately prior to Closing, the authorized capital stock of the Company consisted of 28,000,000 shares of capital stock, of which 25,000,000 shares are common Stock, par value $.10, of which 18,040,351 shares were issued and outstanding as of the date of this Agreement, and 3,000,000 shares of Preferred Stock, par value $1.00, none of which are issued and outstanding. All of such outstanding shares have been validly issued and are fully paid and nonassessable. Except as described in Section 3(c) of the Disclosure Schedule, no shares 5 of Common Stock or Preferred Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. Except as disclosed in Section 3(c) of the Disclosure Schedule, as of the effective date of this Agreement, (i) 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 or any of its subsidiaries, or contracts, commitments, understandings, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, or 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 or any of its subsidiaries, (ii) there are no outstanding debt securities, and (iii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the 1933 Act. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities in the manner contemplated by this Agreement. The Company has furnished to the Purchaser true and correct copies of the Company's Articles of Organization, as amended (the "Charter") and the Company's Bylaws, as in effect on the date hereof (the "Bylaws"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. d. Issuance of Securities. The Preferred Shares have been duly authorized and are free from all taxes, liens, and charges with respect to the issue thereof. The Conversion Shares issuable upon conversion of the Preferred Shares have been duly authorized and reserved for issuance and will, be duly and validly issued, fully paid, and nonassessable, and free from all taxes, liens, and charges, with respect to the issuance thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. e. No Conflicts. Except as disclosed in Section 3(e) of the Disclosure Schedule, the execution, delivery, and performance of the Transaction Agreements by the Company, and the consummation by the Company of the transactions contemplated thereby, will not (i) result in a violation of the Charter or the Bylaws of the Company or (ii) conflict with, 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 Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment, or decree (including federal and state securities laws and regulations and the rules and regulations of the principal market or exchange on which the Common Stock is traded or listed) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected. Except as described in Section 3(e) of the Disclosure Schedule, neither the Company nor any subsidiary is in violation of any term of, or in default under, its Charter or the Bylaws or their organizational charter or Bylaws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree, or order or any statute, rule, or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is not being conducted in violation of any law, ordinance, or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required 6 under the 1933 Act and any applicable state securities laws, the Company 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, and perform any of its obligations under or contemplated by the Transaction Agreements in accordance with the terms thereof. Except as disclosed in Section 3(e) of the Disclosure Schedule, all consents, authorizations, orders, filings, and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. f. SEC Documents; Financial Statements. Since January 1, 2000, the Company has filed all reports, schedules, forms, statements, and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the "SEC Documents"). The Company has made available to each Purchaser or its representative true and complete copies of the SEC Documents. The Company (i) is a "reporting issuer" as defined in Rule 902(1) of Regulation S and (ii) has a class of securities registered under Section 12(b) or 12(g) of the 1934 Act or is required to file reports pursuant to Section 15(d) of the 1934 Act, and has filed all the materials required to be filed as reports pursuant to the Exchange Act for the period the Company was required by law to file such material. As of their respective dates, the financial statements of the Company included in the SEC Documents (the "Financial Statements") complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto, or (b) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and present fairly, in all material respects, the financial position of the Company as of the dates thereof, and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Purchaser which is not included in the SEC Documents, including, without limitation, information referred to in Section 3(f) of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. g. Absence of Certain Changes. Except as described in Section 3(g) of the Disclosure Schedule, since the date of the most recent audited balance sheet included in the SEC Documents, there has been no material adverse change and no material adverse development in the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or its subsidiaries have any knowledge that its creditors intend to initiate involuntary bankruptcy proceedings. 7 h. Absence of Litigation. There is no action, suit, proceeding, inquiry, or investigation before or by any court, public board, government agency, self- regulatory organization, or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company, the Common Stock, or any of the Company's subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a material adverse effect on the transactions contemplated hereby, (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under the Transaction Agreements, or (iii) except as expressly set forth in Schedule 3(h) of the Disclosure Schedule, have a material adverse effect on the business, operations, properties, financial condition, or results of operation of the Company and its subsidiaries taken as a whole. i. Purchase of Securities. The Company acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm's length purchaser with respect to this Agreement and the transactions contemplated hereby. 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 hereby and any advice given by the Purchaser or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Purchaser's purchase of the Securities. 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 representatives. j. No Undisclosed Events, Liabilities, Developments, or Circumstances. No event, liability, development, or circumstance has occurred or exists, or to the knowledge of the Company is contemplated to occur, with respect to the Company or its subsidiaries or their respective business, properties, prospects, operations, or financial condition, which could be material but which has not been publicly announced or disclosed in writing to the Purchaser. k. No General Solicitation. 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 1933 Act) in connection with the offer or sale of the Securities. l. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions. m. Employee Relations. Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened. None of the Company's or its subsidiaries' employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good. 8 n. Intellectual Property Rights. The Company and its subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets, and rights necessary to conduct their respective businesses as now conducted. Except as set forth on Section 3(n) of the Disclosure Schedule, none of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets, or other intellectual property rights have expired or terminated, or are expected to expire or terminate in the near future, other than those that would not have a material adverse effect on the Company. The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of the trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret, or other similar rights of others. Except as set forth on Section 3(n) of the Disclosure Schedule, there is no claim, action, or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret, or other infringement, and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality, and value of all of their intellectual properties. o. Environmental Laws. The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state, and local laws and regulations relating to the protection of human health and safety, the environment, or hazardous, toxic substances, wastes, pollutants, or contaminants ("Environmental Laws"), (ii) have received all permits, licenses, or other approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (iii) are in compliance with all terms and conditions of any such permit, license, or approval. p. Title. The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances, and defects except as described in Section 3(p) of the Disclosure Schedule or as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting, and enforceable leases with such exceptions as are not material, and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries. q. Insurance. The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks, and in such amounts, as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for, and neither the Company nor any such 9 subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial, or otherwise, or the earnings, business, or operations of the Company and its subsidiaries, taken as a whole. r. Regulatory Permits. The Company and its subsidiaries possess all certificates, authorizations, and permits issued by the appropriate federal, state, or foreign regulatory authorities necessary to conduct their respective businesses, except to the extent that the failure to possess any such certificate, authorization, and permit would not have a material adverse effect on the Company and its subsidiaries taken as a whole, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization, or permits. s. Internal Accounting Controls. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. t. No Materially Adverse Contracts, Etc. Neither the Company nor any of its subsidiaries is subject to any charter, corporate, or other legal restriction, or any judgment, decree, order, rule, or regulation which in the judgment of the Company's officers has, or to the knowledge of the Company is expected in the future to have, a material adverse effect on the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. Neither the Company nor any of its subsidiaries is a party to any contract or agreement which in the judgment of the Company's officers has, or to the knowledge of the Company is expected to have, a material adverse effect on the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. u. Tax Status. The Company and each of its subsidiaries has made or filed all federal and state income and all other tax returns, reports, and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes), and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports, and declarations, except those being contested in good faith, and has set aside on its books amounts deemed reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports, or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim, and there are no open years, examinations in progress or 10 claims against it for federal, state or other taxes (including penalties and interest) for any period or periods prior to the date hereof. v. Certain Transactions. Except as set forth on Section 3(v) of the Disclosure Schedule and in the SEC Documents, and except for arm's length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed on Section 3(c) of the Disclosure Schedule, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers, and directors), including any contract, agreement, or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director, or such employee or, to the knowledge of the Company, any corporation, partnership, trust, or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, or partner. w. Dilutive Effect. The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Preferred Shares will increase in certain circumstances. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Shares in accordance with this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. x. Foreign Corrupt Practices Act. The Company has not made, offered, or agreed to offer anything of value to any government official, political party, or candidate for government office nor has it taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977. y. Disclosure. Neither this Agreement nor any Schedule or Exhibit hereto, contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein not misleading. None of the statements, documents, certificates or other items prepared or supplied by the Company with respect to the transactions contemplated hereby contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained therein not misleading. 4. COVENANTS AND AGREEMENTS a. Best Efforts. Each party shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Sections 7 and 8 of this Agreement. b. Reporting Status. Until the later of after (i) the date as of which the Purchaser may sell all of the Conversion Shares without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) and (ii) the date on which (A) the Purchaser shall have sold all the Conversion Shares and (B) none of the Preferred Shares is outstanding (the "Reporting Period"), the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports 11 under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination. c. Reservation of Shares. The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 110% of the number of shares of Common Stock needed to provide for the issuance of the shares of Common Stock upon conversion of all outstanding Initial Preferred Shares (without regard to any limitations on conversions). d. Corporate Existence. So long as a Purchaser beneficially owns any Preferred Stock, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company's assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company's assets, (x) where the consideration tendered by the surviving or successor entity in such transaction consists entirely of cash or (y) where the surviving or successor entity in such transaction (i) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) such surviving or successor entity or its parent into whose stock the Preferred Shares will be convertible or exercisable is a publicly traded corporation. e. Expenses. Each of the Company and the Purchaser shall pay its respective costs and expenses incurred by such party in connection with the negotiation, investigation, preparation, execution, delivery and performance of this Agreement. f. Disclosure. From and after the date hereof, the Company will not provide to any Purchaser any material non-public information which, according to applicable law, rule or regulation should be disclosed publicly by the Company but which has not been so disclosed. g. Compliance with Law. The Company will conduct its business in compliance with all applicable laws, rules, ordinances and regulations of the jurisdictions in which it is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations the failure to comply with which would have a Material Adverse Effect. h. Consent of Purchaser. The Company will obtain the prior written consent of the Purchaser before undertaking the actions specified below. The Company may undertake any such requested action only after receiving the advance written consent of Purchasers representing not less than two-thirds (2/3) of the outstanding shares of the Series A Preferred Stock. i. Definition of Debt. For purposes of this Agreement, the capitalized term "Debt" of any Person shall mean: (a) all indebtedness of such Person for borrowed money, including without limitation obligations evidenced by bonds, debentures, bridge notes, or other similar instruments; 12 (b) all indebtedness of others for borrowed money guaranteed in any manner by such Person, or in effect guaranteed by such Person through an agreement to purchase, contingent or otherwise; (c) all accounts payable which, to the knowledge of such Person, have remained unpaid for a period of 90 days after the same become due and payable in accordance with their respective terms taking into account any grace period relating to the due date expressly set forth in the applicable invoice with respect to the payment of such accounts payable, except for the trade payables previously disclosed by the Company that have remained unpaid for more than ninety days as of the date of this Agreement that have been disclosed in the Company's SEC Documents; (d) all indebtedness secured by any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in property owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness; (e) all indebtedness created or arising under any conditional sale agreement or lease in the nature thereof (including obligations as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capitalized leases) (but excluding operating leases) or other title retention agreement with respect to property acquired by such Person, even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession of such property; (f) all bankers' acceptances and letters of credit; and (g) liabilities in respect of unfunded vested benefits under Plans covered by Title IV of ERISA. ii. Creation of New Debt. The Company will not create, assume, or incur or become or at any time be liable in respect of, any Debt without the consent of the Purchaser, except: (a) Debt outstanding on the date hereof to the extent reflected on the most recent balance sheet of the Company or incurred in the ordinary course of business thereafter; (b) Debt incurred pursuant to the Company's existing line of credit facility with BA Associates originated November 9, 1998, under which the Company may borrow from time to time up a maximum of $1,100,000, as referenced in Section 3(v) of the Disclosure Schedule; (c) Debt incurred in permitted real estate investments; and 13 (d) purchase money security interests not to exceed $250,000 per year. Notwithstanding the foregoing provisions of this Section 4.h.ii the Company will not, without the consent of the Purchaser, create, assume, or incur, or become or at any time be liable in respect of, any Debt for money borrowed, advances made, or goods purchased, if the Purchaser, the Person making such advances, or the vendor of such goods (or any Person who guarantees or becomes surety for all or any part of such Debt or acquires any right or incurs any obligation to become, either immediately or upon the occurrence of some future contingency, the owner of all or any part thereof) shall have any right, by reason of any statute or otherwise, to have any claim in respect of such Debt first satisfied out of the general assets of the Company in priority to the claims of its general creditors. iii. Dividends. The Company will not, without the consent of the Purchaser, (a) pay any dividends, in cash or otherwise, on, (b) make any distributions to holders of, or (c) purchase, redeem, or otherwise acquire any of its outstanding Common Stock or set apart assets for a sinking or other analogous fund for the purchase, redemption, retirement, or other acquisition of, any shares of its Common Stock; provided however, that the Company may: (i) pay dividends on its outstanding Preferred Stock in accordance with the Charter; (ii) with prior written approval of each Purchaser, repurchase shares of its Common Stock issued or to be issued by the Company upon exercise of stock options granted to employees and directors of the Company pursuant to the terms of plans adopted by the Board of Directors of the Company; and (iii) pay cash in lieu of fractional shares of its Common Stock on the exercise of outstanding warrants to purchase its Common Stock, pursuant to the terms of such warrants. iv. Transactions with Affiliates. The Company will not, without the consent of the Purchaser, make any loans or advances to any of its officers, directors, shareholders, or Affiliates, other than expense advances made by the Company to its officers and employees in the ordinary course of business. The Company may increase the salaries of an executive officer or the remuneration of any director up to an aggregate maximum in all such instances of $100,000, and otherwise will not increase the salary of any executive officer or the remuneration of any director without the prior consent of the Purchaser. v. Investments. Other than as permitted by this Agreement, the Company will not, without the consent of the Purchaser, purchase or acquire or invest in, or agree to purchase or acquire or invest in the business, property, or assets of, or any securities of, any other company or business, provided however, that the Company may invest in: 14 (a) securities issued or directly and fully guaranteed or insured by the United States government or any agency thereof having maturities of not more than one year from the date of acquisition; (b) certificates of deposit or eurodollar certificates of deposit, having maturities of not more than one hundred eighty days from the date of acquisition, or one year from the date of acquisition in the case of certificates of deposit or eurodollar certificates of deposit being used to secure the Company's reimbursement obligations under letters of credit (provided that nothing contained herein shall be construed to permit letters of credit not otherwise permitted under this Agreement); (c) commercial paper of any Person that is not a subsidiary or an Affiliate of the Company, maturing within one hundred eighty days after the date of acquisition; (d) bank loan participations; and (e) money market instruments having maturities of not more than one hundred eighty days from the date of acquisition, or one year from the date of acquisition in the case of money market instruments being used to secure the Company's reimbursement obligations under letters of credit (provided that nothing contained herein shall be construed to permit letters of credit not otherwise permitted under this Agreement); in all cases of such credit quality as a prudent business person would invest in. vi. Sale and Lease-Back Transactions. The Company will not, without the consent of the Purchaser, sell or transfer any of its properties to anyone with the intention of taking back a lease of the same property or leasing other property for substantially the same use as the property being sold or transferred; provided however, that (a) the Company may continue and extend its existing leasing arrangements and may lease, under operating leases, any fixtures, equipment, and real estate that do not constitute Pledged Assets in the ordinary course of business of the Company, and (b) the Company may otherwise make real estate investments but only with the consent of the Purchaser as provided for herein. vii. Sales of Assets. The Company will not, without the consent of the Purchaser, sell, transfer, or dispose of any property except for sales of obsolete equipment having a book value at the time of sale of not more than $100,000 in the aggregate in any fiscal year. viii. Subsidiaries. The Company will not, without the consent of the Purchaser, organize, or transfer any assets to, any Subsidiaries, provided that, if consent of the Purchaser is obtained and any Subsidiaries are organized, or assets transferred, in compliance with this Section 4.h.viii the Company will not permit such 15 Subsidiaries to enter into any transaction or agreement which would violate any of the provisions of this Section 4.h if such provisions were applicable to such Subsidiary. ix. Change in Business; Operations. The Company will not, without the consent of the Purchaser, cause or effect any change in or addition to the primary business of the Company that has not been approved by Purchaser, such that more than 10% of the gross revenues of the Company are derived from a business other than the business in which the Company was engaged on the date hereof as reflected in the applicable last SEC Document filed prior to the Closing ("Change in Business"), except any such changes approved in advance in writing by the Purchaser. The business of the Company and its subsidiaries shall not be conducted in violation of any law, ordinance, or regulation of any governmental entity. 5. PIGGYBACK REGISTRATION RIGHTS a. If at any time the Company proposes to file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the 1933 Act of any of its securities (other than on Form S-4 or Form S-8 or their then equivalents relating to securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans) the Company shall promptly send to the Purchaser written notice of the Company's intention to file a registration statement and of such Purchaser's rights under this Section 5(a) and, if within twenty (20) days after receipt of such notice, such Purchaser shall so request in writing, the Company shall include in such registration statement all or any part of the Conversion Shares such Purchaser requests to be registered. If an offering in connection with which the Purchaser is entitled to registration under this Section 5(a) is an underwritten offering, then such Purchaser whose Conversion Shares are included in such registration statement shall, unless otherwise agreed by the Company, offer and sell such Conversion Shares in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering. b. If the registration referred to in Section 5(a) is to be an underwritten public offering for the account of the Company and the managing underwriter(s) advise the Company in writing, that in their reasonable good faith opinion, marketing or other factors dictate that a limitation on the number of shares of Common Stock which may be included in the registration statement is necessary to facilitate and not adversely affect the proposed offering, then the Company shall include in such registration: (i) first, all securities the Company proposes to sell for its own account, (ii) second, up to the full number of securities proposed to be registered for the account of the holders of securities entitled to inclusion of their securities in the registration statement by reason of demand registration rights, and (iii) third, the securities requested to be registered by the Purchaser and other holders of securities entitled to participate in the registration, drawn from them pro rata based on the number each has requested to be included in such registration. 6. TRANSFER AGENT INSTRUCTIONS 16 The Company shall issue Purchaser, and cause any subsequent transfer agent to issue certificates in the name of each Purchaser or its respective nominee(s), for the Conversion Shares in such amounts as specified from time to time by each Purchaser to the Company upon conversion of the Preferred Shares. Prior to sale of the Conversion Shares and pursuant to an effective registration statement under the 1933 Act, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 6 and stop transfer instructions to give effect to Section 2(g) hereof (in the case of the Conversion Shares, prior to the sale of the Conversion Shares pursuant to an effective registration statement under the 1933 Act) will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement. If an Purchaser provides the Company with an opinion of counsel, in form reasonably acceptable to the Company, to the effect that a public sale, assignment or transfer of Securities may be made without registration under the 1933 Act or the Purchaser provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, in such name and in such denominations as specified by such Purchaser and without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchaser by violating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 6 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 6, that the Purchaser shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue the Preferred Shares to each Purchaser at the Closing is subject to the satisfaction, with respect to each Purchaser at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion: a. Such Purchaser shall have executed each of the Transaction Agreements to which it is a party and delivered the same to the Company. b. The Certificate of Designations shall have been filed with the Secretary of the Commonwealth of Massachusetts. c. Such Purchaser shall have delivered to the Company the Notes in exchange for the Preferred Shares at the Closing in accordance with Section 1(c) hereof. d. The representations and warranties of such Purchaser shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for 17 representations and warranties that speak as of a specific date), and such Purchaser shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Agreements to be performed, satisfied or complied with by such Purchaser at or prior to the Closing Date. 8. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO EXCHANGE. The obligation of each Purchaser hereunder to exchange the Notes for the Preferred Shares at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Purchaser's sole benefit and may be waived by such Purchaser at any time in its sole discretion: a. The Company shall have executed each of the Transaction Agreements and delivered the same to such Purchaser. b. The Certificate of Designations shall have been filed with the Secretary of the Commonwealth of Massachusetts, and a copy thereof certified by the Secretary of the Commonwealth of Massachusetts shall have been delivered to such Purchaser. c. The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Agreements to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Such Purchaser shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Purchaser, including, without limitation, an update as of the Closing Date regarding the representation contained in Section 3(c) above. d. The Company shall have executed and delivered to such Purchaser the Preferred Stock Certificates (in such denominations as such Purchaser shall request) for the Initial Preferred Shares being purchased by such Purchaser at the Closing. e. The Board of Directors of the Company shall have adopted resolutions consistent with Section 3(b) above and in a form reasonably acceptable to such Purchaser (the "Resolutions"). f. As of the Closing Date, the Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, 1,200,000 shares of Common Stock. g. The Company shall have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Securities pursuant to this Agreement in compliance with such laws. 18 h. The Company shall have delivered to the Purchaser such other documents relating to the transactions contemplated by the Transaction Agreements as the Purchaser or their counsel may reasonably request. 9. MISCELLANEOUS a. Governing Law; Jurisdiction; Jury Trial. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, irrespective of the choice of law provisions thereof. The parties agree that any action brought by one party against the other shall be in any appropriate state court or any federal Court located in the County where the party against whom the action is brought is principally located, and both parties agree that such courts shall have exclusive jurisdiction of such case or controversy arising under or in connection with this Agreement and shall be a proper forum in which to adjudicate such case or controversy. The parties consent to the jurisdiction of such courts. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. b. Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. c. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. e. Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between each Purchaser, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended or waived other than by an instrument in writing signed by the Company and the holders of at least 66 2/3% of the Preferred Shares then outstanding. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Preferred Shares then outstanding. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Agreements or the Certificate of Designations unless the same 19 consideration also is offered to all of the parties to the Transaction Agreements or holders of Preferred Shares, as the case may be. f. Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: Cambex Corporation 360 Second Avenue Waltham, Massachusetts 02451 Telephone:(781) 890-6000 Facsimile: (781) 890-2899 Attention: President With a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, Massachusetts 02111 Telephone:(617) 542-6000 Facsimile: (617) 542-2241 Attention: Neil H. Aronson, Esq. If to the Transfer Agent: American Stock Transfer & Trust Company 59 Maiden Lane Plaza Level New York, NY 10038 Telephone: (718) 921-8200 If to a Purchaser, to it at the address and facsimile number set forth on the Schedule of Purchasers, with copies to such Purchaser's representatives as set forth on the Schedule of Purchasers, or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, 20 receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Preferred Shares. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the holders of at least 66 2/3% of the Preferred Shares then outstanding, including by merger or consolidation, except pursuant to a Change of Control (as defined in Section 3.3 of the Certificate of Designations) with respect to which the Company is in compliance with Section 5 of the Certificate of Designations and Section 4(d) of this Agreement. A Purchaser may assign some or all of its rights hereunder without the consent of the Company; provided, however, that such transferee will not be deemed a Purchaser hereunder unless such transferee has acquired at least 50 shares of Preferred Stock (as adjusted to reflect any stock splits, reverse stock splits and similar capital events) and such transferee has agreed in writing in form and substance reasonably satisfactory to the Company to be bound by the applicable provisions of this Agreement. Notwithstanding anything to the contrary contained in the Transaction Agreements, the Purchaser shall be entitled to pledge the Securities in connection with a bona fide margin account or other loan secured by the Securities. h. 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. i. Survival. Unless this Agreement is terminated under Section 9(l), the representations and warranties of the Company and the Purchaser contained in Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5, 6 and 9, shall survive the Closing. Each Purchaser shall be responsible only for its own representations, warranties, agreements and covenants hereunder. j. Publicity. The Company and each Purchaser shall have the right to approve before issuance any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Purchaser, to make any press release or other public disclosure with respect to such transactions as the Company reasonably believes upon consultation with its outside counsel is required by applicable law and regulations (although each Purchaser shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release and shall be provided with a copy thereof). k. