SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended March 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ________________ to ________________
Commission File Number 0-19726
CAMBIO, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 94-3022377
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
6006 North Mesa Street, Suite 515
El Paso, Texas 79912
(Address of principal executive offices)
(915) 581-5828
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such 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
As of May 18, 1999, 3,832,411 shares of Class A Common Stock, no shares of Class
B Common Stock, and 51,073 shares of Series B Convertible Preferred Stock were
outstanding, which is convertible into 25,536,500 shares of Class A Common
Stock.
<PAGE>
CAMBIO, INC.
Form 10-QSB
INDEX
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet as of March 31, 1999 3
Condensed Consolidated Statements
of Operations for the three months and
nine months ended March 31, 1999 and 1998 4
Condensed Consolidated Statements
of Cash Flows for the nine months
ended March 31, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7-12
Part II. Other Information and Signatures 13-14
2
<PAGE>
CAMBIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1999
(Unaudited)
ASSETS
Current assets:
Accounts receivable - net of allowance
for doubtful accounts of $255,739 $ 245,000
Prepaids and deposits 47,000
------------
Total current assets 292,000
Property and equipment, net 109,000
Other assets:
Goodwill, net 4,283,000
------------
Total assets $ 4,684,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Bank Overdraft $ 180,000
Short-term borrowings and notes payable 614,000
Accounts payable - trade 1,631,000
Accrued expenses 495,000
Deferred revenue and customer deposits 119,000
------------
Total current liabilities 3,039,000
Long term obligations 250,000
Stockholders' equity:
Stock, Common and Preferred, and Paid in Capital $ 19,732,000
Accumulated deficit (18,337,000)
------------
Total stockholders' equity 1,395,000
------------
Total liabilities and stockholders' equity $ 4,684,000
============
The accompanying notes are an integral part of this statement
3
<PAGE>
<TABLE>
CAMBIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $ 373,000 $ 760,000
Cost of sales 171,000 244,000
----------- -----------
Gross profit 202,000 516,000
Selling, general and administrative expenses 1,271,000 $ 697,000 3,751,000 $ 1,114,000
Research and development expense 60,000 313,000
Loss from operations (1,129,000) (697,000) (3,548,000) (1,114,000)
----------- ----------- ----------- -----------
Other income (expense):
Interest and other income 46,000 127,000
Interest expense (35,000) (3,000) (62,000) (16,000)
----------- ----------- ----------- -----------
Total other income (expense) (35,000) 43,000 (62,000) 111,000
----------- ----------- ----------- -----------
Loss before discontinued operations (1,164,000) (654,000) (3,610,000) (1,003,000)
----------- ----------- ----------- -----------
Income (loss) from operations of
Discontinued businesses (170,000) (147,000) (170,000) 646,000
----------- ----------- ----------- -----------
Net income (loss) $(1,334,000) $ (801,000) $(3,780,000) $ (357,000)
=========== =========== =========== ===========
Basic and diluted net (loss) per common share
Continuing operations $ (0.31) $ (0.34) $ (1.04) $ (0.52)
=========== =========== =========== ===========
Basic and diluted net income per common
share - discontinued operations $ (0.04) $ (0.08) $ (0.05) $ 0.34
=========== =========== =========== ===========
Basic and diluted net income (loss) per
Common share $ (0.35) $ (0.42) $ (1.09) $ (0.18)
=========== =========== =========== ===========
Weighted average shares outstanding 3,832,000 1,907,000 3,488,000 1,923,000
<FN>
The accompanying notes are an integral part of these statements
</FN>
</TABLE>
4
<PAGE>
CAMBIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
---------
1999 1998
----------- -----------
Cash flows from operating activities: $(1,954,000) $ 44,000
Cash flows from investing activities: (745,000) 1,048,000
Cash flows from financing activities: 1,375,000 (473,000)
Net change in cash and cash equivalents (1,324,000) 619,000
Cash and cash equivalents at beginning of period 1,324,000 2,929,000
----------- -----------
Cash and cash equivalents at end of period $ 0 $ 3,548,000
=========== ===========
The accompanying notes are an integral part of these statement
5
<PAGE>
CAMBIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements of Cambio,
Inc., formerly Meadowbrook Rehabilitation Group, Inc. and its subsidiaries
(collectively, the "Company") for the three and nine months ended March 31,
1999 and 1998 have been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited information
includes all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of this interim information. Operating
results and cash flows for interim periods are not necessarily indicative
of results for the entire year. The information included in this report
should be read in conjunction with the Company's audited financial
statements and notes thereto included in the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1998 previously filed with the
Securities and Exchange Commission.
2. Cambio, Inc. is a global leader in telecommunications infrastructure
management. The company supplies software and professional services for
Operations Support Systems (OSS) of telecommunications industries and
general enterprise networks. Our flagship product, netRunner(TM)is designed
to improve telecommunications service providers' return on capital assets
and their time to service metrics. It was introduced late October 1998. It
allows service providers the ability to quickly build, provision, and view
networks and their utilization. It integrates with other applications such
as Hewlett Packard's OpenView and OEMF. It runs on Windows 95/98(TM)or
Windows NT(TM)operating systems and supports industry standard relational
database, Oracle, running on Windows or UNIX environments. Through the
Company's subsidiary, Cambio Networks, Inc., it also provides systems
support and consulting to customers using its COMMAND product.