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. l. Termination. In the event that the Closing shall not have occurred with respect to an Purchaser on or before five (5) Business Days from the date hereof due to the Company's or such 21 Purchaser's failure to satisfy the conditions set forth in Sections 7 and 8 above (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party. m. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. n. Remedies. Each Purchaser and each holder of the Securities shall have all rights and remedies set forth in the Transaction Agreements and the Certificate of Designations and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. [signature page follows] 22 IN WITNESS WHEREOF, the Purchaser and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above. COMPANY: CAMBEX CORPORATION By:/s/ Joseph F. Kruy Name: Joseph F. Kruy Title: President PURCHASER: RICHARD CALVERT By: /s/ Richard Calvert Name: Richard Calvert 7784 E. Shore Road Traverse City, MI 49686 (231) 946-0533 SCHEDULE OF PURCHASERS Purchaser Name Richard Calvert Purchaser Address, Telephone Number 7784 E. Shore Road Traverse City, MI 49686 (231) 946-0533 Principal Amount and Number of Shares of Series A Preferred Shares $586,502.83 (46,920 shares) Purchaser's Advisor and Legal Counsel Address List of Exhibits Exhibit A Form of Certificate of Designations Schedule 1 Disclosure Schedule EX-10.34 6 agreets.txt SECURITIES EXCHANGE AGREEMENT SECURITIES EXCHANGE AGREEMENT (the "Agreement"), dated as of June 28, 2002 by and among Cambex Corporation, a Massachusetts corporation, with headquarters located at 360 Second Avenue, Waltham, Massachusetts 02451 (the "Company"), and the investor listed on the Schedule of Purchasers attached hereto (the "Purchaser"). WHEREAS: A. The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"). B. The Company has authorized the following new series of its preferred stock, par value $1.00 per share: the Company's Series A Convertible Preferred Stock ("Preferred Stock") which shall be convertible into shares of the Company's Common Stock, $.10 par value per share (the "Common Stock") (as converted, the "Conversion Shares"), in accordance with the terms of the Company's Certificate of Designations: Rights, Preferences, Privileges and Restrictions of the Preferred Stock in the form attached hereto as Exhibit A (the "Certificate of Designations"). C. The Purchaser wishes to exchange a note evidenced by a Loan and Security Agreement dated November 22, 1999 with a principal amount of $100,000, along with all accrued but unpaid interest (collectively the "Notes") upon the terms and conditions stated in this Agreement for an aggregate of 10,761 (ten thousand seven hundred and sixty one) shares of convertible Preferred Stock (the "Preferred Shares"). D. The location of defined terms in this Agreement is set forth on the Index of Terms attached hereto. NOW, THEREFORE, the Company and the Purchaser hereby agree as follows: 1. EXCHANGE OF NOTES INTO SHARES. a. Exchange of Notes. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue to the Purchaser the respective number of Preferred Shares set forth opposite the Purchaser's name on the Schedule of Purchasers (the "Closing"). The Purchase Price (the "Purchase Price") of Preferred Shares shall be $12.50. On the Closing Date (as defined below), the Company shall deliver to each Purchaser a stock certificate(s) representing such number of Preferred Shares which such Purchaser is then receiving (as indicated opposite such Purchaser's name on the Schedule of Purchasers), duly executed on behalf of the Company and registered in the name of such Purchaser or its designee (the "Stock Certificates"). b. Closing Date. The date and time of the Closing (the "Closing Date") shall be 10:00 a.m. Eastern Standard Time on June 28, 2002, subject to the satisfaction (or waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and the Purchaser). c. Form of Payment. On the Closing Date, each Purchaser shall deliver to the Company the Notes in exchange for the Preferred Shares to be issued to such Purchaser at the Closing. 2. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Each Purchaser represents and warrants with respect to only itself that: a. Investment Purpose. Such Purchaser (i) is acquiring the Preferred Shares and (ii) upon conversion of the Preferred Shares, will acquire the Conversion Shares then issuable (the Preferred Shares and the Conversion Shares, collectively, are referred to herein as the "Securities") for its own account for investment only and not with a present view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such Purchaser does not agree to hold any Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. b. Accredited Investor Status. Such Purchaser is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D under the 1933 Act. c. Reliance on Exemptions. Such Purchaser understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of the United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and such Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities. d. Information. Such Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Purchaser. Such Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of and receive answers from the Company. Neither such inquiries nor any other due diligence investigations conducted by such Purchaser or its advisors, if any, or its representatives shall modify, amend or affect such Purchaser's right to rely on the Company's representations and warranties contained in this Agreement. Purchaser understands that its investment in the Securities involves a high degree of risk. Purchaser has sought such accounting, legal, and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. e. No Governmental Review. Such Purchaser understands that no United States federal or state agency or any other government or governmental agency has 2 passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. f. Transfer or Resale. Such Purchaser understands that: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) they are offered, sold, assigned or transferred pursuant to an effective registration statement under the 1933 Act, (B) such Purchaser shall have delivered to the Company an opinion of counsel, in a form and from counsel reasonably acceptable to the Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Purchaser provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. g. Legends. Purchaser understands that the certificates or other instruments representing the Preferred Shares and, until such time as the sale of the Conversion Shares have been registered under the 1933 Act, the stock certificates representing the Conversion Shares shall bear a restrictive legend in substantially the following form (and a stop transfer order may be placed against transfer of such stock certificates): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Preferred Shares and the Conversion Shares, upon which it is stamped, if, unless otherwise required by state securities laws, (a) the sale of the Conversion Shares is registered under the 1933 Act, (b) in connection with a sale transaction, such holder provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment, or transfer of the Preferred Shares and the Conversion Shares may be made without registration under the 1933 Act, or (c) such holder provides the Company with reasonable assurances that the Preferred Shares and the Conversion Shares can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold. 3 h. Authorization; Enforcement; Validity. Such Purchaser has full power and authority to enter into and perform in accordance with its and their terms, this Agreement and each other Transaction Agreement (as defined below). This Agreement and each of the other Transaction Agreements have been duly and validly authorized, executed and delivered on behalf of such Purchaser and is a valid and binding agreement of such Purchaser enforceable against such Purchaser in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. i. Residency. Such Purchaser is a resident of that country or state specified in its address on the Schedule of Purchasers. j. Scheme to Evade Registration. Purchaser represents and warrants to the Company, as to Itself only, that the acquisition of the Securities is not a transaction (or any element of a series of transactions) that is part of a plan or scheme by the Purchaser to evade the registration provisions of the 1933 Act and that i. such Purchaser is an "accredited investor" within the meaning of Rule 501 under the Securities Act; ii. such Purchaser has sufficient knowledge and experience to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof; iii. such Purchaser has had an opportunity to ask questions of and receive answers from and to discuss the Company's business, management, and financial affairs with the Company's management; iv. the Securities are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof; v. such Purchaser was not offered nor made aware of the Company's interest in issuing the Preferred Shares by any means of public advertisement or solicitation; vi. in connection with such Purchaser's purchase of the Securities, it has been solely responsible for its own (x) due diligence investigation of the Company and (y) investment decision, and has not engaged or relied upon any agent or "purchaser representative" to review or analyze the Company's business and affairs or advise Purchaser with respect to the merits of the investment; vii. such Purchaser has full power and authority to execute, deliver, and perform this Agreement; and this Agreement constitutes the legal, valid, and binding obligation of such Purchaser, enforceable against it in accordance with their respective terms; and viii. if such Purchaser proposes to sell the Securities pursuant to Rule 144A under the Securities Act, it will (x) take reasonable steps to obtain the information required by such Rule to establish a reasonable belief that the prospective purchaser is a "qualified institutional buyer" as such term is defined in Rule 144A and (y) advise the prospective purchaser that the Purchaser is relying on the exemption from the registration provisions of the Securities Act available pursuant to Rule 144A. 4 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Purchaser, except as referenced on Schedule 1 hereto (the "Disclosure Schedule"), which reference shall set forth the specific section to which the qualification relates and the statement which constitutes the qualification, that: a. Organization and Qualification. The Company and its subsidiaries are corporations duly organized, validly existing, and in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted. Each of the Company and each subsidiary is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole. b. Authorization, Enforcement, Compliance with Other Instruments. i. The Company has the requisite corporate power and authority to enter into and perform each of this Agreement, any and all amendments thereto, and any related agreements (collectively, the "Transaction Agreements" and individually a "Transaction Agreement"), and to issue the Securities thereof; ii. the execution and delivery by the Company of each of the Transaction Agreements and the consummation by it of the transactions contemplated thereby, including without limitation the issuance of the Preferred Shares and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion of the Preferred Shares have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors, or its stockholders; iii. each of the Transaction Agreements have been duly and validly executed and delivered by the Company; and iv. each of the Transaction Agreements constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. c. Capitalization. Immediately prior to Closing, the authorized capital stock of the Company consisted of 28,000,000 shares of capital stock, of which 25,000,000 shares are common Stock, par value $.10, of which 18,040,351 shares were issued and outstanding as of the date of this Agreement, and 3,000,000 shares of Preferred Stock, par value $1.00, none of which are issued and outstanding. All of such outstanding shares have been validly issued and are fully paid and nonassessable. Except as described in Section 3(c) of the Disclosure Schedule, no shares 5 of Common Stock or Preferred Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. Except as disclosed in Section 3(c) of the Disclosure Schedule, as of the effective date of this Agreement, (i) 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 or any of its subsidiaries, or contracts, commitments, understandings, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, or 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 or any of its subsidiaries, (ii) there are no outstanding debt securities, and (iii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the 1933 Act. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities in the manner contemplated by this Agreement. The Company has furnished to the Purchaser true and correct copies of the Company's Articles of Organization, as amended (the "Charter") and the Company's Bylaws, as in effect on the date hereof (the "Bylaws"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. d. Issuance of Securities. The Preferred Shares have been duly authorized and are free from all taxes, liens, and charges with respect to the issue thereof. The Conversion Shares issuable upon conversion of the Preferred Shares have been duly authorized and reserved for issuance and will, be duly and validly issued, fully paid, and nonassessable, and free from all taxes, liens, and charges, with respect to the issuance thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. e. No Conflicts. Except as disclosed in Section 3(e) of the Disclosure Schedule, the execution, delivery, and performance of the Transaction Agreements by the Company, and the consummation by the Company of the transactions contemplated thereby, will not (i) result in a violation of the Charter or the Bylaws of the Company or (ii) conflict with, 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 Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment, or decree (including federal and state securities laws and regulations and the rules and regulations of the principal market or exchange on which the Common Stock is traded or listed) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected. Except as described in Section 3(e) of the Disclosure Schedule, neither the Company nor any subsidiary is in violation of any term of, or in default under, its Charter or the Bylaws or their organizational charter or Bylaws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree, or order or any statute, rule, or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is not being conducted in violation of any law, ordinance, or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required 6 under the 1933 Act and any applicable state securities laws, the Company 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, and perform any of its obligations under or contemplated by the Transaction Agreements in accordance with the terms thereof. Except as disclosed in Section 3(e) of the Disclosure Schedule, all consents, authorizations, orders, filings, and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. f. SEC Documents; Financial Statements. Since January 1, 2000, the Company has filed all reports, schedules, forms, statements, and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the "SEC Documents"). The Company has made available to each Purchaser or its representative true and complete copies of the SEC Documents. The Company (i) is a "reporting issuer" as defined in Rule 902(1) of Regulation S and (ii) has a class of securities registered under Section 12(b) or 12(g) of the 1934 Act or is required to file reports pursuant to Section 15(d) of the 1934 Act, and has filed all the materials required to be filed as reports pursuant to the Exchange Act for the period the Company was required by law to file such material. As of their respective dates, the financial statements of the Company included in the SEC Documents (the "Financial Statements") complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto, or (b) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and present fairly, in all material respects, the financial position of the Company as of the dates thereof, and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Purchaser which is not included in the SEC Documents, including, without limitation, information referred to in Section 3(f) of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. g. Absence of Certain Changes. Except as described in Section 3(g) of the Disclosure Schedule, since the date of the most recent audited balance sheet included in the SEC Documents, there has been no material adverse change and no material adverse development in the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or its subsidiaries have any knowledge that its creditors intend to initiate involuntary bankruptcy proceedings. 7 h. Absence of Litigation. There is no action, suit, proceeding, inquiry, or investigation before or by any court, public board, government agency, self- regulatory organization, or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company, the Common Stock, or any of the Company's subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a material adverse effect on the transactions contemplated hereby, (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under the Transaction Agreements, or (iii) except as expressly set forth in Schedule 3(h) of the Disclosure Schedule, have a material adverse effect on the business, operations, properties, financial condition, or results of operation of the Company and its subsidiaries taken as a whole. i. Purchase of Securities. The Company acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm's length purchaser with respect to this Agreement and the transactions contemplated hereby. 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 hereby and any advice given by the Purchaser or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Purchaser's purchase of the Securities. 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 representatives. j. No Undisclosed Events, Liabilities, Developments, or Circumstances. No event, liability, development, or circumstance has occurred or exists, or to the knowledge of the Company is contemplated to occur, with respect to the Company or its subsidiaries or their respective business, properties, prospects, operations, or financial condition, which could be material but which has not been publicly announced or disclosed in writing to the Purchaser. k. No General Solicitation. 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 1933 Act) in connection with the offer or sale of the Securities. l. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions. m. Employee Relations. Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened. None of the Company's or its subsidiaries' employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good. 8 n. Intellectual Property Rights. The Company and its subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets, and rights necessary to conduct their respective businesses as now conducted. Except as set forth on Section 3(n) of the Disclosure Schedule, none of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets, or other intellectual property rights have expired or terminated, or are expected to expire or terminate in the near future, other than those that would not have a material adverse effect on the Company. The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of the trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret, or other similar rights of others. Except as set forth on Section 3(n) of the Disclosure Schedule, there is no claim, action, or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret, or other infringement, and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality, and value of all of their intellectual properties. o. Environmental Laws. The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state, and local laws and regulations relating to the protection of human health and safety, the environment, or hazardous, toxic substances, wastes, pollutants, or contaminants ("Environmental Laws"), (ii) have received all permits, licenses, or other approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (iii) are in compliance with all terms and conditions of any such permit, license, or approval. p. Title. The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances, and defects except as described in Section 3(p) of the Disclosure Schedule or as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting, and enforceable leases with such exceptions as are not material, and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries. q. Insurance. The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks, and in such amounts, as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for, and neither the Company nor any such 9 subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial, or otherwise, or the earnings, business, or operations of the Company and its subsidiaries, taken as a whole. r. Regulatory Permits. The Company and its subsidiaries possess all certificates, authorizations, and permits issued by the appropriate federal, state, or foreign regulatory authorities necessary to conduct their respective businesses, except to the extent that the failure to possess any such certificate, authorization, and permit would not have a material adverse effect on the Company and its subsidiaries taken as a whole, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization, or permits. s. Internal Accounting Controls. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. t. No Materially Adverse Contracts, Etc. Neither the Company nor any of its subsidiaries is subject to any charter, corporate, or other legal restriction, or any judgment, decree, order, rule, or regulation which in the judgment of the Company's officers has, or to the knowledge of the Company is expected in the future to have, a material adverse effect on the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. Neither the Company nor any of its subsidiaries is a party to any contract or agreement which in the judgment of the Company's officers has, or to the knowledge of the Company is expected to have, a material adverse effect on the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. u. Tax Status. The Company and each of its subsidiaries has made or filed all federal and state income and all other tax returns, reports, and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes), and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports, and declarations, except those being contested in good faith, and has set aside on its books amounts deemed reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports, or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim, and there are no open years, examinations in progress or 10 claims against it for federal, state or other taxes (including penalties and interest) for any period or periods prior to the date hereof. v. Certain Transactions. Except as set forth on Section 3(v) of the Disclosure Schedule and in the SEC Documents, and except for arm's length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed on Section 3(c) of the Disclosure Schedule, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers, and directors), including any contract, agreement, or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director, or such employee or, to the knowledge of the Company, any corporation, partnership, trust, or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, or partner. w. Dilutive Effect. The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Preferred Shares will increase in certain circumstances. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Shares in accordance with this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. x. Foreign Corrupt Practices Act. The Company has not made, offered, or agreed to offer anything of value to any government official, political party, or candidate for government office nor has it taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977. y. Disclosure. Neither this Agreement nor any Schedule or Exhibit hereto, contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein not misleading. None of the statements, documents, certificates or other items prepared or supplied by the Company with respect to the transactions contemplated hereby contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained therein not misleading. 4. COVENANTS AND AGREEMENTS a. Best Efforts. Each party shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Sections 7 and 8 of this Agreement. b. Reporting Status. Until the later of after (i) the date as of which the Purchaser may sell all of the Conversion Shares without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) and (ii) the date on which (A) the Purchaser shall have sold all the Conversion Shares and (B) none of the Preferred Shares is outstanding (the "Reporting Period"), the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports 11 under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination. c. Reservation of Shares. The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 110% of the number of shares of Common Stock needed to provide for the issuance of the shares of Common Stock upon conversion of all outstanding Initial Preferred Shares (without regard to any limitations on conversions). d. Corporate Existence. So long as a Purchaser beneficially owns any Preferred Stock, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company's assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company's assets, (x) where the consideration tendered by the surviving or successor entity in such transaction consists entirely of cash or (y) where the surviving or successor entity in such transaction (i) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) such surviving or successor entity or its parent into whose stock the Preferred Shares will be convertible or exercisable is a publicly traded corporation. e. Expenses. Each of the Company and the Purchaser shall pay its respective costs and expenses incurred by such party in connection with the negotiation, investigation, preparation, execution, delivery and performance of this Agreement. f. Disclosure. From and after the date hereof, the Company will not provide to any Purchaser any material non-public information which, according to applicable law, rule or regulation should be disclosed publicly by the Company but which has not been so disclosed. g. Compliance with Law. The Company will conduct its business in compliance with all applicable laws, rules, ordinances and regulations of the jurisdictions in which it is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations the failure to comply with which would have a Material Adverse Effect. h. Consent of Purchaser. The Company will obtain the prior written consent of the Purchaser before undertaking the actions specified below. The Company may undertake any such requested action only after receiving the advance written consent of Purchasers representing not less than two-thirds (2/3) of the outstanding shares of the Series A Preferred Stock. i. Definition of Debt. For purposes of this Agreement, the capitalized term "Debt" of any Person shall mean: (a) all indebtedness of such Person for borrowed money, including without limitation obligations evidenced by bonds, debentures, bridge notes, or other similar instruments; 12 (b) all indebtedness of others for borrowed money guaranteed in any manner by such Person, or in effect guaranteed by such Person through an agreement to purchase, contingent or otherwise; (c) all accounts payable which, to the knowledge of such Person, have remained unpaid for a period of 90 days after the same become due and payable in accordance with their respective terms taking into account any grace period relating to the due date expressly set forth in the applicable invoice with respect to the payment of such accounts payable, except for the trade payables previously disclosed by the Company that have remained unpaid for more than ninety days as of the date of this Agreement that have been disclosed in the Company's SEC Documents; (d) all indebtedness secured by any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in property owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness; (e) all indebtedness created or arising under any conditional sale agreement or lease in the nature thereof (including obligations as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capitalized leases) (but excluding operating leases) or other title retention agreement with respect to property acquired by such Person, even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession of such property; (f) all bankers' acceptances and letters of credit; and (g) liabilities in respect of unfunded vested benefits under Plans covered by Title IV of ERISA. ii. Creation of New Debt. The Company will not create, assume, or incur or become or at any time be liable in respect of, any Debt without the consent of the Purchaser, except: (a) Debt outstanding on the date hereof to the extent reflected on the most recent balance sheet of the Company or incurred in the ordinary course of business thereafter; (b) Debt incurred pursuant to the Company's existing line of credit facility with BA Associates originated November 9, 1998, under which the Company may borrow from time to time up a maximum of $1,100,000, as referenced in Section 3(v) of the Disclosure Schedule; (c) Debt incurred in permitted real estate investments; and 13 (d) purchase money security interests not to exceed $250,000 per year. Notwithstanding the foregoing provisions of this Section 4.h.ii the Company will not, without the consent of the Purchaser, create, assume, or incur, or become or at any time be liable in respect of, any Debt for money borrowed, advances made, or goods purchased, if the Purchaser, the Person making such advances, or the vendor of such goods (or any Person who guarantees or becomes surety for all or any part of such Debt or acquires any right or incurs any obligation to become, either immediately or upon the occurrence of some future contingency, the owner of all or any part thereof) shall have any right, by reason of any statute or otherwise, to have any claim in respect of such Debt first satisfied out of the general assets of the Company in priority to the claims of its general creditors. iii. Dividends. The Company will not, without the consent of the Purchaser, (a) pay any dividends, in cash or otherwise, on, (b) make any distributions to holders of, or (c) purchase, redeem, or otherwise acquire any of its outstanding Common Stock or set apart assets for a sinking or other analogous fund for the purchase, redemption, retirement, or other acquisition of, any shares of its Common Stock; provided however, that the Company may: (i) pay dividends on its outstanding Preferred Stock in accordance with the Charter; (ii) with prior written approval of each Purchaser, repurchase shares of its Common Stock issued or to be issued by the Company upon exercise of stock options granted to employees and directors of the Company pursuant to the terms of plans adopted by the Board of Directors of the Company; and (iii) pay cash in lieu of fractional shares of its Common Stock on the exercise of outstanding warrants to purchase its Common Stock, pursuant to the terms of such warrants. iv. Transactions with Affiliates. The Company will not, without the consent of the Purchaser, make any loans or advances to any of its officers, directors, shareholders, or Affiliates, other than expense advances made by the Company to its officers and employees in the ordinary course of business. The Company may increase the salaries of an executive officer or the remuneration of any director up to an aggregate maximum in all such instances of $100,000, and otherwise will not increase the salary of any executive officer or the remuneration of any director without the prior consent of the Purchaser. v. Investments. Other than as permitted by this Agreement, the Company will not, without the consent of the Purchaser, purchase or acquire or invest in, or agree to purchase or acquire or invest in the business, property, or assets of, or any securities of, any other company or business, provided however, that the Company may invest in: 14 (a) securities issued or directly and fully guaranteed or insured by the United States government or any agency thereof having maturities of not more than one year from the date of acquisition; (b) certificates of deposit or eurodollar certificates of deposit, having maturities of not more than one hundred eighty days from the date of acquisition, or one year from the date of acquisition in the case of certificates of deposit or eurodollar certificates of deposit being used to secure the Company's reimbursement obligations under letters of credit (provided that nothing contained herein shall be construed to permit letters of credit not otherwise permitted under this Agreement); (c) commercial paper of any Person that is not a subsidiary or an Affiliate of the Company, maturing within one hundred eighty days after the date of acquisition; (d) bank loan participations; and (e) money market instruments having maturities of not more than one hundred eighty days from the date of acquisition, or one year from the date of acquisition in the case of money market instruments being used to secure the Company's reimbursement obligations under letters of credit (provided that nothing contained herein shall be construed to permit letters of credit not otherwise permitted under this Agreement); in all cases of such credit quality as a prudent business person would invest in. vi. Sale and Lease-Back Transactions. The Company will not, without the consent of the Purchaser, sell or transfer any of its properties to anyone with the intention of taking back a lease of the same property or leasing other property for substantially the same use as the property being sold or transferred; provided however, that (a) the Company may continue and extend its existing leasing arrangements and may lease, under operating leases, any fixtures, equipment, and real estate that do not constitute Pledged Assets in the ordinary course of business of the Company, and (b) the Company may otherwise make real estate investments but only with the consent of the Purchaser as provided for herein. vii. Sales of Assets. The Company will not, without the consent of the Purchaser, sell, transfer, or dispose of any property except for sales of obsolete equipment having a book value at the time of sale of not more than $100,000 in the aggregate in any fiscal year. viii. Subsidiaries. The Company will not, without the consent of the Purchaser, organize, or transfer any assets to, any Subsidiaries, provided that, if consent of the Purchaser is obtained and any Subsidiaries are organized, or assets transferred, in compliance with this Section 4.h.viii the Company will not permit such 15 Subsidiaries to enter into any transaction or agreement which would violate any of the provisions of this Section 4.h if such provisions were applicable to such Subsidiary. ix. Change in Business; Operations. The Company will not, without the consent of the Purchaser, cause or effect any change in or addition to the primary business of the Company that has not been approved by Purchaser, such that more than 10% of the gross revenues of the Company are derived from a business other than the business in which the Company was engaged on the date hereof as reflected in the applicable last SEC Document filed prior to the Closing ("Change in Business"), except any such changes approved in advance in writing by the Purchaser. The business of the Company and its subsidiaries shall not be conducted in violation of any law, ordinance, or regulation of any governmental entity. 5. PIGGYBACK REGISTRATION RIGHTS a. If at any time the Company proposes to file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the 1933 Act of any of its securities (other than on Form S-4 or Form S-8 or their then equivalents relating to securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans) the Company shall promptly send to the Purchaser written notice of the Company's intention to file a registration statement and of such Purchaser's rights under this Section 5(a) and, if within twenty (20) days after receipt of such notice, such Purchaser shall so request in writing, the Company shall include in such registration statement all or any part of the Conversion Shares such Purchaser requests to be registered. If an offering in connection with which the Purchaser is entitled to registration under this Section 5(a) is an underwritten offering, then such Purchaser whose Conversion Shares are included in such registration statement shall, unless otherwise agreed by the Company, offer and sell such Conversion Shares in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering. b. If the registration referred to in Section 5(a) is to be an underwritten public offering for the account of the Company and the managing underwriter(s) advise the Company in writing, that in their reasonable good faith opinion, marketing or other factors dictate that a limitation on the number of shares of Common Stock which may be included in the registration statement is necessary to facilitate and not adversely affect the proposed offering, then the Company shall include in such registration: (i) first, all securities the Company proposes to sell for its own account, (ii) second, up to the full number of securities proposed to be registered for the account of the holders of securities entitled to inclusion of their securities in the registration statement by reason of demand registration rights, and (iii) third, the securities requested to be registered by the Purchaser and other holders of securities entitled to participate in the registration, drawn from them pro rata based on the number each has requested to be included in such registration. 6. TRANSFER AGENT INSTRUCTIONS 16 The Company shall issue Purchaser, and cause any subsequent transfer agent to issue certificates in the name of each Purchaser or its respective nominee(s), for the Conversion Shares in such amounts as specified from time to time by each Purchaser to the Company upon conversion of the Preferred Shares. Prior to sale of the Conversion Shares and pursuant to an effective registration statement under the 1933 Act, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 6 and stop transfer instructions to give effect to Section 2(g) hereof (in the case of the Conversion Shares, prior to the sale of the Conversion Shares pursuant to an effective registration statement under the 1933 Act) will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement. If an Purchaser provides the Company with an opinion of counsel, in form reasonably acceptable to the Company, to the effect that a public sale, assignment or transfer of Securities may be made without registration under the 1933 Act or the Purchaser provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, in such name and in such denominations as specified by such Purchaser and without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchaser by violating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 6 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 6, that the Purchaser shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue the Preferred Shares to each Purchaser at the Closing is subject to the satisfaction, with respect to each Purchaser at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion: a. Such Purchaser shall have executed each of the Transaction Agreements to which it is a party and delivered the same to the Company. b. The Certificate of Designations shall have been filed with the Secretary of the Commonwealth of Massachusetts. c. Such Purchaser shall have delivered to the Company the Notes in exchange for the Preferred Shares at the Closing in accordance with Section 1(c) hereof. d. The representations and warranties of such Purchaser shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for 17 representations and warranties that speak as of a specific date), and such Purchaser shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Agreements to be performed, satisfied or complied with by such Purchaser at or prior to the Closing Date. 8. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO EXCHANGE. The obligation of each Purchaser hereunder to exchange the Notes for the Preferred Shares at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Purchaser's sole benefit and may be waived by such Purchaser at any time in its sole discretion: a. The Company shall have executed each of the Transaction Agreements and delivered the same to such Purchaser. b. The Certificate of Designations shall have been filed with the Secretary of the Commonwealth of Massachusetts, and a copy thereof certified by the Secretary of the Commonwealth of Massachusetts shall have been delivered to such Purchaser. c. The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Agreements to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Such Purchaser shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Purchaser, including, without limitation, an update as of the Closing Date regarding the representation contained in Section 3(c) above. d. The Company shall have executed and delivered to such Purchaser the Preferred Stock Certificates (in such denominations as such Purchaser shall request) for the Initial Preferred Shares being purchased by such Purchaser at the Closing. e. The Board of Directors of the Company shall have adopted resolutions consistent with Section 3(b) above and in a form reasonably acceptable to such Purchaser (the "Resolutions"). f. As of the Closing Date, the Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, 1,200,000 shares of Common Stock. g. The Company shall have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Securities pursuant to this Agreement in compliance with such laws. 18 h. The Company shall have delivered to the Purchaser such other documents relating to the transactions contemplated by the Transaction Agreements as the Purchaser or their counsel may reasonably request. 9. MISCELLANEOUS a. Governing Law; Jurisdiction; Jury Trial. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, irrespective of the choice of law provisions thereof. The parties agree that any action brought by one party against the other shall be in any appropriate state court or any federal Court located in the County where the party against whom the action is brought is principally located, and both parties agree that such courts shall have exclusive jurisdiction of such case or controversy arising under or in connection with this Agreement and shall be a proper forum in which to adjudicate such case or controversy. The parties consent to the jurisdiction of such courts. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. b. Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. c. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. e. Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between each Purchaser, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended or waived other than by an instrument in writing signed by the Company and the holders of at least 66 2/3% of the Preferred Shares then outstanding. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Preferred Shares then outstanding. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Agreements or the Certificate of Designations unless the same 19 consideration also is offered to all of the parties to the Transaction Agreements or holders of Preferred Shares, as the case may be. f. Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: Cambex Corporation 360 Second Avenue Waltham, Massachusetts 02451 Telephone:(781) 890-6000 Facsimile: (781) 890-2899 Attention: President With a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, Massachusetts 02111 Telephone:(617) 542-6000 Facsimile: (617) 542-2241 Attention: Neil H. Aronson, Esq. If to the Transfer Agent: American Stock Transfer & Trust Company 59 Maiden Lane Plaza Level New York, NY 10038 Telephone: (718) 921-8200 If to a Purchaser, to it at the address and facsimile number set forth on the Schedule of Purchasers, with copies to such Purchaser's representatives as set forth on the Schedule of Purchasers, or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, 20 receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Preferred Shares. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the holders of at least 66 2/3% of the Preferred Shares then outstanding, including by merger or consolidation, except pursuant to a Change of Control (as defined in Section 3.3 of the Certificate of Designations) with respect to which the Company is in compliance with Section 5 of the Certificate of Designations and Section 4(d) of this Agreement. A Purchaser may assign some or all of its rights hereunder without the consent of the Company; provided, however, that such transferee will not be deemed a Purchaser hereunder unless such transferee has acquired at least 50 shares of Preferred Stock (as adjusted to reflect any stock splits, reverse stock splits and similar capital events) and such transferee has agreed in writing in form and substance reasonably satisfactory to the Company to be bound by the applicable provisions of this Agreement. Notwithstanding anything to the contrary contained in the Transaction Agreements, the Purchaser shall be entitled to pledge the Securities in connection with a bona fide margin account or other loan secured by the Securities. h. 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. i. Survival. Unless this Agreement is terminated under Section 9(l), the representations and warranties of the Company and the Purchaser contained in Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5, 6 and 9, shall survive the Closing. Each Purchaser shall be responsible only for its own representations, warranties, agreements and covenants hereunder. j. Publicity. The Company and each Purchaser shall have the right to approve before issuance any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Purchaser, to make any press release or other public disclosure with respect to such transactions as the Company reasonably believes upon consultation with its outside counsel is required by applicable law and regulations (although each Purchaser shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release and shall be provided with a copy thereof). k. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. l. Termination. In the event that the Closing shall not have occurred with respect to an Purchaser on or before five (5) Business Days from the date hereof due to the Company's or such 21 Purchaser's failure to satisfy the conditions set forth in Sections 7 and 8 above (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party. m. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. n. Remedies. Each Purchaser and each holder of the Securities shall have all rights and remedies set forth in the Transaction Agreements and the Certificate of Designations and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. [signature page follows] 22 IN WITNESS WHEREOF, the Purchaser and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above. COMPANY: CAMBEX CORPORATION By:/s/ Joseph F. Kruy Name: Joseph F. Kruy Title: President PURCHASER: H. TERRY SNOWDAY By: /s/ H. Terry Snowday Name: H. Terry Snowday The Elk Marsh Williamsburg, MI 49690 (231) 267-5464 SCHEDULE OF PURCHASERS Purchaser Name H. Terry Snowday Purchaser Address, Telephone Number The Elk Marsh Williamsburg, MI 49690 (231) 267-5464 Principal Amount and Number of Shares of Series A Preferred Shares $134,513.49 (10,761 shares) Purchaser's Advisor and Legal Counsel Address List of Exhibits Exhibit A Form of Certificate of Designations Schedule 1 Disclosure Schedule EX-10.35 7 agreeph.txt SECURITIES EXCHANGE AGREEMENT SECURITIES EXCHANGE AGREEMENT (the "Agreement"), dated as of June 28, 2002 by and among Cambex Corporation, a Massachusetts corporation, with headquarters located at 360 Second Avenue, Waltham, Massachusetts 02451 (the "Company"), and the investor listed on the Schedule of Purchasers attached hereto (the "Purchaser"). WHEREAS: A. The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"). B. The Company has authorized the following new series of its preferred stock, par value $1.00 per share: the Company's Series A Convertible Preferred Stock ("Preferred Stock") which shall be convertible into shares of the Company's Common Stock, $.10 par value per share (the "Common Stock") (as converted, the "Conversion Shares"), in accordance with the terms of the Company's Certificate of Designations: Rights, Preferences, Privileges and Restrictions of the Preferred Stock in the form attached hereto as Exhibit A (the "Certificate of Designations"). C. The Purchaser wishes to exchange a note evidenced by a Loan and Security Agreement dated November 5, 1999 with a principal amount of $125,000, along with all accrued but unpaid interest (collectively the "Notes") upon the terms and conditions stated in this Agreement for an aggregate of 13,522 (thirteen thousand five hundred and twenty two) shares of convertible Preferred Stock (the "Preferred Shares"). D. The location of defined terms in this Agreement is set forth on the Index of Terms attached hereto. NOW, THEREFORE, the Company and the Purchaser hereby agree as follows: 1. EXCHANGE OF NOTES INTO SHARES. a. Exchange of Notes. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue to the Purchaser the respective number of Preferred Shares set forth opposite the Purchaser's name on the Schedule of Purchasers (the "Closing"). The Purchase Price (the "Purchase Price") of Preferred Shares shall be $12.50. On the Closing Date (as defined below), the Company shall deliver to each Purchaser a stock certificate(s) representing such number of Preferred Shares which such Purchaser is then receiving (as indicated opposite such Purchaser's name on the Schedule of Purchasers), duly executed on behalf of the Company and registered in the name of such Purchaser or its designee (the "Stock Certificates"). b. Closing Date. The date and time of the Closing (the "Closing Date") shall be 10:00 a.m. Eastern Standard Time on June 28, 2002, subject to the satisfaction (or waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and the Purchaser). c. Form of Payment. On the Closing Date, each Purchaser shall deliver to the Company the Notes in exchange for the Preferred Shares to be issued to such Purchaser at the Closing. 2. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Each Purchaser represents and warrants with respect to only itself that: a. Investment Purpose. Such Purchaser (i) is acquiring the Preferred Shares and (ii) upon conversion of the Preferred Shares, will acquire the Conversion Shares then issuable (the Preferred Shares and the Conversion Shares, collectively, are referred to herein as the "Securities") for its own account for investment only and not with a present view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such Purchaser does not agree to hold any Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. b. Accredited Investor Status. Such Purchaser is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D under the 1933 Act. c. Reliance on Exemptions. Such Purchaser understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of the United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and such Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities. d. Information. Such Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Purchaser. Such Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of and receive answers from the Company. Neither such inquiries nor any other due diligence investigations conducted by such Purchaser or its advisors, if any, or its representatives shall modify, amend or affect such Purchaser's right to rely on the Company's representations and warranties contained in this Agreement. Purchaser understands that its investment in the Securities involves a high degree of risk. Purchaser has sought such accounting, legal, and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. e. No Governmental Review. Such Purchaser understands that no United States federal or state agency or any other government or governmental agency has 2 passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. f. Transfer or Resale. Such Purchaser understands that: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) they are offered, sold, assigned or transferred pursuant to an effective registration statement under the 1933 Act, (B) such Purchaser shall have delivered to the Company an opinion of counsel, in a form and from counsel reasonably acceptable to the Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Purchaser provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. g. Legends. Purchaser understands that the certificates or other instruments representing the Preferred Shares and, until such time as the sale of the Conversion Shares have been registered under the 1933 Act, the stock certificates representing the Conversion Shares shall bear a restrictive legend in substantially the following form (and a stop transfer order may be placed against transfer of such stock certificates): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Preferred Shares and the Conversion Shares, upon which it is stamped, if, unless otherwise required by state securities laws, (a) the sale of the Conversion Shares is registered under the 1933 Act, (b) in connection with a sale transaction, such holder provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment, or transfer of the Preferred Shares and the Conversion Shares may be made without registration under the 1933 Act, or (c) such holder provides the Company with reasonable assurances that the Preferred Shares and the Conversion Shares can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold. 3 h. Authorization; Enforcement; Validity. Such Purchaser has full power and authority to enter into and perform in accordance with its and their terms, this Agreement and each other Transaction Agreement (as defined below). This Agreement and each of the other Transaction Agreements have been duly and validly authorized, executed and delivered on behalf of such Purchaser and is a valid and binding agreement of such Purchaser enforceable against such Purchaser in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. i. Residency. Such Purchaser is a resident of that country or state specified in its address on the Schedule of Purchasers. j. Scheme to Evade Registration. Purchaser represents and warrants to the Company, as to Itself only, that the acquisition of the Securities is not a transaction (or any element of a series of transactions) that is part of a plan or scheme by the Purchaser to evade the registration provisions of the 1933 Act and that i. such Purchaser is an "accredited investor" within the meaning of Rule 501 under the Securities Act; ii. such Purchaser has sufficient knowledge and experience to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof; iii. such Purchaser has had an opportunity to ask questions of and receive answers from and to discuss the Company's business, management, and financial affairs with the Company's management; iv. the Securities are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof; v. such Purchaser was not offered nor made aware of the Company's interest in issuing the Preferred Shares by any means of public advertisement or solicitation; vi. in connection with such Purchaser's purchase of the Securities, it has been solely responsible for its own (x) due diligence investigation of the Company and (y) investment decision, and has not engaged or relied upon any agent or "purchaser representative" to review or analyze the Company's business and affairs or advise Purchaser with respect to the merits of the investment; vii. such Purchaser has full power and authority to execute, deliver, and perform this Agreement; and this Agreement constitutes the legal, valid, and binding obligation of such Purchaser, enforceable against it in accordance with their respective terms; and viii. if such Purchaser proposes to sell the Securities pursuant to Rule 144A under the Securities Act, it will (x) take reasonable steps to obtain the information required by such Rule to establish a reasonable belief that the prospective purchaser is a "qualified institutional buyer" as such term is defined in Rule 144A and (y) advise the prospective purchaser that the Purchaser is relying on the exemption from the registration provisions of the Securities Act available pursuant to Rule 144A. 4 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Purchaser, except as referenced on Schedule 1 hereto (the "Disclosure Schedule"), which reference shall set forth the specific section to which the qualification relates and the statement which constitutes the qualification, that: a. Organization and Qualification. The Company and its subsidiaries are corporations duly organized, validly existing, and in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted. Each of the Company and each subsidiary is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole. b. Authorization, Enforcement, Compliance with Other Instruments. i. The Company has the requisite corporate power and authority to enter into and perform each of this Agreement, any and all amendments thereto, and any related agreements (collectively, the "Transaction Agreements" and individually a "Transaction Agreement"), and to issue the Securities thereof; ii. the execution and delivery by the Company of each of the Transaction Agreements and the consummation by it of the transactions contemplated thereby, including without limitation the issuance of the Preferred Shares and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion of the Preferred Shares have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors, or its stockholders; iii. each of the Transaction Agreements have been duly and validly executed and delivered by the Company; and iv. each of the Transaction Agreements constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. c. Capitalization. Immediately prior to Closing, the authorized capital stock of the Company consisted of 28,000,000 shares of capital stock, of which 25,000,000 shares are common Stock, par value $.10, of which 18,040,351 shares were issued and outstanding as of the date of this Agreement, and 3,000,000 shares of Preferred Stock, par value $1.00, none of which are issued and outstanding. All of such outstanding shares have been validly issued and are fully paid and nonassessable. Except as described in Section 3(c) of the Disclosure Schedule, no shares 5 of Common Stock or Preferred Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. Except as disclosed in Section 3(c) of the Disclosure Schedule, as of the effective date of this Agreement, (i) 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 or any of its subsidiaries, or contracts, commitments, understandings, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, or 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 or any of its subsidiaries, (ii) there are no outstanding debt securities, and (iii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the 1933 Act. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities in the manner contemplated by this Agreement. The Company has furnished to the Purchaser true and correct copies of the Company's Articles of Organization, as amended (the "Charter") and the Company's Bylaws, as in effect on the date hereof (the "Bylaws"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. d. Issuance of Securities. The Preferred Shares have been duly authorized and are free from all taxes, liens, and charges with respect to the issue thereof. The Conversion Shares issuable upon conversion of the Preferred Shares have been duly authorized and reserved for issuance and will, be duly and validly issued, fully paid, and nonassessable, and free from all taxes, liens, and charges, with respect to the issuance thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. e. No Conflicts. Except as disclosed in Section 3(e) of the Disclosure Schedule, the execution, delivery, and performance of the Transaction Agreements by the Company, and the consummation by the Company of the transactions contemplated thereby, will not (i) result in a violation of the Charter or the Bylaws of the Company or (ii) conflict with, 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 Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment, or decree (including federal and state securities laws and regulations and the rules and regulations of the principal market or exchange on which the Common Stock is traded or listed) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected. Except as described in Section 3(e) of the Disclosure Schedule, neither the Company nor any subsidiary is in violation of any term of, or in default under, its Charter or the Bylaws or their organizational charter or Bylaws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree, or order or any statute, rule, or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is not being conducted in violation of any law, ordinance, or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required 6 under the 1933 Act and any applicable state securities laws, the Company 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, and perform any of its obligations under or contemplated by the Transaction Agreements in accordance with the terms thereof. Except as disclosed in Section 3(e) of the Disclosure Schedule, all consents, authorizations, orders, filings, and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. f. SEC Documents; Financial Statements. Since January 1, 2000, the Company has filed all reports, schedules, forms, statements, and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the "SEC Documents"). The Company has made available to each Purchaser or its representative true and complete copies of the SEC Documents. The Company (i) is a "reporting issuer" as defined in Rule 902(1) of Regulation S and (ii) has a class of securities registered under Section 12(b) or 12(g) of the 1934 Act or is required to file reports pursuant to Section 15(d) of the 1934 Act, and has filed all the materials required to be filed as reports pursuant to the Exchange Act for the period the Company was required by law to file such material. As of their respective dates, the financial statements of the Company included in the SEC Documents (the "Financial Statements") complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto, or (b) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and present fairly, in all material respects, the financial position of the Company as of the dates thereof, and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Purchaser which is not included in the SEC Documents, including, without limitation, information referred to in Section 3(f) of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. g. Absence of Certain Changes. Except as described in Section 3(g) of the Disclosure Schedule, since the date of the most recent audited balance sheet included in the SEC Documents, there has been no material adverse change and no material adverse development in the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or its subsidiaries have any knowledge that its creditors intend to initiate involuntary bankruptcy proceedings. 7 h. Absence of Litigation. There is no action, suit, proceeding, inquiry, or investigation before or by any court, public board, government agency, self- regulatory organization, or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company, the Common Stock, or any of the Company's subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a material adverse effect on the transactions contemplated hereby, (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under the Transaction Agreements, or (iii) except as expressly set forth in Schedule 3(h) of the Disclosure Schedule, have a material adverse effect on the business, operations, properties, financial condition, or results of operation of the Company and its subsidiaries taken as a whole. i. Purchase of Securities. The Company acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm's length purchaser with respect to this Agreement and the transactions contemplated hereby. 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 hereby and any advice given by the Purchaser or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Purchaser's purchase of the Securities. 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 representatives. j. No Undisclosed Events, Liabilities, Developments, or Circumstances. No event, liability, development, or circumstance has occurred or exists, or to the knowledge of the Company is contemplated to occur, with respect to the Company or its subsidiaries or their respective business, properties, prospects, operations, or financial condition, which could be material but which has not been publicly announced or disclosed in writing to the Purchaser. k. No General Solicitation. 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 1933 Act) in connection with the offer or sale of the Securities. l. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions. m. Employee Relations. Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened. None of the Company's or its subsidiaries' employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good. 8 n. Intellectual Property Rights. The Company and its subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets, and rights necessary to conduct their respective businesses as now conducted. Except as set forth on Section 3(n) of the Disclosure Schedule, none of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets, or other intellectual property rights have expired or terminated, or are expected to expire or terminate in the near future, other than those that would not have a material adverse effect on the Company. The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of the trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret, or other similar rights of others. Except as set forth on Section 3(n) of the Disclosure Schedule, there is no claim, action, or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret, or other infringement, and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality, and value of all of their intellectual properties. o. Environmental Laws. The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state, and local laws and regulations relating to the protection of human health and safety, the environment, or hazardous, toxic substances, wastes, pollutants, or contaminants ("Environmental Laws"), (ii) have received all permits, licenses, or other approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (iii) are in compliance with all terms and conditions of any such permit, license, or approval. p. Title. The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances, and defects except as described in Section 3(p) of the Disclosure Schedule or as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting, and enforceable leases with such exceptions as are not material, and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries. q. Insurance. The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks, and in such amounts, as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for, and neither the Company nor any such 9 subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial, or otherwise, or the earnings, business, or operations of the Company and its subsidiaries, taken as a whole. r. Regulatory Permits. The Company and its subsidiaries possess all certificates, authorizations, and permits issued by the appropriate federal, state, or foreign regulatory authorities necessary to conduct their respective businesses, except to the extent that the failure to possess any such certificate, authorization, and permit would not have a material adverse effect on the Company and its subsidiaries taken as a whole, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization, or permits. s. Internal Accounting Controls. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. t. No Materially Adverse Contracts, Etc. Neither the Company nor any of its subsidiaries is subject to any charter, corporate, or other legal restriction, or any judgment, decree, order, rule, or regulation which in the judgment of the Company's officers has, or to the knowledge of the Company is expected in the future to have, a material adverse effect on the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. Neither the Company nor any of its subsidiaries is a party to any contract or agreement which in the judgment of the Company's officers has, or to the knowledge of the Company is expected to have, a material adverse effect on the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. u. Tax Status. The Company and each of its subsidiaries has made or filed all federal and state income and all other tax returns, reports, and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes), and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports, and declarations, except those being contested in good faith, and has set aside on its books amounts deemed reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports, or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim, and there are no open years, examinations in progress or 10 claims against it for federal, state or other taxes (including penalties and interest) for any period or periods prior to the date hereof. v. Certain Transactions. Except as set forth on Section 3(v) of the Disclosure Schedule and in the SEC Documents, and except for arm's length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed on Section 3(c) of the Disclosure Schedule, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers, and directors), including any contract, agreement, or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director, or such employee or, to the knowledge of the Company, any corporation, partnership, trust, or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, or partner. w. Dilutive Effect. The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Preferred Shares will increase in certain circumstances. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Shares in accordance with this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. x. Foreign Corrupt Practices Act. The Company has not made, offered, or agreed to offer anything of value to any government official, political party, or candidate for government office nor has it taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977. y. Disclosure. Neither this Agreement nor any Schedule or Exhibit hereto, contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein not misleading. None of the statements, documents, certificates or other items prepared or supplied by the Company with respect to the transactions contemplated hereby contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained therein not misleading. 4. COVENANTS AND AGREEMENTS a. Best Efforts. Each party shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Sections 7 and 8 of this Agreement. b. Reporting Status. Until the later of after (i) the date as of which the Purchaser may sell all of the Conversion Shares without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) and (ii) the date on which (A) the Purchaser shall have sold all the Conversion Shares and (B) none of the Preferred Shares is outstanding (the "Reporting Period"), the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports 11 under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination. c. Reservation of Shares. The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 110% of the number of shares of Common Stock needed to provide for the issuance of the shares of Common Stock upon conversion of all outstanding Initial Preferred Shares (without regard to any limitations on conversions). d. Corporate Existence. So long as a Purchaser beneficially owns any Preferred Stock, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company's assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company's assets, (x) where the consideration tendered by the surviving or successor entity in such transaction consists entirely of cash or (y) where the surviving or successor entity in such transaction (i) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) such surviving or successor entity or its parent into whose stock the Preferred Shares will be convertible or exercisable is a publicly traded corporation. e. Expenses. Each of the Company and the Purchaser shall pay its respective costs and expenses incurred by such party in connection with the negotiation, investigation, preparation, execution, delivery and performance of this Agreement. f. Disclosure. From and after the date hereof, the Company will not provide to any Purchaser any material non-public information which, according to applicable law, rule or regulation should be disclosed publicly by the Company but which has not been so disclosed. g. Compliance with Law. The Company will conduct its business in compliance with all applicable laws, rules, ordinances and regulations of the jurisdictions in which it is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations the failure to comply with which would have a Material Adverse Effect. h. Consent of Purchaser. The Company will obtain the prior written consent of the Purchaser before undertaking the actions specified below. The Company may undertake any such requested action only after receiving the advance written consent of Purchasers representing not less than two-thirds (2/3) of the outstanding shares of the Series A Preferred Stock. i. Definition of Debt. For purposes of this Agreement, the capitalized term "Debt" of any Person shall mean: (a) all indebtedness of such Person for borrowed money, including without limitation obligations evidenced by bonds, debentures, bridge notes, or other similar instruments; 12 (b) all indebtedness of others for borrowed money guaranteed in any manner by such Person, or in effect guaranteed by such Person through an agreement to purchase, contingent or otherwise; (c) all accounts payable which, to the knowledge of such Person, have remained unpaid for a period of 90 days after the same become due and payable in accordance with their respective terms taking into account any grace period relating to the due date expressly set forth in the applicable invoice with respect to the payment of such accounts payable, except for the trade payables previously disclosed by the Company that have remained unpaid for more than ninety days as of the date of this Agreement that have been disclosed in the Company's SEC Documents; (d) all indebtedness secured by any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in property owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness; (e) all indebtedness created or arising under any conditional sale agreement or lease in the nature thereof (including obligations as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capitalized leases) (but excluding operating leases) or other title retention agreement with respect to property acquired by such Person, even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession of such property; (f) all bankers' acceptances and letters of credit; and (g) liabilities in respect of unfunded vested benefits under Plans covered by Title IV of ERISA. ii. Creation of New Debt. The Company will not create, assume, or incur or become or at any time be liable in respect of, any Debt without the consent of the Purchaser, except: (a) Debt outstanding on the date hereof to the extent reflected on the most recent balance sheet of the Company or incurred in the ordinary course of business thereafter; (b) Debt incurred pursuant to the Company's existing line of credit facility with BA Associates originated November 9, 1998, under which the Company may borrow from time to time up a maximum of $1,100,000, as referenced in Section 3(v) of the Disclosure Schedule; (c) Debt incurred in permitted real estate investments; and 13 (d) purchase money security interests not to exceed $250,000 per year. Notwithstanding the foregoing provisions of this Section 4.h.ii the Company will not, without the consent of the Purchaser, create, assume, or incur, or become or at any time be liable in respect of, any Debt for money borrowed, advances made, or goods purchased, if the Purchaser, the Person making such advances, or the vendor of such goods (or any Person who guarantees or becomes surety for all or any part of such Debt or acquires any right or incurs any obligation to become, either immediately or upon the occurrence of some future contingency, the owner of all or any part thereof) shall have any right, by reason of any statute or otherwise, to have any claim in respect of such Debt first satisfied out of the general assets of the Company in priority to the claims of its general creditors. iii. Dividends. The Company will not, without the consent of the Purchaser, (a) pay any dividends, in cash or otherwise, on, (b) make any distributions to holders of, or (c) purchase, redeem, or otherwise acquire any of its outstanding Common Stock or set apart assets for a sinking or other analogous fund for the purchase, redemption, retirement, or other acquisition of, any shares of its Common Stock; provided however, that the Company may: (i) pay dividends on its outstanding Preferred Stock in accordance with the Charter; (ii) with prior written approval of each Purchaser, repurchase shares of its Common Stock issued or to be issued by the Company upon exercise of stock options granted to employees and directors of the Company pursuant to the terms of plans adopted by the Board of Directors of the Company; and (iii) pay cash in lieu of fractional shares of its Common Stock on the exercise of outstanding warrants to purchase its Common Stock, pursuant to the terms of such warrants. iv. Transactions with Affiliates. The Company will not, without the consent of the Purchaser, make any loans or advances to any of its officers, directors, shareholders, or Affiliates, other than expense advances made by the Company to its officers and employees in the ordinary course of business. The Company may increase the salaries of an executive officer or the remuneration of any director up to an aggregate maximum in all such instances of $100,000, and otherwise will not increase the salary of any executive officer or the remuneration of any director without the prior consent of the Purchaser. v. Investments. Other than as permitted by this Agreement, the Company will not, without the consent of the Purchaser, purchase or acquire or invest in, or agree to purchase or acquire or invest in the business, property, or assets of, or any securities of, any other company or business, provided however, that the Company may invest in: 14 (a) securities issued or directly and fully guaranteed or insured by the United States government or any agency thereof having maturities of not more than one year from the date of acquisition; (b) certificates of deposit or eurodollar certificates of deposit, having maturities of not more than one hundred eighty days from the date of acquisition, or one year from the date of acquisition in the case of certificates of deposit or eurodollar certificates of deposit being used to secure the Company's reimbursement obligations under letters of credit (provided that nothing contained herein shall be construed to permit letters of credit not otherwise permitted under this Agreement); (c) commercial paper of any Person that is not a subsidiary or an Affiliate of the Company, maturing within one hundred eighty days after the date of acquisition; (d) bank loan participations; and (e) money market instruments having maturities of not more than one hundred eighty days from the date of acquisition, or one year from the date of acquisition in the case of money market instruments being used to secure the Company's reimbursement obligations under letters of credit (provided that nothing contained herein shall be construed to permit letters of credit not otherwise permitted under this Agreement); in all cases of such credit quality as a prudent business person would invest in. vi. Sale and Lease-Back Transactions. The Company will not, without the consent of the Purchaser, sell or transfer any of its properties to anyone with the intention of taking back a lease of the same property or leasing other property for substantially the same use as the property being sold or transferred; provided however, that (a) the Company may continue and extend its existing leasing arrangements and may lease, under operating leases, any fixtures, equipment, and real estate that do not constitute Pledged Assets in the ordinary course of business of the Company, and (b) the Company may otherwise make real estate investments but only with the consent of the Purchaser as provided for herein. vii. Sales of Assets. The Company will not, without the consent of the Purchaser, sell, transfer, or dispose of any property except for sales of obsolete equipment having a book value at the time of sale of not more than $100,000 in the aggregate in any fiscal year. viii. Subsidiaries. The Company will not, without the consent of the Purchaser, organize, or transfer any assets to, any Subsidiaries, provided that, if consent of the Purchaser is obtained and any Subsidiaries are organized, or assets transferred, in compliance with this Section 4.h.viii the Company will not permit such 15 Subsidiaries to enter into any transaction or agreement which would violate any of the provisions of this Section 4.h if such provisions were applicable to such Subsidiary. ix. Change in Business; Operations. The Company will not, without the consent of the Purchaser, cause or effect any change in or addition to the primary business of the Company that has not been approved by Purchaser, such that more than 10% of the gross revenues of the Company are derived from a business other than the business in which the Company was engaged on the date hereof as reflected in the applicable last SEC Document filed prior to the Closing ("Change in Business"), except any such changes approved in advance in writing by the Purchaser. The business of the Company and its subsidiaries shall not be conducted in violation of any law, ordinance, or regulation of any governmental entity. 5. PIGGYBACK REGISTRATION RIGHTS a. If at any time the Company proposes to file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the 1933 Act of any of its securities (other than on Form S-4 or Form S-8 or their then equivalents relating to securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans) the Company shall promptly send to the Purchaser written notice of the Company's intention to file a registration statement and of such Purchaser's rights under this Section 5(a) and, if within twenty (20) days after receipt of such notice, such Purchaser shall so request in writing, the Company shall include in such registration statement all or any part of the Conversion Shares such Purchaser requests to be registered. If an offering in connection with which the Purchaser is entitled to registration under this Section 5(a) is an underwritten offering, then such Purchaser whose Conversion Shares are included in such registration statement shall, unless otherwise agreed by the Company, offer and sell such Conversion Shares in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering. b. If the registration referred to in Section 5(a) is to be an underwritten public offering for the account of the Company and the managing underwriter(s) advise the Company in writing, that in their reasonable good faith opinion, marketing or other factors dictate that a limitation on the number of shares of Common Stock which may be included in the registration statement is necessary to facilitate and not adversely affect the proposed offering, then the Company shall include in such registration: (i) first, all securities the Company proposes to sell for its own account, (ii) second, up to the full number of securities proposed to be registered for the account of the holders of securities entitled to inclusion of their securities in the registration statement by reason of demand registration rights, and (iii) third, the securities requested to be registered by the Purchaser and other holders of securities entitled to participate in the registration, drawn from them pro rata based on the number each has requested to be included in such registration. 6. TRANSFER AGENT INSTRUCTIONS 16 The Company shall issue Purchaser, and cause any subsequent transfer agent to issue certificates in the name of each Purchaser or its respective nominee(s), for the Conversion Shares in such amounts as specified from time to time by each Purchaser to the Company upon conversion of the Preferred Shares. Prior to sale of the Conversion Shares and pursuant to an effective registration statement under the 1933 Act, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 6 and stop transfer instructions to give effect to Section 2(g) hereof (in the case of the Conversion Shares, prior to the sale of the Conversion Shares pursuant to an effective registration statement under the 1933 Act) will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement. If an Purchaser provides the Company with an opinion of counsel, in form reasonably acceptable to the Company, to the effect that a public sale, assignment or transfer of Securities may be made without registration under the 1933 Act or the Purchaser provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, in such name and in such denominations as specified by such Purchaser and without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchaser by violating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 6 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 6, that the Purchaser shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue the Preferred Shares to each Purchaser at the Closing is subject to the satisfaction, with respect to each Purchaser at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion: a. Such Purchaser shall have executed each of the Transaction Agreements to which it is a party and delivered the same to the Company. b. The Certificate of Designations shall have been filed with the Secretary of the Commonwealth of Massachusetts. c. Such Purchaser shall have delivered to the Company the Notes in exchange for the Preferred Shares at the Closing in accordance with Section 1(c) hereof. d. The representations and warranties of such Purchaser shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for 17 representations and warranties that speak as of a specific date), and such Purchaser shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Agreements to be performed, satisfied or complied with by such Purchaser at or prior to the Closing Date. 8. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO EXCHANGE. The obligation of each Purchaser hereunder to exchange the Notes for the Preferred Shares at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Purchaser's sole benefit and may be waived by such Purchaser at any time in its sole discretion: a. The Company shall have executed each of the Transaction Agreements and delivered the same to such Purchaser. b. The Certificate of Designations shall have been filed with the Secretary of the Commonwealth of Massachusetts, and a copy thereof certified by the Secretary of the Commonwealth of Massachusetts shall have been delivered to such Purchaser. c. The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Agreements to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Such Purchaser shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Purchaser, including, without limitation, an update as of the Closing Date regarding the representation contained in Section 3(c) above. d. The Company shall have executed and delivered to such Purchaser the Preferred Stock Certificates (in such denominations as such Purchaser shall request) for the Initial Preferred Shares being purchased by such Purchaser at the Closing. e. The Board of Directors of the Company shall have adopted resolutions consistent with Section 3(b) above and in a form reasonably acceptable to such Purchaser (the "Resolutions"). f. As of the Closing Date, the Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, 1,200,000 shares of Common Stock. g. The Company shall have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Securities pursuant to this Agreement in compliance with such laws. 18 h. The Company shall have delivered to the Purchaser such other documents relating to the transactions contemplated by the Transaction Agreements as the Purchaser or their counsel may reasonably request. 9. MISCELLANEOUS a. Governing Law; Jurisdiction; Jury Trial. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, irrespective of the choice of law provisions thereof. The parties agree that any action brought by one party against the other shall be in any appropriate state court or any federal Court located in the County where the party against whom the action is brought is principally located, and both parties agree that such courts shall have exclusive jurisdiction of such case or controversy arising under or in connection with this Agreement and shall be a proper forum in which to adjudicate such case or controversy. The parties consent to the jurisdiction of such courts. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. b. Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. c. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. e. Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between each Purchaser, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended or waived other than by an instrument in writing signed by the Company and the holders of at least 66 2/3% of the Preferred Shares then outstanding. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Preferred Shares then outstanding. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Agreements or the Certificate of Designations unless the same 19 consideration also is offered to all of the parties to the Transaction Agreements or holders of Preferred Shares, as the case may be. f. Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: Cambex Corporation 360 Second Avenue Waltham, Massachusetts 02451 Telephone:(781) 890-6000 Facsimile: (781) 890-2899 Attention: President With a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, Massachusetts 02111 Telephone:(617) 542-6000 Facsimile: (617) 542-2241 Attention: Neil H. Aronson, Esq. If to the Transfer Agent: American Stock Transfer & Trust Company 59 Maiden Lane Plaza Level New York, NY 10038 Telephone: (718) 921-8200 If to a Purchaser, to it at the address and facsimile number set forth on the Schedule of Purchasers, with copies to such Purchaser's representatives as set forth on the Schedule of Purchasers, or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, 20 receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Preferred Shares. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the holders of at least 66 2/3% of the Preferred Shares then outstanding, including by merger or consolidation, except pursuant to a Change of Control (as defined in Section 3.3 of the Certificate of Designations) with respect to which the Company is in compliance with Section 5 of the Certificate of Designations and Section 4(d) of this Agreement. A Purchaser may assign some or all of its rights hereunder without the consent of the Company; provided, however, that such transferee will not be deemed a Purchaser hereunder unless such transferee has acquired at least 50 shares of Preferred Stock (as adjusted to reflect any stock splits, reverse stock splits and similar capital events) and such transferee has agreed in writing in form and substance reasonably satisfactory to the Company to be bound by the applicable provisions of this Agreement. Notwithstanding anything to the contrary contained in the Transaction Agreements, the Purchaser shall be entitled to pledge the Securities in connection with a bona fide margin account or other loan secured by the Securities. h. 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. i. Survival. Unless this Agreement is terminated under Section 9(l), the representations and warranties of the Company and the Purchaser contained in Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5, 6 and 9, shall survive the Closing. Each Purchaser shall be responsible only for its own representations, warranties, agreements and covenants hereunder. j. Publicity. The Company and each Purchaser shall have the right to approve before issuance any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Purchaser, to make any press release or other public disclosure with respect to such transactions as the Company reasonably believes upon consultation with its outside counsel is required by applicable law and regulations (although each Purchaser shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release and shall be provided with a copy thereof). k. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. l. Termination. In the event that the Closing shall not have occurred with respect to an Purchaser on or before five (5) Business Days from the date hereof due to the Company's or such 21 Purchaser's failure to satisfy the conditions set forth in Sections 7 and 8 above (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party. m. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. n. Remedies. Each Purchaser and each holder of the Securities shall have all rights and remedies set forth in the Transaction Agreements and the Certificate of Designations and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. [signature page follows] 22 IN WITNESS WHEREOF, the Purchaser and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above. COMPANY: CAMBEX CORPORATION By:/s/ Joseph F. Kruy Name: Joseph F. Kruy Title: President PURCHASER: THE HANKINS FAMILTY TRUST By: /s/ Philip C. Hankins Name: Philip C. Hankins Address: 1801 Lavaca St, #14J Austin, TX 78701 SCHEDULE OF PURCHASERS Purchaser Name The Hankins Family Trust Purchaser Address, Telephone Number 180 Lavaca St, #14J Austin, TX 78701 512-476-7944 Principal Amount and Number of Shares of Series A Preferred Shares $169,030.40 (13,522 shares) Purchaser's Advisor and Legal Counsel Address List of Exhibits Exhibit A Form of Certificate of Designations Schedule 1 Disclosure Schedule EX-10.36 8 agreejk.txt SECURITIES EXCHANGE AGREEMENT SECURITIES EXCHANGE AGREEMENT (the "Agreement"), dated as of June 28, 2002 by and among Cambex Corporation, a Massachusetts corporation, with headquarters located at 360 Second Avenue, Waltham, Massachusetts 02451 (the "Company"), and the investor listed on the Schedule of Purchasers attached hereto (the "Purchaser"). WHEREAS: A. The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"). B. The Company has authorized the following new series of its preferred stock, par value $1.00 per share: the Company's Series A Convertible Preferred Stock ("Preferred Stock") which shall be convertible into shares of the Company's Common Stock, $.10 par value per share (the "Common Stock") (as converted, the "Conversion Shares"), in accordance with the terms of the Company's Certificate of Designations: Rights, Preferences, Privileges and Restrictions of the Preferred Stock in the form attached hereto as Exhibit A (the "Certificate of Designations"). C. The Purchaser wishes to exchange a note evidenced by a Loan and Security Agreements dated November 5, 1999, November 9, 1999, March 30, 2001, September 4, 2001 with a total principal amount of $275,000, along with all accrued but unpaid interest (collectively the "Notes") upon the terms and conditions stated in this Agreement for an aggregate of 27,020 (twenty seven thousand and twenty) shares of convertible Preferred Stock (the "Preferred Shares"). D. The location of defined terms in this Agreement is set forth on the Index of Terms attached hereto. NOW, THEREFORE, the Company and the Purchaser hereby agree as follows: 1. EXCHANGE OF NOTES INTO SHARES. a. Exchange of Notes. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue to the Purchaser the respective number of Preferred Shares set forth opposite the Purchaser's name on the Schedule of Purchasers (the "Closing"). The Purchase Price (the "Purchase Price") of Preferred Shares shall be $12.50. On the Closing Date (as defined below), the Company shall deliver to each Purchaser a stock certificate(s) representing such number of Preferred Shares which such Purchaser is then receiving (as indicated opposite such Purchaser's name on the Schedule of Purchasers), duly executed on behalf of the Company and registered in the name of such Purchaser or its designee (the "Stock Certificates"). b. Closing Date. The date and time of the Closing (the "Closing Date") shall be 10:00 a.m. Eastern Standard Time on June 28, 2002, subject to the satisfaction (or waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and the Purchaser). c. Form of Payment. On the Closing Date, each Purchaser shall deliver to the Company the Notes in exchange for the Preferred Shares to be issued to such Purchaser at the Closing. 2. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Each Purchaser represents and warrants with respect to only itself that: a. Investment Purpose. Such Purchaser (i) is acquiring the Preferred Shares and (ii) upon conversion of the Preferred Shares, will acquire the Conversion Shares then issuable (the Preferred Shares and the Conversion Shares, collectively, are referred to herein as the "Securities") for its own account for investment only and not with a present view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such Purchaser does not agree to hold any Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. b. Accredited Investor Status. Such Purchaser is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D under the 1933 Act. c. Reliance on Exemptions. Such Purchaser understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of the United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and such Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities. d. Information. Such Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Purchaser. Such Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of and receive answers from the Company. Neither such inquiries nor any other due diligence investigations conducted by such Purchaser or its advisors, if any, or its representatives shall modify, amend or affect such Purchaser's right to rely on the Company's representations and warranties contained in this Agreement. Purchaser understands that its investment in the Securities involves a high degree of risk. Purchaser has sought such accounting, legal, and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. e. No Governmental Review. Such Purchaser understands that no United States federal or state agency or any other government or governmental agency has 2 passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. f. Transfer or Resale. Such Purchaser understands that: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) they are offered, sold, assigned or transferred pursuant to an effective registration statement under the 1933 Act, (B) such Purchaser shall have delivered to the Company an opinion of counsel, in a form and from counsel reasonably acceptable to the Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Purchaser provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. g. Legends. Purchaser understands that the certificates or other instruments representing the Preferred Shares and, until such time as the sale of the Conversion Shares have been registered under the 1933 Act, the stock certificates representing the Conversion Shares shall bear a restrictive legend in substantially the following form (and a stop transfer order may be placed against transfer of such stock certificates): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Preferred Shares and the Conversion Shares, upon which it is stamped, if, unless otherwise required by state securities laws, (a) the sale of the Conversion Shares is registered under the 1933 Act, (b) in connection with a sale transaction, such holder provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment, or transfer of the Preferred Shares and the Conversion Shares may be made without registration under the 1933 Act, or (c) such holder provides the Company with reasonable assurances that the Preferred Shares and the Conversion Shares can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold. 3 h. Authorization; Enforcement; Validity. Such Purchaser has full power and authority to enter into and perform in accordance with its and their terms, this Agreement and each other Transaction Agreement (as defined below). This Agreement and each of the other Transaction Agreements have been duly and validly authorized, executed and delivered on behalf of such Purchaser and is a valid and binding agreement of such Purchaser enforceable against such Purchaser in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. i. Residency. Such Purchaser is a resident of that country or state specified in its address on the Schedule of Purchasers. j. Scheme to Evade Registration. Purchaser represents and warrants to the Company, as to Itself only, that the acquisition of the Securities is not a transaction (or any element of a series of transactions) that is part of a plan or scheme by the Purchaser to evade the registration provisions of the 1933 Act and that i. such Purchaser is an "accredited investor" within the meaning of Rule 501 under the Securities Act; ii. such Purchaser has sufficient knowledge and experience to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof; iii. such Purchaser has had an opportunity to ask questions of and receive answers from and to discuss the Company's business, management, and financial affairs with the Company's management; iv. the Securities are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof; v. such Purchaser was not offered nor made aware of the Company's interest in issuing the Preferred Shares by any means of public advertisement or solicitation; vi. in connection with such Purchaser's purchase of the Securities, it has been solely responsible for its own (x) due diligence investigation of the Company and (y) investment decision, and has not engaged or relied upon any agent or "purchaser representative" to review or analyze the Company's business and affairs or advise Purchaser with respect to the merits of the investment; vii. such Purchaser has full power and authority to execute, deliver, and perform this Agreement; and this Agreement constitutes the legal, valid, and binding obligation of such Purchaser, enforceable against it in accordance with their respective terms; and viii. if such Purchaser proposes to sell the Securities pursuant to Rule 144A under the Securities Act, it will (x) take reasonable steps to obtain the information required by such Rule to establish a reasonable belief that the prospective purchaser is a "qualified institutional buyer" as such term is defined in Rule 144A and (y) advise the prospective purchaser that the Purchaser is relying on the exemption from the registration provisions of the Securities Act available pursuant to Rule 144A. 4 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Purchaser, except as referenced on Schedule 1 hereto (the "Disclosure Schedule"), which reference shall set forth the specific section to which the qualification relates and the statement which constitutes the qualification, that: a. Organization and Qualification. The Company and its subsidiaries are corporations duly organized, validly existing, and in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted. Each of the Company and each subsidiary is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole. b. Authorization, Enforcement, Compliance with Other Instruments. i. The Company has the requisite corporate power and authority to enter into and perform each of this Agreement, any and all amendments thereto, and any related agreements (collectively, the "Transaction Agreements" and individually a "Transaction Agreement"), and to issue the Securities thereof; ii. the execution and delivery by the Company of each of the Transaction Agreements and the consummation by it of the transactions contemplated thereby, including without limitation the issuance of the Preferred Shares and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion of the Preferred Shares have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors, or its stockholders; iii. each of the Transaction Agreements have been duly and validly executed and delivered by the Company; and iv. each of the Transaction Agreements constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. c. Capitalization. Immediately prior to Closing, the authorized capital stock of the Company consisted of 28,000,000 shares of capital stock, of which 25,000,000 shares are common Stock, par value $.10, of which 18,040,351 shares were issued and outstanding as of the date of this Agreement, and 3,000,000 shares of Preferred Stock, par value $1.00, none of which are issued and outstanding. All of such outstanding shares have been validly issued and are fully paid and nonassessable. Except as described in Section 3(c) of the Disclosure Schedule, no shares 5 of Common Stock or Preferred Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. Except as disclosed in Section 3(c) of the Disclosure Schedule, as of the effective date of this Agreement, (i) 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 or any of its subsidiaries, or contracts, commitments, understandings, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, or 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 or any of its subsidiaries, (ii) there are no outstanding debt securities, and (iii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the 1933 Act. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities in the manner contemplated by this Agreement. The Company has furnished to the Purchaser true and correct copies of the Company's Articles of Organization, as amended (the "Charter") and the Company's Bylaws, as in effect on the date hereof (the "Bylaws"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. d. Issuance of Securities. The Preferred Shares have been duly authorized and are free from all taxes, liens, and charges with respect to the issue thereof. The Conversion Shares issuable upon conversion of the Preferred Shares have been duly authorized and reserved for issuance and will, be duly and validly issued, fully paid, and nonassessable, and free from all taxes, liens, and charges, with respect to the issuance thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. e. No Conflicts. Except as disclosed in Section 3(e) of the Disclosure Schedule, the execution, delivery, and performance of the Transaction Agreements by the Company, and the consummation by the Company of the transactions contemplated thereby, will not (i) result in a violation of the Charter or the Bylaws of the Company or (ii) conflict with, 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 Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment, or decree (including federal and state securities laws and regulations and the rules and regulations of the principal market or exchange on which the Common Stock is traded or listed) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected. Except as described in Section 3(e) of the Disclosure Schedule, neither the Company nor any subsidiary is in violation of any term of, or in default under, its Charter or the Bylaws or their organizational charter or Bylaws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree, or order or any statute, rule, or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is not being conducted in violation of any law, ordinance, or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required 6 under the 1933 Act and any applicable state securities laws, the Company 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, and perform any of its obligations under or contemplated by the Transaction Agreements in accordance with the terms thereof. Except as disclosed in Section 3(e) of the Disclosure Schedule, all consents, authorizations, orders, filings, and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. f. SEC Documents; Financial Statements. Since January 1, 2000, the Company has filed all reports, schedules, forms, statements, and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the "SEC Documents"). The Company has made available to each Purchaser or its representative true and complete copies of the SEC Documents. The Company (i) is a "reporting issuer" as defined in Rule 902(1) of Regulation S and (ii) has a class of securities registered under Section 12(b) or 12(g) of the 1934 Act or is required to file reports pursuant to Section 15(d) of the 1934 Act, and has filed all the materials required to be filed as reports pursuant to the Exchange Act for the period the Company was required by law to file such material. As of their respective dates, the financial statements of the Company included in the SEC Documents (the "Financial Statements") complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto, or (b) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and present fairly, in all material respects, the financial position of the Company as of the dates thereof, and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Purchaser which is not included in the SEC Documents, including, without limitation, information referred to in Section 3(f) of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. g. Absence of Certain Changes. Except as described in Section 3(g) of the Disclosure Schedule, since the date of the most recent audited balance sheet included in the SEC Documents, there has been no material adverse change and no material adverse development in the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or its subsidiaries have any knowledge that its creditors intend to initiate involuntary bankruptcy proceedings. 7 h. Absence of Litigation. There is no action, suit, proceeding, inquiry, or investigation before or by any court, public board, government agency, self- regulatory organization, or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company, the Common Stock, or any of the Company's subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a material adverse effect on the transactions contemplated hereby, (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under the Transaction Agreements, or (iii) except as expressly set forth in Schedule 3(h) of the Disclosure Schedule, have a material adverse effect on the business, operations, properties, financial condition, or results of operation of the Company and its subsidiaries taken as a whole. i. Purchase of Securities. The Company acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm's length purchaser with respect to this Agreement and the transactions contemplated hereby. 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 hereby and any advice given by the Purchaser or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Purchaser's purchase of the Securities. 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 representatives. j. No Undisclosed Events, Liabilities, Developments, or Circumstances. No event, liability, development, or circumstance has occurred or exists, or to the knowledge of the Company is contemplated to occur, with respect to the Company or its subsidiaries or their respective business, properties, prospects, operations, or financial condition, which could be material but which has not been publicly announced or disclosed in writing to the Purchaser. k. No General Solicitation. 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 1933 Act) in connection with the offer or sale of the Securities. l. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions. m. Employee Relations. Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened. None of the Company's or its subsidiaries' employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good. 8 n. Intellectual Property Rights. The Company and its subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets, and rights necessary to conduct their respective businesses as now conducted. Except as set forth on Section 3(n) of the Disclosure Schedule, none of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets, or other intellectual property rights have expired or terminated, or are expected to expire or terminate in the near future, other than those that would not have a material adverse effect on the Company. The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of the trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret, or other similar rights of others. Except as set forth on Section 3(n) of the Disclosure Schedule, there is no claim, action, or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret, or other infringement, and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality, and value of all of their intellectual properties. o. Environmental Laws. The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state, and local laws and regulations relating to the protection of human health and safety, the environment, or hazardous, toxic substances, wastes, pollutants, or contaminants ("Environmental Laws"), (ii) have received all permits, licenses, or other approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (iii) are in compliance with all terms and conditions of any such permit, license, or approval. p. Title. The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances, and defects except as described in Section 3(p) of the Disclosure Schedule or as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting, and enforceable leases with such exceptions as are not material, and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries. q. Insurance. The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks, and in such amounts, as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for, and neither the Company nor any such 9 subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial, or otherwise, or the earnings, business, or operations of the Company and its subsidiaries, taken as a whole. r. Regulatory Permits. The Company and its subsidiaries possess all certificates, authorizations, and permits issued by the appropriate federal, state, or foreign regulatory authorities necessary to conduct their respective businesses, except to the extent that the failure to possess any such certificate, authorization, and permit would not have a material adverse effect on the Company and its subsidiaries taken as a whole, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization, or permits. s. Internal Accounting Controls. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. t. No Materially Adverse Contracts, Etc. Neither the Company nor any of its subsidiaries is subject to any charter, corporate, or other legal restriction, or any judgment, decree, order, rule, or regulation which in the judgment of the Company's officers has, or to the knowledge of the Company is expected in the future to have, a material adverse effect on the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. Neither the Company nor any of its subsidiaries is a party to any contract or agreement which in the judgment of the Company's officers has, or to the knowledge of the Company is expected to have, a material adverse effect on the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. u. Tax Status. The Company and each of its subsidiaries has made or filed all federal and state income and all other tax returns, reports, and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes), and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports, and declarations, except those being contested in good faith, and has set aside on its books amounts deemed reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports, or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim, and there are no open years, examinations in progress or 10 claims against it for federal, state or other taxes (including penalties and interest) for any period or periods prior to the date hereof. v. Certain Transactions. Except as set forth on Section 3(v) of the Disclosure Schedule and in the SEC Documents, and except for arm's length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed on Section 3(c) of the Disclosure Schedule, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers, and directors), including any contract, agreement, or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director, or such employee or, to the knowledge of the Company, any corporation, partnership, trust, or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, or partner. w. Dilutive Effect. The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Preferred Shares will increase in certain circumstances. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Shares in accordance with this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. x. Foreign Corrupt Practices Act. The Company has not made, offered, or agreed to offer anything of value to any government official, political party, or candidate for government office nor has it taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977. y. Disclosure. Neither this Agreement nor any Schedule or Exhibit hereto, contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein not misleading. None of the statements, documents, certificates or other items prepared or supplied by the Company with respect to the transactions contemplated hereby contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained therein not misleading. 4. COVENANTS AND AGREEMENTS a. Best Efforts. Each party shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Sections 7 and 8 of this Agreement. b. Reporting Status. Until the later of after (i) the date as of which the Purchaser may sell all of the Conversion Shares without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) and (ii) the date on which (A) the Purchaser shall have sold all the Conversion Shares and (B) none of the Preferred Shares is outstanding (the "Reporting Period"), the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports 11 under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination. c. Reservation of Shares. The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 110% of the number of shares of Common Stock needed to provide for the issuance of the shares of Common Stock upon conversion of all outstanding Initial Preferred Shares (without regard to any limitations on conversions). d. Corporate Existence. So long as a Purchaser beneficially owns any Preferred Stock, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company's assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company's assets, (x) where the consideration tendered by the surviving or successor entity in such transaction consists entirely of cash or (y) where the surviving or successor entity in such transaction (i) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) such surviving or successor entity or its parent into whose stock the Preferred Shares will be convertible or exercisable is a publicly traded corporation. e. Expenses. Each of the Company and the Purchaser shall pay its respective costs and expenses incurred by such party in connection with the negotiation, investigation, preparation, execution, delivery and performance of this Agreement. f. Disclosure. From and after the date hereof, the Company will not provide to any Purchaser any material non-public information which, according to applicable law, rule or regulation should be disclosed publicly by the Company but which has not been so disclosed. g. Compliance with Law. The Company will conduct its business in compliance with all applicable laws, rules, ordinances and regulations of the jurisdictions in which it is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations the failure to comply with which would have a Material Adverse Effect. h. Consent of Purchaser. The Company will obtain the prior written consent of the Purchaser before undertaking the actions specified below. The Company may undertake any such requested action only after receiving the advance written consent of Purchasers representing not less than two-thirds (2/3) of the outstanding shares of the Series A Preferred Stock. i. Definition of Debt. For purposes of this Agreement, the capitalized term "Debt" of any Person shall mean: (a) all indebtedness of such Person for borrowed money, including without limitation obligations evidenced by bonds, debentures, bridge notes, or other similar instruments; 12 (b) all indebtedness of others for borrowed money guaranteed in any manner by such Person, or in effect guaranteed by such Person through an agreement to purchase, contingent or otherwise; (c) all accounts payable which, to the knowledge of such Person, have remained unpaid for a period of 90 days after the same become due and payable in accordance with their respective terms taking into account any grace period relating to the due date expressly set forth in the applicable invoice with respect to the payment of such accounts payable, except for the trade payables previously disclosed by the Company that have remained unpaid for more than ninety days as of the date of this Agreement that have been disclosed in the Company's SEC Documents; (d) all indebtedness secured by any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in property owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness; (e) all indebtedness created or arising under any conditional sale agreement or lease in the nature thereof (including obligations as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capitalized leases) (but excluding operating leases) or other title retention agreement with respect to property acquired by such Person, even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession of such property; (f) all bankers' acceptances and letters of credit; and (g) liabilities in respect of unfunded vested benefits under Plans covered by Title IV of ERISA. ii. Creation of New Debt. The Company will not create, assume, or incur or become or at any time be liable in respect of, any Debt without the consent of the Purchaser, except: (a) Debt outstanding on the date hereof to the extent reflected on the most recent balance sheet of the Company or incurred in the ordinary course of business thereafter; (b) Debt incurred pursuant to the Company's existing line of credit facility with BA Associates originated November 9, 1998, under which the Company may borrow from time to time up a maximum of $1,100,000, as referenced in Section 3(v) of the Disclosure Schedule; (c) Debt incurred in permitted real estate investments; and 13 (d) purchase money security interests not to exceed $250,000 per year. Notwithstanding the foregoing provisions of this Section 4.h.ii the Company will not, without the consent of the Purchaser, create, assume, or incur, or become or at any time be liable in respect of, any Debt for money borrowed, advances made, or goods purchased, if the Purchaser, the Person making such advances, or the vendor of such goods (or any Person who guarantees or becomes surety for all or any part of such Debt or acquires any right or incurs any obligation to become, either immediately or upon the occurrence of some future contingency, the owner of all or any part thereof) shall have any right, by reason of any statute or otherwise, to have any claim in respect of such Debt first satisfied out of the general assets of the Company in priority to the claims of its general creditors. iii. Dividends. The Company will not, without the consent of the Purchaser, (a) pay any dividends, in cash or otherwise, on, (b) make any distributions to holders of, or (c) purchase, redeem, or otherwise acquire any of its outstanding Common Stock or set apart assets for a sinking or other analogous fund for the purchase, redemption, retirement, or other acquisition of, any shares of its Common Stock; provided however, that the Company may: (i) pay dividends on its outstanding Preferred Stock in accordance with the Charter; (ii) with prior written approval of each Purchaser, repurchase shares of its Common Stock issued or to be issued by the Company upon exercise of stock options granted to employees and directors of the Company pursuant to the terms of plans adopted by the Board of Directors of the Company; and (iii) pay cash in lieu of fractional shares of its Common Stock on the exercise of outstanding warrants to purchase its Common Stock, pursuant to the terms of such warrants. iv. Transactions with Affiliates. The Company will not, without the consent of the Purchaser, make any loans or advances to any of its officers, directors, shareholders, or Affiliates, other than expense advances made by the Company to its officers and employees in the ordinary course of business. The Company may increase the salaries of an executive officer or the remuneration of any director up to an aggregate maximum in all such instances of $100,000, and otherwise will not increase the salary of any executive officer or the remuneration of any director without the prior consent of the Purchaser. v. Investments. Other than as permitted by this Agreement, the Company will not, without the consent of the Purchaser, purchase or acquire or invest in, or agree to purchase or acquire or invest in the business, property, or assets of, or any securities of, any other company or business, provided however, that the Company may invest in: 14 (a) securities issued or directly and fully guaranteed or insured by the United States government or any agency thereof having maturities of not more than one year from the date of acquisition; (b) certificates of deposit or eurodollar certificates of deposit, having maturities of not more than one hundred eighty days from the date of acquisition, or one year from the date of acquisition in the case of certificates of deposit or eurodollar certificates of deposit being used to secure the Company's reimbursement obligations under letters of credit (provided that nothing contained herein shall be construed to permit letters of credit not otherwise permitted under this Agreement); (c) commercial paper of any Person that is not a subsidiary or an Affiliate of the Company, maturing within one hundred eighty days after the date of acquisition; (d) bank loan participations; and (e) money market instruments having maturities of not more than one hundred eighty days from the date of acquisition, or one year from the date of acquisition in the case of money market instruments being used to secure the Company's reimbursement obligations under letters of credit (provided that nothing contained herein shall be construed to permit letters of credit not otherwise permitted under this Agreement); in all cases of such credit quality as a prudent business person would invest in. vi. Sale and Lease-Back Transactions. The Company will not, without the consent of the Purchaser, sell or transfer any of its properties to anyone with the intention of taking back a lease of the same property or leasing other property for substantially the same use as the property being sold or transferred; provided however, that (a) the Company may continue and extend its existing leasing arrangements and may lease, under operating leases, any fixtures, equipment, and real estate that do not constitute Pledged Assets in the ordinary course of business of the Company, and (b) the Company may otherwise make real estate investments but only with the consent of the Purchaser as provided for herein. vii. Sales of Assets. The Company will not, without the consent of the Purchaser, sell, transfer, or dispose of any property except for sales of obsolete equipment having a book value at the time of sale of not more than $100,000 in the aggregate in any fiscal year. viii. Subsidiaries. The Company will not, without the consent of the Purchaser, organize, or transfer any assets to, any Subsidiaries, provided that, if consent of the Purchaser is obtained and any Subsidiaries are organized, or assets transferred, in compliance with this Section 4.h.viii the Company will not permit such 15 Subsidiaries to enter into any transaction or agreement which would violate any of the provisions of this Section 4.h if such provisions were applicable to such Subsidiary. ix. Change in Business; Operations. The Company will not, without the consent of the Purchaser, cause or effect any change in or addition to the primary business of the Company that has not been approved by Purchaser, such that more than 10% of the gross revenues of the Company are derived from a business other than the business in which the Company was engaged on the date hereof as reflected in the applicable last SEC Document filed prior to the Closing ("Change in Business"), except any such changes approved in advance in writing by the Purchaser. The business of the Company and its subsidiaries shall not be conducted in violation of any law, ordinance, or regulation of any governmental entity. 5. PIGGYBACK REGISTRATION RIGHTS a. If at any time the Company proposes to file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the 1933 Act of any of its securities (other than on Form S-4 or Form S-8 or their then equivalents relating to securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans) the Company shall promptly send to the Purchaser written notice of the Company's intention to file a registration statement and of such Purchaser's rights under this Section 5(a) and, if within twenty (20) days after receipt of such notice, such Purchaser shall so request in writing, the Company shall include in such registration statement all or any part of the Conversion Shares such Purchaser requests to be registered. If an offering in connection with which the Purchaser is entitled to registration under this Section 5(a) is an underwritten offering, then such Purchaser whose Conversion Shares are included in such registration statement shall, unless otherwise agreed by the Company, offer and sell such Conversion Shares in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering. b. If the registration referred to in Section 5(a) is to be an underwritten public offering for the account of the Company and the managing underwriter(s) advise the Company in writing, that in their reasonable good faith opinion, marketing or other factors dictate that a limitation on the number of shares of Common Stock which may be included in the registration statement is necessary to facilitate and not adversely affect the proposed offering, then the Company shall include in such registration: (i) first, all securities the Company proposes to sell for its own account, (ii) second, up to the full number of securities proposed to be registered for the account of the holders of securities entitled to inclusion of their securities in the registration statement by reason of demand registration rights, and (iii) third, the securities requested to be registered by the Purchaser and other holders of securities entitled to participate in the registration, drawn from them pro rata based on the number each has requested to be included in such registration. 6. TRANSFER AGENT INSTRUCTIONS 16 The Company shall issue Purchaser, and cause any subsequent transfer agent to issue certificates in the name of each Purchaser or its respective nominee(s), for the Conversion Shares in such amounts as specified from time to time by each Purchaser to the Company upon conversion of the Preferred Shares. Prior to sale of the Conversion Shares and pursuant to an effective registration statement under the 1933 Act, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 6 and stop transfer instructions to give effect to Section 2(g) hereof (in the case of the Conversion Shares, prior to the sale of the Conversion Shares pursuant to an effective registration statement under the 1933 Act) will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement. If an Purchaser provides the Company with an opinion of counsel, in form reasonably acceptable to the Company, to the effect that a public sale, assignment or transfer of Securities may be made without registration under the 1933 Act or the Purchaser provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, in such name and in such denominations as specified by such Purchaser and without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchaser by violating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 6 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 6, that the Purchaser shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue the Preferred Shares to each Purchaser at the Closing is subject to the satisfaction, with respect to each Purchaser at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion: a. Such Purchaser shall have executed each of the Transaction Agreements to which it is a party and delivered the same to the Company. b. The Certificate of Designations shall have been filed with the Secretary of the Commonwealth of Massachusetts. c. Such Purchaser shall have delivered to the Company the Notes in exchange for the Preferred Shares at the Closing in accordance with Section 1(c) hereof. d. The representations and warranties of such Purchaser shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for 17 representations and warranties that speak as of a specific date), and such Purchaser shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Agreements to be performed, satisfied or complied with by such Purchaser at or prior to the Closing Date. 8. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO EXCHANGE. The obligation of each Purchaser hereunder to exchange the Notes for the Preferred Shares at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Purchaser's sole benefit and may be waived by such Purchaser at any time in its sole discretion: a. The Company shall have executed each of the Transaction Agreements and delivered the same to such Purchaser. b. The Certificate of Designations shall have been filed with the Secretary of the Commonwealth of Massachusetts, and a copy thereof certified by the Secretary of the Commonwealth of Massachusetts shall have been delivered to such Purchaser. c. The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Agreements to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Such Purchaser shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Purchaser, including, without limitation, an update as of the Closing Date regarding the representation contained in Section 3(c) above. d. The Company shall have executed and delivered to such Purchaser the Preferred Stock Certificates (in such denominations as such Purchaser shall request) for the Initial Preferred Shares being purchased by such Purchaser at the Closing. e. The Board of Directors of the Company shall have adopted resolutions consistent with Section 3(b) above and in a form reasonably acceptable to such Purchaser (the "Resolutions"). f. As of the Closing Date, the Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, 1,200,000 shares of Common Stock. g. The Company shall have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Securities pursuant to this Agreement in compliance with such laws. 18 h. The Company shall have delivered to the Purchaser such other documents relating to the transactions contemplated by the Transaction Agreements as the Purchaser or their counsel may reasonably request. 9. MISCELLANEOUS a. Governing Law; Jurisdiction; Jury Trial. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, irrespective of the choice of law provisions thereof. The parties agree that any action brought by one party against the other shall be in any appropriate state court or any federal Court located in the County where the party against whom the action is brought is principally located, and both parties agree that such courts shall have exclusive jurisdiction of such case or controversy arising under or in connection with this Agreement and shall be a proper forum in which to adjudicate such case or controversy. The parties consent to the jurisdiction of such courts. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. b. Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. c. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. e. Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between each Purchaser, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended or waived other than by an instrument in writing signed by the Company and the holders of at least 66 2/3% of the Preferred Shares then outstanding. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Preferred Shares then outstanding. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Agreements or the Certificate of Designations unless the same 19 consideration also is offered to all of the parties to the Transaction Agreements or holders of Preferred Shares, as the case may be. f. Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: Cambex Corporation 360 Second Avenue Waltham, Massachusetts 02451 Telephone:(781) 890-6000 Facsimile: (781) 890-2899 Attention: President With a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, Massachusetts 02111 Telephone:(617) 542-6000 Facsimile: (617) 542-2241 Attention: Neil H. Aronson, Esq. If to the Transfer Agent: American Stock Transfer & Trust Company 59 Maiden Lane Plaza Level New York, NY 10038 Telephone: (718) 921-8200 If to a Purchaser, to it at the address and facsimile number set forth on the Schedule of Purchasers, with copies to such Purchaser's representatives as set forth on the Schedule of Purchasers, or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, 20 receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Preferred Shares. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the holders of at least 66 2/3% of the Preferred Shares then outstanding, including by merger or consolidation, except pursuant to a Change of Control (as defined in Section 3.3 of the Certificate of Designations) with respect to which the Company is in compliance with Section 5 of the Certificate of Designations and Section 4(d) of this Agreement. A Purchaser may assign some or all of its rights hereunder without the consent of the Company; provided, however, that such transferee will not be deemed a Purchaser hereunder unless such transferee has acquired at least 50 shares of Preferred Stock (as adjusted to reflect any stock splits, reverse stock splits and similar capital events) and such transferee has agreed in writing in form and substance reasonably satisfactory to the Company to be bound by the applicable provisions of this Agreement. Notwithstanding anything to the contrary contained in the Transaction Agreements, the Purchaser shall be entitled to pledge the Securities in connection with a bona fide margin account or other loan secured by the Securities. h. 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. i. Survival. Unless this Agreement is terminated under Section 9(l), the representations and warranties of the Company and the Purchaser contained in Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5, 6 and 9, shall survive the Closing. Each Purchaser shall be responsible only for its own representations, warranties, agreements and covenants hereunder. j. Publicity. The Company and each Purchaser shall have the right to approve before issuance any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Purchaser, to make any press release or other public disclosure with respect to such transactions as the Company reasonably believes upon consultation with its outside counsel is required by applicable law and regulations (although each Purchaser shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release and shall be provided with a copy thereof). k. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. l. Termination. In the event that the Closing shall not have occurred with respect to an Purchaser on or before five (5) Business Days from the date hereof due to the Company's or such 21 Purchaser's failure to satisfy the conditions set forth in Sections 7 and 8 above (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party. m. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. n. Remedies. Each Purchaser and each holder of the Securities shall have all rights and remedies set forth in the Transaction Agreements and the Certificate of Designations and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. [signature page follows] 22 IN WITNESS WHEREOF, the Purchaser and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above. COMPANY: CAMBEX CORPORATION By:/s/ Joseph F. Kruy Name: Joseph F. Kruy Title: President PURCHASER: JOSEPH KRUY By: /s/ Joseph Kruy Name: Joseph Kruy 21 Driftwood Lane Weston, MA (781) 237-3269 SCHEDULE OF PURCHASERS Purchaser Name Joseph F. Kruy Purchaser Address, Telephone Number 21 Driftwood Lane Weston, MA 02493 (781) 237-3269 Principal Amount and Number of Shares of Series A Preferred Shares $337,754.77 (27,020 shares) Purchaser's Advisor and Legal Counsel Address List of Exhibits Exhibit A Form of Certificate of Designations Schedule 1 Disclosure Schedule EX-10.37 9 seriesacert.txt EXHIBIT A CERTIFICATE OF DESIGNATIONS CAMBEX CORPORATION RESTATED ARTICLES OF ORGANIZATION ARTICLE 4 Rights, Preferences, Privileges and Restrictions of Series A Preferred Stock: The rights, preferences, privileges and restrictions granted to and imposed on the Series A Preferred Stock and the Common Stock are as follows: 1. Definitions. For purposes of this Article 4, the following definitions apply: 1.1 "Board" shall mean the Board of Directors of the Corporation. 1.2 "Corporation" shall mean this corporation. 1.3 "Common Stock" shall mean the Common Stock, $.10 par value per share, of the Corporation. 1.4 "Common Stock Dividend" shall mean a stock dividend declared and paid on the Common Stock that is payable in shares of Common Stock. 1.5 "Distribution" shall mean the transfer of cash or property by the Corporation to one or more of its stockholders without consideration, whether by dividend or otherwise (except a dividend in shares of Corporation's stock). A Permitted Repurchase (defined below) is not a Distribution. 1.6 "Original Issue Date" shall mean the date on which the first share of Series A Preferred Stock is issued by the Corporation. 1.7 "Original Issue Price" shall mean $12.50 per share for the Series A Preferred Stock (as adjusted for any stock splits, stock dividends, recapitalizations or the like, with respect to the Series A Preferred Stock). 1.8 "Permitted Repurchases" shall mean the repurchase by the Corporation of shares of Common Stock held by employees, officers, directors, consultants, independent contractors, advisors, or other persons performing services for the Corporation or a subsidiary that are subject to restricted stock purchase agreements or stock option exercise agreements under which the Corporation has the option to repurchase such shares: (i) at cost, upon the occurrence of certain events, such as the termination of employment or services; or (ii) at any price pursuant to the Corporation's exercise of a right of first refusal to repurchase such shares. 1.9 "Series A Preferred Stock" shall mean the Series A Preferred Stock, $1.00 par value per share, of the Corporation. 1 1.10 "Other Preferred Stock" shall mean any series of preferred stock other than the Series A Preferred Stock. 1.11 "Subsidiary" shall mean any corporation of which at least fifty percent (50%) of the outstanding voting stock is at the time owned directly or indirectly by the Corporation or by one or more of such subsidiary corporations. 2. Dividend Rights. 2.1 Series A Preferred Stock. In each calendar year, the holders of the then outstanding shares of Series A Preferred Stock shall be entitled to receive, cumulative, non-compounding cash dividends, out of funds legally available therefor, at the annual simple rate of twelve percent (12%) on the Original Issue Price for each share of Series A Preferred Stock from the Original Issue Date for such share, which dividends shall accrue whether or not declared by the Board of Directors of the Corporation, but which shall be payable only (i) when, as and if declared by the Board of Directors of the Corporation, (ii) upon an Optional Conversion (as defined in Section 5 below), (iii) upon a Liquidation Event (as defined in Section 3 below) or (iv) upon Redemption of the Series A Preferred Stock (as described in Section 6 below). Notwithstanding this Section 2.1, upon the occurrence of an Optional Conversion, the Corporation may pay any accrued or declared but unpaid dividends on the converted Series A Preferred Stock, in shares of Common Stock rather than cash. The number of shares of Common Stock that may be issued by the Corporation upon an Optional Conversion, shall be equal to the sum of all declared or accrued but unpaid dividends of the Series A Preferred Stock then converted, divided by the then applicable Conversion Price (as defined in Section 5 below). No dividends (other than a Common Stock Dividend) shall be paid, and no Distribution shall be made, with respect to the Common Stock during any calendar year unless dividends for the Series A Preferred Stock shall have first been paid or declared and set apart for payment to the holders of the Series A Preferred Stock during that calendar year; provided, however, that this restriction shall not apply to Permitted Repurchases. 2.2 No Participation Rights. If, after dividends in the full preferential amounts specified in this Section 2 for the Series A Preferred Stock have been paid or declared and set apart in any calendar year of the Corporation, the Board shall declare additional dividends out of funds legally available therefor in that calendar year, then such additional dividends shall be declared solely on the Common Stock. 3. Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (a "Liquidation Event"), the funds and assets that may be legally distributed to the Corporation's stockholders (the "Available Funds and Assets") shall be distributed to stockholders in the following manner: 3.1 Series A Preferred Stock. The holders of each share of Series A Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, and prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any Available Funds and Assets on any Other Preferred Stock or on any shares of Common Stock, an amount per share equal to the Original Issue Price of the Series A Preferred Stock plus any dividends accrued or declared but unpaid thereon. If upon a Liquidation Event 2 the Available Funds and Assets shall be insufficient to permit the payment to holders of the Series A Preferred Stock of their full preferential amount described in this subsection, then the entire Available Funds and Assets shall be distributed among the holders of the then outstanding Series A Preferred Stock pro rata, according to the number of outstanding shares of Series A Preferred Stock held by each holder thereof. 3.2 Remaining Assets. If there are any Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Series A Preferred Stock of their full preferential amounts described above in this Section 3, then all such remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Other Preferred Stock. If there are any Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Other Preferred Stock of their full preferential amounts described above in this Section 3, then all such remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Common Stock pro rata according to the number of shares of Common Stock held by each holder thereof. 3.3 Merger or Sale of Assets. Any (i) reorganization, consolidation or merger (or similar transaction or series of transactions) of the Corporation with or into any other corporation or corporations in which the holders of the Corporation's outstanding shares immediately before such transaction or series of related transactions do not, immediately after such transaction or series of related transactions, retain stock representing a majority of the voting power of the surviving corporation (or its parent corporation if the surviving corporation is wholly owned by the parent corporation) of such transaction or series of related transactions; or (ii) a sale of all or substantially all of the assets of the Corporation, shall each be deemed to be a liquidation, dissolution or winding up of the Corporation as those terms are used in this Section 3. 3.4 Non-Cash Consideration. If any assets of the Corporation distributed to shareholders in connection with a Liquidation Event are other than cash, then the value of such assets shall be their fair market value as determined by the Board of Directors in good faith, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows: (a) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be deemed to be the average of the closing bid prices over the 30 calendar day period ending three (3) trading days prior to the distribution; and, (b) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined above of this subsection to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors. 3 4. Voting Rights. 4.1 Common Stock. Each holder of shares of Common Stock shall be entitled to one (1) vote for each share thereof held. 4.2 Series A Preferred Stock. Each holder of shares of Series A Preferred Stock shall not be entitled to any voting rights for any shares of Series A Preferred Stock thereof held. 5. Conversion Rights. The outstanding shares of Series A Preferred Stock shall be convertible into Common Stock as follows: 5.1 Optional Conversion. (a) At the option of the holder thereof, each share of Series A Preferred Stock shall be convertible, at any time or from time to time prior to the close of business on the business day before any date fixed for redemption of such share, into fully paid and nonassessable shares of Common Stock as provided herein (an "Optional Conversion"). (b) Each holder of Series A Preferred Stock who elects to convert the same into shares of Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or any transfer agent for the Series A Preferred Stock or Common Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the number of shares of Series A Preferred Stock being converted. Thereupon the Corporation shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled upon such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates representing the shares of Series A Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. (c) If the Corporation shall fail to issue to holder within ten (10) business days following the date of receipt by the Company of the Series A Preferred Stock and written notice to convert the same, a certificate for the number of shares of Common Stock to which each holder is entitled upon holder's conversion of the Series A Preferred Stock, in addition to all other available remedies which such holder may pursue hereunder and under the Securities Exchange Agreement between the Corporation and the holder of the Series A Preferred Stock, the Corporation shall pay additional damages to holder on each day after the tenth (10th) business day following the date of receipt by the Corporation an amount equal to 1.0% of the product of (A) the number of shares of Common Stock not issued to holder and to which holder is entitled multiplied by (B) the closing bid price of the Common Stock on the business day following the date of receipt by the Corporation of the written notice to convert. The foregoing notwithstanding, holder at its option may withdraw a notice 4 of conversion, and remain a holder of the Series A Preferred Stock, if holder has otherwise complied with this Section 5.1(c). 5.2 Conversion Price. Each share of Series A Preferred Stock shall be convertible in accordance with subsection 5.1 above into the number of shares of Common Stock which results from dividing the Original Issue Price and if the Company so elects, plus any accrued or declared, but unpaid dividends outstanding at such time of Conversion, by the conversion price for such series of Series A Preferred Stock that is in effect at the time of conversion (the "Conversion Price"). The initial Conversion Price for the Series A Preferred Stock shall be $1.25. The Conversion Price of the Series A Preferred Stock shall be subject to adjustment from time to time as provided below. Following each adjustment of the Conversion Price, such adjusted Conversion Price shall remain in effect until a further adjustment of such Conversion Price hereunder. 5.3 Adjustment Upon Common Stock Event. Upon the happening of a Common Stock Event (as hereinafter defined), the Conversion Price of the Series A Preferred Stock shall, simultaneously with the happening of such Common Stock Event, be adjusted by multiplying the Conversion Price of the Series A Preferred Stock in effect immediately prior to such Common Stock Event by a fraction, (i) the numerator of which shall be the number of shares of Common Stock issued and outstanding immediately prior to such Common Stock Event, and (ii) the denominator of which shall be the number of shares of Common Stock issued and outstanding immediately after such Common Stock Event, and the product so obtained shall thereafter be the Conversion Price for the Series A Preferred Stock. The Conversion Price for the Series A Preferred Stock shall be readjusted in the same manner upon the happening of each subsequent Common Stock Event. As used herein, the term the "Common Stock Event" shall mean at any time or from time to time after the Original Issue Date, (i) the issue by the Corporation of additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock, or (iii) a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock; provided that there is no corresponding dividend, distribution, subdivision or combination of the Series A Preferred Stock. 5.4 Adjustments to Respective Conversion Prices for Certain Diluting Issues. 1. Special Definitions. For purposes of this paragraph 5.4, the following definitions apply: a. "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (defined below). b. "Original Issue Date" shall mean the date on which a share of Series A Preferred Stock is first issued. c. "Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock or Series A or Series B Preferred Stock) or other securities convertible into or exchangeable for Common Stock. 5 d. "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to clause (3) of this paragraph 5.4 deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable: i. upon conversion of shares of Series A or Series B Preferred Stock; ii. in exchange for, or on exercise or conversion of rights to acquire Common Stock issued to officers, directors or employees of, or consultants to, the Corporation or a subsidiary pursuant to stock option or stock purchase plans or agreements on terms approved by the Board of Directors; iii. as a dividend or distribution on the Series A or Series B Preferred Stock; or iv. for which adjustment of the Conversion Price is made pursuant to paragraphs 5.7 or 5.12 of this Section 5 or resulting from the adjustment in the Conversion Price of the Series B preferred Stock. 2. No Adjustment of Conversion Price. Any provision herein to the contrary notwithstanding, no adjustment in the Conversion Price shall be made in respect of the issuance of Additional Shares of Common Stock unless (i) the consideration per share (determined pursuant to clause (5) of this paragraph 5.4) for any such Additional Share of Common Stock is less than the Conversion Price in effect on the date of, and immediately prior to, such issuance and (ii) the number of Additional Shares of Common Stock issued is more than twenty percent (20%) of the number of shares of Common Stock outstanding as of the Original Issue Date calculated on a fully diluted basis (as fully diluted is defined in clause (4) of this paragraph 5.4). 3. Deemed Issue of Additional Shares of Common Stock. In the event that the Corporation, at any time or from time to time after the Original Issue Date, shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein designed to protect against dilution) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities shall be deemed to be Additional Shares of Common Stock issued as of the time of such issuance or, in case such a record date shall have been fixed, as of the close of business on such record date, provided further that in any such case in which Additional Shares of Common Stock are deemed have been issued: a. no further adjustments in the Conversion Price shall be made upon the subsequent issuance of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; 6 b. if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issuance thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; c. upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price, to the extent in any way affected by or computed using such options, rights or securities, or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities which remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities, or upon the exercise of the options or rights related to such securities; and d. no readjustment pursuant to the immediately preceding clauses (2) and (3) shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (a) the Conversion Price on the original adjustment date, or (b) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. 4. Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event that the Corporation shall issue any Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to clause (3) of this paragraph 5.4) without consideration or for a consideration per share less than the Conversion Price in effect on the date of and immediately prior to such issuance, then and in such event, the Conversion Price shall be reduced, concurrently with such issuance, to a price (calculated to the nearest cent) determined by multiplying the Conversion Price in effect immediately prior thereto, by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at the Conversion Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of such Additional Shares of Common Stock so issued. For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issuance shall be calculated on a fully diluted basis, as if all shares of Series A and Series B 7 Preferred Stock and all Convertible Securities had been fully converted into shares of Common Stock and any outstanding warrants, options or other rights for the purchase of Common Stock or convertible securities had been fully exercised (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date. 5. Determination of Consideration. For purposes of this paragraph 5.4, the consideration received by the Corporation for the issuance of any Additional Shares of Common Stock shall be computed as follows: a. Cash and Property: Such consideration shall: 1. insofar as it consists of cash, be deemed to be the aggregate gross amount of cash received by the Corporation, net only of amounts paid or payable for then accrued interest or accrued dividends with respect to such Additional Shares of Common Stock; 2. insofar as it consists of property other than cash, be deemed to have the same value as is recorded on the books of the Corporation at the time of such issuance, so long as such recorded value was determined reasonably and in good faith or shall otherwise be deemed to have a value equal to its fair market value; 3. in the event that Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in the immediately preceding clauses (1) and (2). b. Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to clause (3) of this paragraph 5.4, relating to Options and Convertible Securities shall be determined by dividing 1. the total amount, if any, received or receivable by the Corporation as consideration for the issuance of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by 2. the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against the dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities. 8 5.5 Adjustments for Other Dividends and Distributions. If at any time or from time to time after the Original Issue Date the Corporation pays a dividend or makes another distribution to the holders of the Common Stock payable in securities of the Corporation, other than an event constituting a Common Stock Event, then in each such event provision shall be made so that the holders of the Series A Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable upon conversion thereof, the amount of securities of the Corporation which they would have received had their Series A Preferred Stock been converted into Common Stock on the date of such event (or such record date, as applicable) and had they thereafter, during the period from the date of such event (or such record date, as applicable) to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 5 with respect to the rights of the holders of the Series A Preferred Stock or with respect to such other securities by their terms. 5.6 Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date the Common Stock issuable upon the conversion of the Series A Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than by a Common Stock Event or a stock dividend, reorganization, merger, or consolidation provided for elsewhere in this Section 5), then in any such event each holder of Series A Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock [and other securities and property receivable] upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of Series A Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. 5.7 Reorganizations, Mergers and Consolidations. If at any time or from time to time after the Original Issue Date there is a reorganization of the Corporation (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 5) or a merger or consolidation of the Corporation with or into another corporation (except an event which is governed under subsection 3.3), then, as a part of such reorganization, merger or consolidation, provision shall be made so that the holders of the Series A Preferred Stock thereafter shall be entitled to receive, upon conversion of the Series A Preferred Stock, the number of shares of stock or other securities or property of the Corporation, or of such successor corporation resulting from such reorganization, merger or consolidation, to which a holder of Common Stock deliverable upon conversion would have been entitled on such reorganization, merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the holders of the Series A Preferred Stock after the reorganization, merger or consolidation to the end that the provisions of this Section 5 (including adjustment of the Conversion Price then in effect and number of shares issuable upon conversion of the Series A Preferred Stock) shall be applicable after that event and be as nearly equivalent to the provisions hereof as may be practicable. This subsection 5.7 shall similarly apply to successive reorganizations, mergers and consolidations. Notwithstanding anything to the contrary contained in this Section 5, if any reorganization, merger or consolidation is approved by the vote of stockholders as described in the Articles of Organization, then such transaction and the rights of the holders of Series A Preferred Stock and 9 Common Stock pursuant to such reorganization, merger or consolidation will be governed by the documents entered into in connection with such transaction and not by the provisions of this Section 5.7. 5.8 Certificate of Adjustment. In each case of an adjustment or readjustment of the Conversion Price for the Series A Preferred Stock, the Corporation, at its expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of the Series A Preferred Stock at the holder's address as shown in the Corporation's books. 5.9 Fractional Shares. No fractional shares of Common Stock shall be issued upon any conversion of Series A Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall pay the holder cash equal to the product of such fraction multiplied by the Common Stock's fair market value as determined in good faith by the Board as of the date of conversion. 5.10 Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. 5.11 Notices. Any notice required by the provisions of these Articles of Organization to be given to the holders of shares of the Series A Preferred Stock shall be deemed given upon the earlier of actual receipt or deposit in the United States mail, by certified or registered mail, return receipt requested, postage prepaid, or delivery by a recognized express courier, fees prepaid, addressed to each holder of record at the address of such holder appearing on the books of the Corporation. 5.12 No Impairment. The Corporation shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Series A Preferred Stock against impairment. 5.13 Preemptive Rights. No stockholder of the Corporation shall have a right to purchase shares of capital stock of the Corporation sold or issued by the Corporation except to the extent that such a right may from time to time be set forth in a written agreement between the Corporation and a stockholder. 10 5.14 No Retroactive Adjustment of the Conversion Price. Any provision in Section 5 to the contrary notwithstanding, no adjustment of the Conversion Price shall affect Common Stock which may have been previously issued upon conversion of the Series A Preferred Stock. 6. Redemption Rights 6.1 Redemption Rights. The Corporation may redeem any or all of the Series A Preferred Stock from any holder at any time for an amount per share equal to the Original Issue Price of the Series A Preferred Stock plus all accrued or declared but unpaid dividends on the Series A Preferred Stock (the "Redemption Price"). 6.2 Redemption Notice. At least ten (10) days before a redemption by the Corporation, the Corporation shall mail a notice of redemption to the holder, stating (A) the redemption date, which shall be a business day in New York, New York (the "Redemption Date"), (B) the aggregate number of shares of the Series A Preferred Stock to be redeemed, (C) the Redemption Price, and (D) the name and address of the Person to whom the Series A Preferred Stock must be presented. On or before the third (3rd) day prior to the Redemption Date, the Company shall deposit into a bank trust account for the benefit of the holder of the Series A Preferred Stock money sufficient to pay the Redemption Price. 6.3 Reacquired Shares. Any shares of Series A Preferred Stock converted, redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall, automatically and without further action, be retired and canceled promptly after the acquisition thereof, and shall not be reissued and the Corporation (without the need for stockholder action) from time to time shall take such action as may be necessary to reduce the number of authorized shares of the Series A Preferred Stock accordingly. 7. Protective Provisions. So long as any shares of Series A Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent by the holders of a majority of the then outstanding shares of Series A Preferred Stock: a. amend or repeal a provisions of, or add any provision to its charter or bylaws if such action would alter or change the rights, preferences or privileges of the Series A Preferred Stock so as to affect such series adversely; b. increase the authorized number of shares of such Series A Preferred Stock; c. authorize or consummate a change of control ("Change of Control Transaction"), including, without limitation, a sale of all or substantially all of the Corporation's assets, a transaction (or series of transactions) which results in the holders of the Corporation's capital stock prior to the transaction owning less than 50% of the voting power of the Corporation's capital stock after the transaction; d. effect a liquidation, dissolution, recapitalization or reorganization; 11 e. authorize or issue any securities or reclassify any outstanding securities into securities having a preference over or on parity with the Series A Preferred Stock; f. increase the number of directors of the Corporation to a number greater than seven; g. approve or consummate any business acquisition in excess of $500,000 in one or a series or related transactions or any debt financings (other than equipment leases or similar financings) in excess of $500,000; h. increase the number of shares of Common Stock reserved under the Corporation's stock incentive plans above 4,000,000 shares (net of repurchases and cancellations); i. pay or declare any dividends or make any distributions on the Corporation's common stock. 12 EX-10.38 10 sovcapagree.txt SECURITIES EXCHANGE AGREEMENT SECURITIES EXCHANGE AGREEMENT (the "Agreement"), dated as of June 28, 2002 by and among Cambex Corporation, a Massachusetts corporation, with headquarters located at 360 Second Avenue, Waltham, Massachusetts 02451 (the "Company"), and the investors listed on the Schedule of Purchasers attached hereto (individually, a "Purchaser" and collectively, the "Purchasers"). WHEREAS: A. The Company and the Purchasers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"). B. The Company has authorized the following new series of its preferred stock, par value $1.00 per share: the Company's Series B Convertible Preferred Stock ("Preferred Stock") which shall be convertible into shares of the Company's Common Stock, $.10 par value per share (the "Common Stock") (as converted, the "Conversion Shares"), in accordance with the terms of the Company's Certificate of Designations: Rights, Preferences, Privileges and Restrictions of the Preferred Stock in the form attached hereto as Exhibit A (the "Certificate of Designations"). C. The Purchasers severally wish to exchange Series 1 Bridge Financing Notes dated January 18, 2000 and February 9, 2000, Repricing Warrants attached to the Series 1 Bridge Financing Notes, along with all accrued but unpaid interest and penalties (collectively the "Notes") upon the terms and conditions stated in this Agreement for an aggregate of 147,240 (one hundred forty seven thousand two hundred and forty) shares of convertible Preferred Stock (the "Preferred Shares"), in the respective amounts set forth opposite each Purchaser's name on the Schedule of Purchasers D. The location of defined terms in this Agreement is set forth on the Index of Terms attached hereto. NOW, THEREFORE, the Company and the Purchasers hereby agree as follows: 1. EXCHANGE OF NOTES INTO SHARES. a. Exchange of Notes. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue to the Purchasers the respective number of Preferred Shares set forth opposite each Purchaser's name on the Schedule of Purchasers (the "Closing"). The Purchase Price (the "Purchase Price") of Preferred Shares shall be $17.10. On the Closing Date (as defined below), the Company shall deliver to each Purchaser a stock certificate(s) representing such number of Preferred Shares which such Purchaser is then receiving (as indicated opposite such Purchaser's name on the Schedule of Purchasers), duly executed on behalf of the Company and registered in the name of such Purchaser or its designee (the "Stock Certificates"). 1 b. Closing Date. The date and time of the Closing (the "Closing Date") shall be 10:00 a.m. Eastern Standard Time on June 28, 2002, subject to the satisfaction (or waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and the Purchasers). c. Form of Payment. On the Closing Date, each Purchaser shall deliver to the Company the Notes in exchange for the Preferred Shares to be issued to such Purchaser at the Closing. 2. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Each Purchaser represents and warrants with respect to only itself that: a. Investment Purpose. Such Purchaser (i) is acquiring the Preferred Shares and (ii) upon conversion of the Preferred Shares, will acquire the Conversion Shares then issuable (the Preferred Shares and the Conversion Shares, collectively, are referred to herein as the "Securities") for its own account for investment only and not with a present view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such Purchaser does not agree to hold any Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. b. Accredited Investor Status. Such Purchaser is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D under the 1933 Act. c. Reliance on Exemptions. Such Purchaser understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of the United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and such Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities. d. Information. Such Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Purchaser. Such Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of and receive answers from the Company. Neither such inquiries nor any other due diligence investigations conducted by such Purchaser or its advisors, if any, or its representatives shall modify, amend or affect such Purchaser's right to rely on the Company's representations and warranties contained in this Agreement. Purchaser understands that its investment in the Securities involves a high degree of risk. Purchaser has sought such accounting, legal, and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. e. No Governmental Review. Such Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed on or made any 2 recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. f. Transfer or Resale. Such Purchaser understands that except as provided in the Registration Rights Agreement ("Registration Rights Agreement"): (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) they are offered, sold, assigned or transferred pursuant to an effective registration statement under the 1933 Act, (B) such Purchaser shall have delivered to the Company an opinion of counsel, in a form and from counsel reasonably acceptable to the Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Purchaser provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. g. Legends. Purchaser understands that the certificates or other instruments representing the Preferred Shares and, until such time as the sale of the Conversion Shares have been registered under the 1933 Act as contemplated by the Registration Rights Agreement, the stock certificates representing the Conversion Shares shall bear a restrictive legend in substantially the following form (and a stop transfer order may be placed against transfer of such stock certificates): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Preferred Shares and the Conversion Shares, upon which it is stamped, if, unless otherwise required by state securities laws, (a) the sale of the Conversion Shares is registered under the 1933 Act, (b) in connection with a sale transaction, such holder provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment, or transfer of the Preferred Shares and the Conversion Shares may be made without registration under the 1933 Act, or (c) such holder provides the Company with reasonable assurances that the Preferred Shares and the Conversion Shares can be sold pursuant 3 to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold. h. Authorization; Enforcement; Validity. Such Purchaser has full power and authority to enter into and perform in accordance with its and their terms, this Agreement, the Registration Rights Agreement and each other Transaction Agreement (as defined below). This Agreement and each of the other Transaction Agreements have been duly and validly authorized, executed and delivered on behalf of such Purchaser and is a valid and binding agreement of such Purchaser enforceable against such Purchaser in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. i. Residency. Such Purchaser is a resident of that country or state specified in its address on the Schedule of Purchasers. j. Scheme to Evade Registration. Purchaser represents and warrants to the Company, as to itself only, that the acquisition of the Securities is not a transaction (or any element of a series of transactions) that is part of a plan or scheme by the Purchaser to evade the registration provisions of the 1933 Act and that i. such Purchaser is an "accredited investor" within the meaning of Rule 501 under the Securities Act; ii. such Purchaser has sufficient knowledge and experience to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof; iii. such Purchaser has had an opportunity to ask questions of and receive answers from and to discuss the Company's business, management, and financial affairs with the Company's management; iv. the Securities are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof; v. such Purchaser was not offered nor made aware of the Company's interest in issuing the Preferred Shares by any means of public advertisement or solicitation; vi. in connection with such Purchaser's purchase of the Securities, it has been solely responsible for its own (x) due diligence investigation of the Company and (y) investment decision, and has not engaged or relied upon any agent or "purchaser representative" to review or analyze the Company's business and affairs or advise Purchaser with respect to the merits of the investment; vii. such Purchaser has full power and authority to execute, deliver, and perform this Agreement; and this Agreement constitutes the legal, valid, and binding obligation of such Purchaser, enforceable against it in accordance with their respective terms; and viii. if such Purchaser proposes to sell the Securities pursuant to Rule 144A under the Securities Act, it will (x) take reasonable steps to obtain the information required by such Rule to establish a reasonable belief that the prospective purchaser is a "qualified institutional buyer" as such term is defined in Rule 144A and (y) advise the prospective 4 purchaser that the Purchaser is relying on the exemption from the registration provisions of the Securities Act available pursuant to Rule 144A. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Purchaser, except as referenced on Schedule 1 hereto (the "Disclosure Schedule"), which reference shall set forth the specific section to which the qualification relates and the statement which constitutes the qualification, that: a. Organization and Qualification. The Company and its subsidiaries are corporations duly organized, validly existing, and in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted. Each of the Company and each subsidiary is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole. b. Authorization, Enforcement, Compliance with Other Instruments. i. The Company has the requisite corporate power and authority to enter into and perform each of this Agreement, any and all amendments thereto and the Registration Rights Agreement, and any related agreements (collectively, the "Transaction Agreements" and individually a "Transaction Agreement"), and to issue the Securities thereof; ii. the execution and delivery by the Company of each of the Transaction Agreements and the consummation by it of the transactions contemplated thereby, including without limitation the issuance of the Preferred Shares and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion of the Preferred Shares have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors, or its stockholders; iii. each of the Transaction Agreements have been duly and validly executed and delivered by the Company; and iv. each of the Transaction Agreements constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. c. Capitalization. Immediately prior to Closing, the authorized capital stock of the Company consisted of 28,000,000 shares of capital stock, of which 25,000,000 shares are 5 common Stock, par value $.10, of which 18,040,351 shares were issued and outstanding as of the date of this Agreement, and 3,000,000 shares of Preferred Stock, par value $1.00, none of which are issued and outstanding. All of such outstanding shares have been validly issued and are fully paid and nonassessable. Except as described in Section 3(c) of the Disclosure Schedule, no shares of Common Stock or Preferred Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. Except as disclosed in Section 3(c) of the Disclosure Schedule, as of the effective date of this Agreement, (i) 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 or any of its subsidiaries, or contracts, commitments, understandings, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, or 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 or any of its subsidiaries, (ii) there are no outstanding debt securities, and (iii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except the Registration Rights Agreement). There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities in the manner contemplated by this Agreement. The Company has furnished to the Purchaser true and correct copies of the Company's Articles of Organization, as amended (the "Charter") and the Company's Bylaws, as in effect on the date hereof (the "Bylaws"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. d. Issuance of Securities. The Preferred Shares have been duly authorized and are free from all taxes, liens, and charges with respect to the issue thereof. The Conversion Shares issuable upon conversion of the Preferred Shares have been duly authorized and reserved for issuance and will, be duly and validly issued, fully paid, and nonassessable, and free from all taxes, liens, and charges, with respect to the issuance thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. e. No Conflicts. c. Except as disclosed in Section 3(e) of the Disclosure Schedule, the execution, delivery, and performance of the Transaction Agreements by the Company, and the consummation by the Company of the transactions contemplated thereby, will not (i) result in a violation of the Charter or the Bylaws of the Company or (ii) conflict with, 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 Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment, or decree (including federal and state securities laws and regulations and the rules and regulations of the principal market or exchange on which the Common Stock is traded or listed) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected. Except as described in Section 3(e) of the Disclosure Schedule, neither the Company nor any subsidiary is in violation of any term of, or in default under, its Charter or the Bylaws or their organizational charter or Bylaws, respectively, or any material contract, agreement, 6 mortgage, indebtedness, indenture, instrument, judgment, decree, or order or any statute, rule, or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is not being conducted in violation of any law, ordinance, or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company 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, and perform any of its obligations under or contemplated by the Transaction Agreements in accordance with the terms thereof. Except as disclosed in Section 3e of the Disclosure Schedule, all consents, authorizations, orders, filings, and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. f. SEC Documents; Financial Statements. Since January 1, 2000, the Company has filed all reports, schedules, forms, statements, and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the "SEC Documents"). The Company has made available to each Purchaser or its representative true and complete copies of the SEC Documents. The Company (i) is a "reporting issuer" as defined in Rule 902(1) of Regulation S and (ii) has a class of securities registered under Section 12(b) or 12(g) of the 1934 Act or is required to file reports pursuant to Section 15(d) of the 1934 Act, and has filed all the materials required to be filed as reports pursuant to the Exchange Act for the period the Company was required by law to file such material. As of their respective dates, the financial statements of the Company included in the SEC Documents (the "Financial Statements") complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto, or (b) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and present fairly, in all material respects, the financial position of the Company as of the dates thereof, and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Purchaser which is not included in the SEC Documents, including, without limitation, information referred to in Section 3E of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. g. Absence of Certain Changes. Except as described in Section 3(g) of the Disclosure Schedule, since the date of the most recent audited balance sheet included in the SEC Documents, there has been no material adverse change and no material adverse development in the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. The Company has not taken any steps, and does not currently expect to take any 7 steps, to seek protection pursuant to any bankruptcy law nor does the Company or its subsidiaries have any knowledge that its creditors intend to initiate involuntary bankruptcy proceedings. h. Absence of Litigation. There is no action, suit, proceeding, inquiry, or investigation before or by any court, public board, government agency, self- regulatory organization, or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company, the Common Stock, or any of the Company's subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a material adverse effect on the transactions contemplated hereby, (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under the Transaction Agreements, or (iii) except as expressly set forth in Schedule 3H of the Disclosure Schedule, have a material adverse effect on the business, operations, properties, financial condition, or results of operation of the Company and its subsidiaries taken as a whole. i. Purchase of Securities. The Company acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm's length purchaser with respect to this Agreement and the transactions contemplated hereby. 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 hereby and any advice given by the Purchasers or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Purchaser's purchase of the Securities. 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 representatives. j. No Undisclosed Events, Liabilities, Developments, or Circumstances. No event, liability, development, or circumstance has occurred or exists, or to the knowledge of the Company is contemplated to occur, with respect to the Company or its subsidiaries or their respective business, properties, prospects, operations, or financial condition, which could be material but which has not been publicly announced or disclosed in writing to the Purchaser. k. No General Solicitation. 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 1933 Act) in connection with the offer or sale of the Securities. l. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions. m. Employee Relations. Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such 8 dispute threatened. None of the Company's or its subsidiaries' employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good. n. Intellectual Property Rights. The Company and its subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets, and rights necessary to conduct their respective businesses as now conducted. Except as set forth on Section 3(n) of the Disclosure Schedule, none of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets, or other intellectual property rights have expired or terminated, or are expected to expire or terminate in the near future, other than those that would not have a material adverse effect on the Company. The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of the trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret, or other similar rights of others. Except as set forth on Section 3(n) of the Disclosure Schedule, there is no claim, action, or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret, or other infringement, and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality, and value of all of their intellectual properties. o. Environmental Laws. The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state, and local laws and regulations relating to the protection of human health and safety, the environment, or hazardous, toxic substances, wastes, pollutants, or contaminants ("Environmental Laws"), (ii) have received all permits, licenses, or other approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (iii) are in compliance with all terms and conditions of any such permit, license, or approval. p. Title. The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances, and defects except as described in Section 3(p) of the Disclosure Schedule or as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting, and enforceable leases with such exceptions as are not material, and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries. q. Insurance. The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks, and in such amounts, 9 as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for, and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial, or otherwise, or the earnings, business, or operations of the Company and its subsidiaries, taken as a whole. r. Regulatory Permits. The Company and its subsidiaries possess all certificates, authorizations, and permits issued by the appropriate federal, state, or foreign regulatory authorities necessary to conduct their respective businesses, except to the extent that the failure to possess any such certificate, authorization, and permit would not have a material adverse effect on the Company and its subsidiaries taken as a whole, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization, or permits. s. Internal Accounting Controls. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. t. No Materially Adverse Contracts, Etc. Neither the Company nor any of its subsidiaries is subject to any charter, corporate, or other legal restriction, or any judgment, decree, order, rule, or regulation which in the judgment of the Company's officers has, or to the knowledge of the Company is expected in the future to have, a material adverse effect on the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. Neither the Company nor any of its subsidiaries is a party to any contract or agreement which in the judgment of the Company's officers has, or to the knowledge of the Company is expected to have, a material adverse effect on the business, properties, operations, financial condition, results of operations, or prospects of the Company or its subsidiaries. u. Tax Status. The Company and each of its subsidiaries has made or filed all federal and state income and all other tax returns, reports, and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes), and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports, and declarations, except those being contested in good faith, and has set aside on its books amounts deemed reasonably adequate for the payment of all taxes for periods subsequent to the periods to which 10 such returns, reports, or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim, and there are no open years, examinations in progress or claims against it for federal, state or other taxes (including penalties and interest) for any period or periods prior to the date hereof. v. Certain Transactions. Except as set forth on Section 3(v) of the Disclosure Schedule and in the SEC Documents, and except for arm's length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed on Section 3(c) of the Disclosure Schedule, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers, and directors), including any contract, agreement, or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director, or such employee or, to the knowledge of the Company, any corporation, partnership, trust, or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, or partner. w. Dilutive Effect. The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Preferred Shares will increase in certain circumstances. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Shares in accordance with this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. x. Foreign Corrupt Practices Act. The Company has not made, offered, or agreed to offer anything of value to any government official, political party, or candidate for government office nor has it taken any action which would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977. y. Disclosure. Neither this Agreement nor any Schedule or Exhibit hereto, contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein not misleading. None of the statements, documents, certificates or other items prepared or supplied by the Company with respect to the transactions contemplated hereby contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained therein not misleading. 4. COVENANTS AND AGREEMENTS a. Best Efforts. Each party shall use its best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement. b. Reporting Status. Until the later of after (i) the date as of which the Purchasers may sell all of the Conversion Shares without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) and (ii) the date on which (A) the Purchasers shall have sold 11 all the Conversion Shares and (B) none of the Preferred Shares is outstanding (the "Reporting Period"), the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination. c. Reservation of Shares. The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 110% of the number of shares of Common Stock needed to provide for the issuance of the shares of Common Stock upon conversion of all outstanding Initial Preferred Shares (without regard to any limitations on conversions). d. Corporate Existence. So long as a Purchaser beneficially owns any Preferred Stock, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company's assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company's assets, (x) where the consideration tendered by the surviving or successor entity in such transaction consists entirely of cash or (y) where the surviving or successor entity in such transaction (i) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) such surviving or successor entity or its parent into whose stock the Preferred Shares will be convertible or exercisable is a publicly traded corporation. e. Expenses. The Company agrees to pay up to $6,000 (six thousand dollars) in legal expenses incurred by Purchaser in connection with the negotiation, investigation, preparation, execution, delivery and performance of this Agreement, the Registration Rights Agreement, and the Certificate of Designations. f. Disclosure. From and after the date hereof, the Company will not provide to any Purchaser any material non-public information which, according to applicable law, rule or regulation should be disclosed publicly by the Company but which has not been so disclosed. g. Compliance with Law. The Company will conduct its business in compliance with all applicable laws, rules, ordinances and regulations of the jurisdictions in which it is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations the failure to comply with which would have a Material Adverse Effect. h. Consent of Purchaser. The Company will obtain the prior written consent of the Purchaser before undertaking the actions specified below. The Company may undertake any such requested action only after receiving the advance written consent of Purchasers representing not less than two-thirds (2/3) of the outstanding shares of the Series B Preferred Stock. i. Definition of Debt. For purposes of this Agreement, the capitalized term "Debt" of any Person shall mean: 12 (a) all indebtedness of such Person for borrowed money, including without limitation obligations evidenced by bonds, debentures, bridge notes, or other similar instruments; (b) all indebtedness of others for borrowed money guaranteed in any manner by such Person, or in effect guaranteed by such Person through an agreement to purchase, contingent or otherwise; (c) all accounts payable which, to the knowledge of such Person, have remained unpaid for a period of 90 days after the same become due and payable in accordance with their respective terms taking into account any grace period relating to the due date expressly set forth in the applicable invoice with respect to the payment of such accounts payable, except for the trade payables previously disclosed by the Company that have remained unpaid for more than ninety days as of the date of this Agreement that have been disclosed in the Company's SEC Documents; (d) all indebtedness secured by any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in property owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness; (e) all indebtedness created or arising under any conditional sale agreement or lease in the nature thereof (including obligations as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capitalized leases) (but excluding operating leases) or other title retention agreement with respect to property acquired by such Person, even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession of such property; (f) all bankers' acceptances and letters of credit; and (g) liabilities in respect of unfunded vested benefits under Plans covered by Title IV of ERISA. ii. Creation of New Debt. The Company will not create, assume, or incur or become or at any time be liable in respect of, any Debt without the consent of the Purchasers, except: (a) Debt outstanding on the date hereof to the extent reflected on the most recent balance sheet of the Company or incurred in the ordinary course of business thereafter; (b) Debt incurred pursuant to the Company's existing line of credit facility with BA Associates originated November 9, 1998, under which the Company may 13 borrow from time to time up a maximum of $1,100,000, as referenced in Section 3(v) of the Disclosure Schedule; (c) Debt incurred in permitted real estate investments; and (d) purchase money security interests not to exceed $250,000 per year. Notwithstanding the foregoing provisions of this Section 4.h.ii the Company will not, without the consent of the Purchaser, create, assume, or incur, or become or at any time be liable in respect of, any Debt for money borrowed, advances made, or goods purchased, if the Purchaser, the Person making such advances, or the vendor of such goods (or any Person who guarantees or becomes surety for all or any part of such Debt or acquires any right or incurs any obligation to become, either immediately or upon the occurrence of some future contingency, the owner of all or any part thereof) shall have any right, by reason of any statute or otherwise, to have any claim in respect of such Debt first satisfied out of the general assets of the Company in priority to the claims of its general creditors. iii. Dividends. The Company will not, without the consent of the Purchaser, (a) pay any dividends, in cash or otherwise, on, (b) make any distributions to holders of, or (c) purchase, redeem, or otherwise acquire any of its outstanding Common Stock or set apart assets for a sinking or other analogous fund for the purchase, redemption, retirement, or other acquisition of, any shares of its Common Stock; provided however, that the Company may: (i) pay dividends on its outstanding Preferred Stock in accordance with the Charter; (ii) with prior written approval of each Purchaser, repurchase shares of its Common Stock issued or to be issued by the Company upon exercise of stock options granted to employees and directors of the Company pursuant to the terms of plans adopted by the Board of Directors of the Company; and (iii) pay cash in lieu of fractional shares of its Common Stock on the exercise of outstanding warrants to purchase its Common Stock, pursuant to the terms of such warrants. iv. Transactions with Affiliates. The Company will not, without the consent of the Purchaser, make any loans or advances to any of its officers, directors, shareholders, or Affiliates, other than expense advances made by the Company to its officers and employees in the ordinary course of business. The Company may increase the salaries of an executive officer or the remuneration of any director up to an aggregate maximum in all such instances of $100,000, and otherwise will not increase the salary of any executive officer or the remuneration of any director without the prior consent of the Purchaser. v. Investments. Other than as permitted by this Agreement, the Company will not, without the consent of the Purchaser, purchase or acquire or invest in, or agree to purchase or acquire or invest in the business, property, or assets of, or any 14 securities of, any other company or business, provided however, that the Company may invest in: (a) securities issued or directly and fully guaranteed or insured by the United States government or any agency thereof having maturities of not more than one year from the date of acquisition; (b) certificates of deposit or eurodollar certificates of deposit, having maturities of not more than one hundred eighty days from the date of acquisition, or one year from the date of acquisition in the case of certificates of deposit or eurodollar certificates of deposit being used to secure the Company's reimbursement obligations under letters of credit (provided that nothing contained herein shall be construed to permit letters of credit not otherwise permitted under this Agreement); (c) commercial paper of any Person that is not a subsidiary or an Affiliate of the Company, maturing within one hundred eighty days after the date of acquisition; (d) bank loan participations; and (e) money market instruments having maturities of not more than one hundred eighty days from the date of acquisition, or one year from the date of acquisition in the case of money market instruments being used to secure the Company's reimbursement obligations under letters of credit (provided that nothing contained herein shall be construed to permit letters of credit not otherwise permitted under this Agreement); in all cases of such credit quality as a prudent business person would invest in. vi. Sale and Lease-Back Transactions. The Company will not, without the consent of the Purchaser, sell or transfer any of its properties to anyone with the intention of taking back a lease of the same property or leasing other property for substantially the same use as the property being sold or transferred; provided however, that (a) the Company may continue and extend its existing leasing arrangements and may lease, under operating leases, any fixtures, equipment, and real estate that do not constitute Pledged Assets in the ordinary course of business of the Company, and (b) the Company may otherwise make real estate investments but only with the consent of the Purchasers as provided for herein. vii. Sales of Assets. The Company will not, without the consent of the Purchaser, sell, transfer, or dispose of any property except for sales of obsolete equipment having a book value at the time of sale of not more than $100,000 in the aggregate in any fiscal year. 15 viii. Subsidiaries. The Company will not, without the consent of the Purchaser, organize, or transfer any assets to, any Subsidiaries, provided that, if consent of the Purchasers is obtained and any Subsidiaries are organized, or assets transferred, in compliance with this Section 4.h.viii the Company will not permit such Subsidiaries to enter into any transaction or agreement which would violate any of the provisions of this Section 4.h if such provisions were applicable to such Subsidiary. ix. Change in Business; Operations. The Company will not, without the consent of the Purchaser, cause or effect any change in or addition to the primary business of the Company that has not been approved by Purchaser, such that more than 10% of the gross revenues of the Company are derived from a business other than the business in which the Company was engaged on the date hereof as reflected in the applicable last SEC Document filed prior to the Closing ("Change in Business"), except any such changes approved in advance in writing by the Purchaser. The business of the Company and its subsidiaries shall not be conducted in violation of any law, ordinance, or regulation of any governmental entity. 5. TRANSFER AGENT INSTRUCTIONS The Company shall issue Purchasers, and cause any subsequent transfer agent to issue certificates in the name of each Purchaser or its respective nominee(s), for the Conversion Shares in such amounts as specified from time to time by each Purchaser to the Company upon conversion of the Preferred Shares. Prior to sale of the Conversion Shares and pursuant to an effective registration statement under the 1933 Act, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5 and stop transfer instructions to give effect to Section 2(g) hereof (in the case of the Conversion Shares, prior to the sale of the Conversion Shares pursuant to an effective registration statement under the 1933 Act) will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement. If an Purchaser provides the Company with an opinion of counsel, in form reasonably acceptable to the Company, to the effect that a public sale, assignment or transfer of Securities may be made without registration under the 1933 Act or the Purchaser provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, in such name and in such denominations as specified by such Purchaser and without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchasers by violating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that the Purchasers shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the 16 necessity of showing economic loss and without any bond or other security being required. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue the Preferred Shares to each Purchaser at the Closing is subject to the satisfaction, with respect to each Purchaser at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion: a. Such Purchaser shall have executed each of the Transaction Agreements to which it is a party and delivered the same to the Company. b. The Certificate of Designations shall have been filed with the Secretary of the Commonwealth of Massachusetts. c. Such Purchaser shall have delivered to the Company the Notes in exchange for the Preferred Shares at the Closing in accordance with Section 1(c) hereof. d. The representations and warranties of such Purchaser sha be true and correct as of the date when made and as of the Closing Date as though made ll at that time (except for representations and warranties that speak as of a specific date), and such Purchaser shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Agreements to be performed, satisfied or complied with by such Purchaser at or prior to the Closing Date. 7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO EXCHANGE. The obligation of each Purchaser hereunder to exchange the Notes for the Preferred Shares at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Purchaser's sole benefit and may be waived by such Purchaser at any time in its sole discretion: a. The Company shall have executed each of the Transaction Agreements and delivered the same to such Purchaser. b. The Certificate of Designations shall have been filed with the Secretary of the Commonwealth of Massachusetts, and a copy thereof certified by the Secretary of the Commonwealth of Massachusetts shall have been delivered to such Purchaser. c. The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Agreements to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Such Purchaser shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Purchaser, including, without 17 limitation, an update as of the Closing Date regarding the representation contained in Section 3(c) above. d. The Company shall have executed and delivered to such Purchaser the Preferred Stock Certificates (in such denominations as such Purchaser shall request) for the Initial Preferred Shares being purchased by such Purchaser at the Closing. e. The Board of Directors of the Company shall have adopted resolutions consistent with Section 3(b) above and in a form reasonably acceptable to such Purchaser (the "Resolutions"). f. As of the Closing Date, the Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, 1,589,631shares of Common Stock. g. The Company shall have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Securities pursuant to this Agreement in compliance with such laws. h. The Company shall have delivered to the Purchasers such other documents relating to the transactions contemplated by the Transaction Agreements as the Purchasers or their counsel may reasonably request. 8. MISCELLANEOUS a. Governing Law; Jurisdiction; Jury Trial. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, irrespective of the choice of law provisions thereof. The parties agree that any action brought by one party against the other shall be in any appropriate state court or any federal Court located in the County where the party against whom the action is brought is principally located, and both parties agree that such courts shall have exclusive jurisdiction of such case or controversy arising under or in connection with this Agreement and shall be a proper forum in which to adjudicate such case or controversy. The parties consent to the jurisdiction of such courts. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. b. Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. c. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. 18 d. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. e. Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between each Purchaser, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended or waived other than by an instrument in writing signed by the Company and the holders of at least 66 2/3% of the Preferred Shares then outstanding. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Preferred Shares then outstanding. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Agreements or the Certificate of Designations unless the same consideration also is offered to all of the parties to the Transaction Agreements or holders of Preferred Shares, as the case may be. f. Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: Cambex Corporation 360 Second Avenue Waltham, Massachusetts 02451 Telephone: (781) 890-6000 Facsimile: (781) 890-2899 Attention: President With a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, Massachusetts 02111 Telephone: (617) 542-6000 Facsimile: (617) 542-2241 Attention: Neil H. Aronson, Esq. 19 If to the Transfer Agent: American Stock Transfer & Trust Company 59 Maiden Lane Plaza Level New York, NY 10038 Telephone: (718) 921-8200 If to a Purchaser, to it at the address and facsimile number set forth on the Schedule of Purchasers, with copies to such Purchaser's representatives as set forth on the Schedule of Purchasers, or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Preferred Shares. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the holders of at least 66 2/3% of the Preferred Shares then outstanding, including by merger or consolidation, except pursuant to a Change of Control (as defined in Section 3.3 of the Certificate of Designations) with respect to which the Company is in compliance with Section 5 of the Certificate of Designations and Section 4(d) of this Agreement. A Purchaser may assign some or all of its rights hereunder without the consent of the Company; provided, however, that such transferee will not be deemed a Purchaser hereunder unless such transferee has acquired at least 50 shares of Preferred Stock (as adjusted to reflect any stock splits, reverse stock splits and similar capital events) and such transferee has agreed in writing in form and substance reasonably satisfactory to the Company to be bound by the applicable provisions of this Agreement. Notwithstanding anything to the contrary contained in the Transaction Agreements, the Purchasers shall be entitled to pledge the Securities in connection with a bona fide margin account or other loan secured by the Securities. h. 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. i. Survival. Unless this Agreement is terminated under Section 8(l), the representations and warranties of the Company and the Purchasers contained in Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5 and 8, shall survive the Closing. Each Purchaser shall be responsible only for its own representations, warranties, agreements and covenants hereunder. 20 j. Publicity. The Company and each Purchaser shall have the right to approve before issuance any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Purchaser, to make any press release or other public disclosure with respect to such transactions as the Company reasonably believes upon consultation with its outside counsel is required by applicable law and regulations (although each Purchaser shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release and shall be provided with a copy thereof). k. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. l. Termination. In the event that the Closing shall not have occurred with respect to an Purchaser on or before five (5) Business Days from the date hereof due to the Company's or such Purchaser's failure to satisfy the conditions set forth in Sections 6(a) and 7(a) above (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party. m. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. n. Remedies. Each Purchaser and each holder of the Securities shall have all rights and remedies set forth in the Transaction Agreements and the Certificate of Designations and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. [signature page follows] 21 IN WITNESS WHEREOF, the Purchasers and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above. COMPANY: CAMBEX CORPORATION By: /s/ Joseph F. Kruy Name: Joseph Kruy Title: President PURCHASERS: SOVCAP EQUITY PARTNERS, LTD. a Bahamian International Business Corporation By: /s/ Barry W. Herman Name: Barry W. Herman Title: President Cumberland House 27 Cumberland Street P.O. Box N-10818 Nassau, New Providence The Bahamas 242-356-0037 SCHEDULE OF PURCHASERS Purchaser Name SOVCAP EQUITY PARTNERS, LTD. Purchaser Address and Facsimile Number Cumberland House 27 Cumberland Street P.O. Box N-10818 Nassau, New Providence The Bahamas 242-356-0037 Principal Amount and Number of Series B Preferred Shares $2,517,800 147,240 shares Purchaser's Advisor and Legal Counsel Address List of Exhibits Exhibit A Form of Certificate of Designations Exhibit B Form of Registration Rights Agreement Schedule 1 Disclosure Schedule EX-10.39 11 sovcapcert.txt EXHIBIT A CERTIFICATE OF DESIGNATIONS CAMBEX CORPORATION RESTATED ARTICLES OF ORGANIZATION ARTICLE 4 Rights, Preferences, Privileges and Restrictions of Series B Preferred Stock: The rights, preferences, privileges and restrictions granted to and imposed on the Series B Preferred Stock and the Common Stock are as follows: 1. Definitions. For purposes of this Article 4, the following definitions apply: 1.1 "Board" shall mean the Board of Directors of the Corporation. 1.2 "Corporation" shall mean this corporation. 1.3 "Common Stock" shall mean the Common Stock, $.10 par value per share, of the Corporation. 1.4 "Common Stock Dividend" shall mean a stock dividend declared and paid on the Common Stock that is payable in shares of Common Stock. 1.5 "Distribution" shall mean the transfer of cash or property by the Corporation to one or more of its stockholders without consideration, whether by dividend or otherwise (except a dividend in shares of Corporation's stock). A Permitted Repurchase (defined below) is not a Distribution. 1.6 "Original Issue Date" shall mean the date on which the first share of Series B Preferred Stock is issued by the Corporation. 1.7 "Original Issue Price" shall mean $17.10 per share for the Series B Preferred Stock (as adjusted for any stock splits, stock dividends, recapitalizations or the like, with respect to the Series B Preferred Stock). 1.8 "Permitted Repurchases" shall mean the repurchase by the Corporation of shares of Common Stock held by employees, officers, directors, consultants, independent contractors, advisors, or other persons performing services for the Corporation or a subsidiary that are subject to restricted stock purchase agreements or stock option exercise agreements under which the Corporation has the option to repurchase such shares: (i) at cost, upon the occurrence of certain events, such as the termination of employment or services; or (ii) at any price pursuant to the Corporation's exercise of a right of first refusal to repurchase such shares. 1.9 "Series B Preferred Stock" shall mean the Series B Preferred Stock, $1.00 par value per share, of the Corporation. 1 1.10 "Subsidiary" shall mean any corporation of which at least fifty percent (50%) of the outstanding voting stock is at the time owned directly or indirectly by the Corporation or by one or more of such subsidiary corporations. 2. Dividend Rights. 2.1 Series B Preferred Stock. In each calendar year, the holders of the then outstanding shares of Series B Preferred Stock shall be entitled to receive, cumulative, non-compounding cash dividends, out of funds legally available therefor, at the annual simple rate of twelve percent (12%) on the Original Issue Price for each share of Series B Preferred Stock from the Original Issue Date for such share, which dividends shall accrue whether or not declared by the Board of Directors of the Corporation, but which shall be payable only (i) when, as and if declared by the Board of Directors of the Corporation, (ii) upon an Optional Conversion (as defined in Section 5 below), (iii) upon a Liquidation Event (as defined in Section 3 below) or (iv) upon Redemption of the Series B Preferred Stock (as described in Section 6 below). Notwithstanding this Section 2.1, upon the occurrence of an Optional Conversion, the Corporation may pay any accrued or declared but unpaid dividends on the converted Series B Preferred Stock, in shares of Common Stock rather than cash. The number of shares of Common Stock that may be issued by the Corporation upon an Optional Conversion, shall be equal to the sum of all declared or accrued but unpaid dividends of the Series B Preferred Stock then converted, divided by the then applicable Conversion Price (as defined in Section 5 below). No dividends (other than a Common Stock Dividend) shall be paid, and no Distribution shall be made, with respect to the Common Stock during any calendar year unless dividends for the Series B Preferred Stock shall have first been paid or declared and set apart for payment to the holders of the Series B Preferred Stock during that calendar year; provided, however, that this restriction shall not apply to Permitted Repurchases. 2.2 No Participation Rights. If, after dividends in the full preferential amounts specified in this Section 2 for the Series B Preferred Stock have been paid or declared and set apart in any calendar year of the Corporation, the Board shall declare additional dividends out of funds legally available therefor in that calendar year, then such additional dividends shall be declared solely on the Common Stock. 3. Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (a "Liquidation Event"), the funds and assets that may be legally distributed to the Corporation's stockholders (the "Available Funds and Assets") shall be distributed to stockholders in the following manner: 3.1 Series B Preferred Stock. The holders of each share of Series B Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, and prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any Available Funds and Assets on any shares of Common Stock, an amount per share equal to the Original Issue Price of the Series B Preferred Stock plus any dividends accrued or declared but unpaid thereon. If upon a Liquidation Event the Available Funds and Assets shall be insufficient to permit the payment to holders of the Series B Preferred Stock of their full preferential amount described in this subsection, then the entire Available Funds and Assets shall be distributed among the holders of the then outstanding Series B Preferred Stock pro rata, 2 according to the number of outstanding shares of Series B Preferred Stock held by each holder thereof. 3.2 Remaining Assets. If there are any Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Series B Preferred Stock of their full preferential amounts described above in this Section 3, then all such remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Common Stock pro rata according to the number of shares of Common Stock held by each holder thereof. 3.3 Merger or Sale of Assets. Any (i) reorganization, consolidation or merger (or similar transaction or series of transactions) of the Corporation with or into any other corporation or corporations in which the holders of the Corporation's outstanding shares immediately before such transaction or series of related transactions do not, immediately after such transaction or series of related transactions, retain stock representing a majority of the voting power of the surviving corporation (or its parent corporation if the surviving corporation is wholly owned by the parent corporation) of such transaction or series of related transactions; or (ii) a sale of all or substantially all of the assets of the Corporation, shall each be deemed to be a liquidation, dissolution or winding up of the Corporation as those terms are used in this Section 3. 3.4 Non-Cash Consideration. If any assets of the Corporation distributed to shareholders in connection with a Liquidation Event are other than cash, then the value of such assets shall be their fair market value as determined by the Board of Directors in good faith, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows: (a) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be deemed to be the average of the closing bid prices over the 30 calendar day period ending three (3) trading days prior to the distribution; and, (b) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined above of this subsection to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors. 4. Voting Rights. 4.1 Common Stock. Each holder of shares of Common Stock shall be entitled to one (1) vote for each share thereof held. 4.2 Series B Preferred Stock. Each holder of shares of Series B Preferred Stock shall not be entitled to any voting rights for any shares of Series B Preferred Stock thereof held. 5. Conversion Rights. The outstanding shares of Series B Preferred Stock shall be convertible into Common Stock as follows: 3 5.1 Optional Conversion. (a) At the option of the holder thereof, each share of Series B Preferred Stock shall be convertible, at any time or from time to time prior to the close of business on the business day before any date fixed for redemption of such share, into fully paid and nonassessable shares of Common Stock as provided herein (an "Optional Conversion"). (b) Each holder of Series B Preferred Stock who elects to convert the same into shares of Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or any transfer agent for the Series B Preferred Stock or Common Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the number of shares of Series B Preferred Stock being converted. Thereupon the Corporation shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled upon such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates representing the shares of Series B Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. (c) If the Corporation shall fail to issue to holder within ten (10) business days following the date of receipt by the Company of the Series B Preferred Stock and written notice to convert the same, a certificate for the number of shares of Common Stock to which each holder is entitled upon holder's conversion of the Series B Preferred Stock, in addition to all other available remedies which such holder may pursue hereunder and under the Securities Exchange Agreement between the Corporation and the holder of the Series B Preferred Stock, the Corporation shall pay additional damages to holder on each day after the tenth (10th) business day following the date of receipt by the Corporation an amount equal to 1.0% of the product of (A) the number of shares of Common Stock not issued to holder and to which holder is entitled multiplied by (B) the closing bid price of the Common Stock on the business day following the date of receipt by the Corporation of the written notice to convert. The foregoing notwithstanding, holder at its option may withdraw a notice of conversion, and remain a holder of the Series B Preferred Stock, if holder has otherwise complied with this Section 5.1(c). 5.2 Conversion Price. Each share of Series B Preferred Stock shall be convertible in accordance with subsection 5.1 above into the number of shares of Common Stock which results from dividing the Original Issue Price and if the Company so elects, plus any accrued or declared, but unpaid dividends outstanding at such time of Conversion, by the conversion price for such series of Series B Preferred Stock that is in effect at the time of conversion (the "Conversion Price"). The initial Conversion Price for the Series B Preferred Stock shall be $1.65. The Conversion Price of the Series B Preferred Stock shall be subject to adjustment from time to time as provided below. Following each adjustment of the Conversion Price, such adjusted Conversion Price shall remain in effect until a further adjustment of such Conversion Price hereunder. 4 5.3 Adjustment Upon Common Stock Event. Upon the happening of a Common Stock Event (as hereinafter defined), the Conversion Price of the Series B Preferred Stock shall, simultaneously with the happening of such Common Stock Event, be adjusted by multiplying the Conversion Price of the Series B Preferred Stock in effect immediately prior to such Common Stock Event by a fraction, (i) the numerator of which shall be the number of shares of Common Stock issued and outstanding immediately prior to such Common Stock Event, and (ii) the denominator of which shall be the number of shares of Common Stock issued and outstanding immediately after such Common Stock Event, and the product so obtained shall thereafter be the Conversion Price for the Series B Preferred Stock. The Conversion Price for the Series B Preferred Stock shall be readjusted in the same manner upon the happening of each subsequent Common Stock Event. As used herein, the term the "Common Stock Event" shall mean at any time or from time to time after the Original Issue Date, (i) the issue by the Corporation of additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock, or (iii) a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock; provided that there is no corresponding dividend, distribution, subdivision or combination of the Series B Preferred Stock. 5.4 Adjustments to Respective Conversion Prices for Certain Diluting Issues. 1. Special Definitions. For purposes of this paragraph 5.4, the following definitions apply: a. "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (defined below). b. "Original Issue Date" shall mean the date on which a share of Series B Preferred Stock is first issued. c. "Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock or Series A or Series B Preferred Stock) or other securities convertible into or exchangeable for Common Stock. d. "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to clause (3) of this paragraph 5.4 deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable: i. upon conversion of shares of Series A or Series B Preferred Stock; ii. in exchange for, or on exercise or conversion of rights to acquire Common Stock issued to officers, directors or employees of, or consultants to, the Corporation or a subsidiary pursuant to stock option or stock purchase plans or agreements on terms approved by the Board of Directors; iii. as a dividend or distribution on the Series A or Series B Preferred Stock; or 5 iv. for which adjustment of the Conversion Price is made pursuant to paragraphs 5.7 or 5.12 of this Section 5 or resulting from the adjustment in the Conversion Price of the Series A preferred Stock. 2. No Adjustment of Conversion Price. Any provision herein to the contrary notwithstanding, no adjustment in the Conversion Price shall be made in respect of the issuance of Additional Shares of Common Stock unless (i) the consideration per share (determined pursuant to clause (5) of this paragraph 5.4) for any such Additional Share of Common Stock is less than the Conversion Price in effect on the date of, and immediately prior to, such issuance and (ii) the number of Additional Shares of Common Stock issued is more than twenty percent (20%) of the number of shares of Common Stock outstanding as of the Original Issue Date calculated on a fully diluted basis (as fully diluted is defined in clause (4) of this paragraph 5.4). 3. Deemed Issue of Additional Shares of Common Stock. In the event that the Corporation, at any time or from time to time after the Original Issue Date, shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein designed to protect against dilution) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities shall be deemed to be Additional Shares of Common Stock issued as of the time of such issuance or, in case such a record date shall have been fixed, as of the close of business on such record date, provided further that in any such case in which Additional Shares of Common Stock are deemed have been issued: a. no further adjustments in the Conversion Price shall be made upon the subsequent issuance of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; b. if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issuance thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; c. upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price, to the 6 extent in any way affected by or computed using such options, rights or securities, or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities which remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities, or upon the exercise of the options or rights related to such securities; and d. no readjustment pursuant to the immediately preceding clauses (2) and (3) shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (a) the Conversion Price on the original adjustment date, or (b) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. 4. Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event that the Corporation shall issue any Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to clause (3) of this paragraph 5.4) without consideration or for a consideration per share less than the Conversion Price in effect on the date of and immediately prior to such issuance, then and in such event, the Conversion Price shall be reduced, concurrently with such issuance, to a price (calculated to the nearest cent) determined by multiplying the Conversion Price in effect immediately prior thereto, by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at the Conversion Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of such Additional Shares of Common Stock so issued. For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issuance shall be calculated on a fully diluted basis, as if all shares of Series A and Series B Preferred Stock and all Convertible Securities had been fully converted into shares of Common Stock and any outstanding warrants, options or other rights for the purchase of Common Stock or convertible securities had been fully exercised (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date. 5. Determination of Consideration. For purposes of this paragraph 5.4, the consideration received by the Corporation for the issuance of any Additional Shares of Common Stock shall be computed as follows: a. Cash and Property: Such consideration shall: 1. insofar as it consists of cash, be deemed to be the aggregate gross amount of cash received by the Corporation, net only of amounts paid or payable for then 7 accrued interest or accrued dividends with respect to such Additional Shares of Common Stock; 2. insofar as it consists of property other than cash, be deemed to have the same value as is recorded on the books of the Corporation at the time of such issuance, so long as such recorded value was determined reasonably and in good faith or shall otherwise be deemed to have a value equal to its fair market value; 3. in the event that Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in the immediately preceding clauses (1) and (2). b. Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to clause (3) of this paragraph 5.4, relating to Options and Convertible Securities shall be determined by dividing 1. the total amount, if any, received or receivable by the Corporation as consideration for the issuance of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by 2. the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against the dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities. 5.5 Adjustments for Other Dividends and Distributions. If at any time or from time to time after the Original Issue Date the Corporation pays a dividend or makes another distribution to the holders of the Common Stock payable in securities of the Corporation, other than an event constituting a Common Stock Event, then in each such event provision shall be made so that the holders of the Series B Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable upon conversion thereof, the amount of securities of the Corporation which they would have received had their Series B Preferred Stock been converted into Common Stock on the date of such event (or such record date, as applicable) and had they thereafter, during the period from the date of such event (or such record date, as applicable) to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 5 with respect to the rights of the holders of the Series B Preferred Stock or with respect to such other securities by their terms. 8 5.6 Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date the Common Stock issuable upon the conversion of the Series B Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than by a Common Stock Event or a stock dividend, reorganization, merger, or consolidation provided for elsewhere in this Section 5), then in any such event each holder of Series B Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock [and other securities and property receivable] upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of Series B Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. 5.7 Reorganizations, Mergers and Consolidations. If at any time or from time to time after the Original Issue Date there is a reorganization of the Corporation (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 5) or a merger or consolidation of the Corporation with or into another corporation (except an event which is governed under subsection 3.3), then, as a part of such reorganization, merger or consolidation, provision shall be made so that the holders of the Series B Preferred Stock thereafter shall be entitled to receive, upon conversion of the Series B Preferred Stock, the number of shares of stock or other securities or property of the Corporation, or of such successor corporation resulting from such reorganization, merger or consolidation, to which a holder of Common Stock deliverable upon conversion would have been entitled on such reorganization, merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the holders of the Series B Preferred Stock after the reorganization, merger or consolidation to the end that the provisions of this Section 5 (including adjustment of the Conversion Price then in effect and number of shares issuable upon conversion of the Series B Preferred Stock) shall be applicable after that event and be as nearly equivalent to the provisions hereof as may be practicable. This subsection 5.7 shall similarly apply to successive reorganizations, mergers and consolidations. Notwithstanding anything to the contrary contained in this Section 5, if any reorganization, merger or consolidation is approved by the vote of stockholders as described in the Articles of Organization, then such transaction and the rights of the holders of Series B Preferred Stock and Common Stock pursuant to such reorganization, merger or consolidation will be governed by the documents entered into in connection with such transaction and not by the provisions of this Section 5.7. 5.8 Certificate of Adjustment. In each case of an adjustment or readjustment of the Conversion Price for the Series B Preferred Stock, the Corporation, at its expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of the Series B Preferred Stock at the holder's address as shown in the Corporation's books. 5.9 Fractional Shares. No fractional shares of Common Stock shall be issued upon any conversion of Series B Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall pay the holder cash equal to the 9 product of such fraction multiplied by the Common Stock's fair market value as determined in good faith by the Board as of the date of conversion. 5.10 Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series B Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. 5.11 Notices. Any notice required by the provisions of these Articles of Organization to be given to the holders of shares of the Series B Preferred Stock shall be deemed given upon the earlier of actual receipt or deposit in the United States mail, by certified or registered mail, return receipt requested, postage prepaid, or delivery by a recognized express courier, fees prepaid, addressed to each holder of record at the address of such holder appearing on the books of the Corporation. 5.12 No Impairment. The Corporation shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Series B Preferred Stock against impairment. 5.13 Preemptive Rights. No stockholder of the Corporation shall have a right to purchase shares of capital stock of the Corporation sold or issued by the Corporation except to the extent that such a right may from time to time be set forth in a written agreement between the Corporation and a stockholder. 5.14 No Retroactive Adjustment of the Conversion Price. Any provision in Section 5 to the contrary notwithstanding, no adjustment of the Conversion Price shall affect Common Stock which may have been previously issued upon conversion of the Series B Preferred Stock. 6. Redemption Rights 6.1 Redemption Rights. The Corporation may redeem any or all of the Series B Preferred Stock from any holder at any time for an amount per share equal to the Original Issue Price of the Series B Preferred Stock plus all accrued or declared but unpaid dividends on the Series B Preferred Stock (the "Redemption Price"). 6.2 Redemption Notice. At least ten (10) days before a redemption by the Corporation, the Corporation shall mail a notice of redemption to the holder, stating (A) the redemption date, which shall be a business day in New York, New York (the "Redemption Date"), (B) the aggregate number of shares of the Series B Preferred Stock to be redeemed, 10 (C) the Redemption Price, and (D) the name and address of the Person to whom the Series B Preferred Stock must be presented. On or before the third (3rd) day prior to the Redemption Date, the Company shall deposit into a bank trust account for the benefit of the holder of the Series B Preferred Stock money sufficient to pay the Redemption Price. 6.3 Reacquired Shares. Any shares of Series B Preferred Stock converted, redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall, automatically and without further action, be retired and canceled promptly after the acquisition thereof, and shall not be reissued and the Corporation (without the need for stockholder action) from time to time shall take such action as may be necessary to reduce the number of authorized shares of the Series B Preferred Stock accordingly. 7. Protective Provisions. So long as any shares of Series B Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent by the holders of a majority of the then outstanding shares of Series B Preferred Stock: a. amend or repeal a provisions of, or add any provision to its charter or bylaws if such action would alter or change the rights, preferences or privileges of the Series B Preferred Stock so as to affect such series adversely; b. increase the authorized number of shares of such Series B Preferred Stock; c. authorize or consummate a change of control ("Change of Control Transaction"), including, without limitation, a sale of all or substantially all of the Corporation's assets, a transaction (or series of transactions) which results in the holders of the Corporation's capital stock prior to the transaction owning less than 50% of the voting power of the Corporation's capital stock after the transaction; d. effect a liquidation, dissolution, recapitalization or reorganization; e. authorize or issue any securities or reclassify any outstanding securities into securities having a preference over or on parity with the Series B Preferred Stock with the exception of the 108,957 SHARES OF THE Corporation's Series A Preferred Stock TO BE ISSUED CONCURRENTLY WITH THE ISSUANCE OF THE SERIES B PREFERRED STOCK; f. increase the number of directors of the Corporation to a number greater than seven; g. approve or consummate any business acquisition in excess of $500,000 in one or a series or related transactions or any debt financings (other than equipment leases or similar financings) in excess of $500,000; h. increase the number of shares of Common Stock reserved under the Corporation's stock incentive plans above 4,000,000 shares (net of repurchases and cancellations); i. pay or declare any dividends or make any distributions on the Corporation's common stock. 11 -----END PRIVACY-ENHANCED MESSAGE-----