Prior to Fiscal 1999 the Company provided outpatient, home health and
traditional acute, sub-acute and post-acute comprehensive rehabilitation
services through its various subsidiaries. These operations were
discontinued effective June 30, 1998.
On February 2, 1999, the Company entered into an agreement with Imperial
Loan Management Corporation ("Imperial") whereby the Company sold all of
the issued and outstanding stock of its discontinued healthcare
subsidiaries (the "Subsidiaries") to Imperial. As part of the agreement,
Imperial will use its best efforts to liquidate each of the Subsidiaries,
settling outstanding obligations and collecting all amounts due. The
Company remains a guarantor of the Subsidiaries' outstanding indebtedness,
which approximates $680,000 as of May 18, 1999, and is entitled to receive
one-half of proceeds received after payment of all expenses, including the
outstanding indebtedness. In connection with this transaction, the Company
recorded a charge to write-off the net asset remaining from discontinued
operation.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT EVENTS
Disposition of Healthcare Operations
Prior to June 30, 1998, Cambio, Inc., formerly Meadowbrook
Rehabilitation Group, Inc. and its subsidiaries (collectively, the "Company" or
"Cambio") provided outpatient, home health, and traditional acute, sub-acute and
post-acute comprehensive rehabilitation services. Since the beginning of Fiscal
1997, and as a result of poor operating results and poor prospects for growth in
their respective markets, the Company has sold or closed all of its healthcare
operating assets. As of June 30, 1998, the Company's assets consisted almost
exclusively of cash and accounts receivable.
The termination of the Company's healthcare operations was completed
during the fourth quarter of Fiscal 1998 after its Board of Directors approved
the closure or disposal of its home health agencies in Colorado and Kansas and
physical therapy clinics in Colorado. The closing and/or sale of such operations
were substantially completed on June 30, 1998.
The estimated loss on the disposition of these facilities recognized in
the Company's statements of operations for the year ended June 30, 1998 ("Fiscal
1998") includes the writedown of property and equipment to market value, the
write-off of goodwill, closedown expenses and the operating losses through the
disposition date.
On February 2, 1999, the Company entered into an agreement with
Imperial Loan Management Corporation ("Imperial") whereby the Company sold all
of the issued and outstanding stock of its discontinued healthcare subsidiaries
(the "Subsidiaries") to Imperial. As part of the agreement, Imperial will use
its best efforts to liquidate each of the Subsidiaries, settling outstanding
obligations and collecting all amounts due. The Company remains a guarantor of
the Subsidiaries' outstanding indebtedness, which approximates $680,000 as of
May 18, 1999, and is entitled to receive one-half of proceeds received after
payment of all expenses, including the outstanding indebtedness. In connection
with this transaction, the Company recorded a charge to write-off the net asset
remaining from discontinued operations.
Acquisition of Cambio Networks, Inc.
On September 14, 1998, the Company acquired Cambio Networks, Inc.
("Cambio Networks"), pursuant to an Agreement and Plan of Merger, dated as of
April 3, 1998, as amended by the Agreement of Amendment, dated as of July 27,
1998 (collectively, the "Agreement"). Under the terms of the Agreement, Cambio's
shareholders received an aggregate 1,238,842 of shares of the Company's Class A
Common Stock representing approximately 32.3% of the outstanding Class A and
Class B Common Stock. From the date of the acquisition, the Company's operations
consist solely of the acquired operations. Accordingly, the Company's historical
results of operations are not comparable to its future operating results.
7
<PAGE>
Delisting of Class A Common Stock From NASDAQ
On October 20, 1998, the Company received notice of a decision by the
NASDAQ Stock Market to delist the Company's Class A Common Stock from the NASDAQ
National Market effective with the close of business on October 20, 1998.
Additionally, at that time, the Company did not meet, and currently does not
meet, the requirements to transfer its listing to the NASDAQ SmallCap Market.
Accordingly, trading in the Company's Class A Common Stock is being conducted on
the OTC Bulletin Board.
Name and Trading Symbol Change
On October 20, 1998, Meadowbrook Rehabilitation Group, Inc.
("Meadowbrook"), changed its name to Cambio, Inc. The name change was effected
by merging its wholly owned subsidiary, Cambio Acquisition Corporation into
Meadowbrook, and simultaneously changing its name to Cambio, Inc. In addition,
the trading symbol changed to CAMB and its new CUSIP number is 13200N 10 0. The
name change will serve to better reflect the development plans, current business
model, and future objectives of the organization.
Sale of Preferred Stock
On January 31, 1999, the Company's Board of Directors (the "Board")
approved the issuance of up to 37,500 shares of a newly created Convertible
Preferred Stock initially designated as Series A but now designated as Series B
(the "Preferred Stock") for $100.00 per share, an aggregate consideration of up
to $3,750,000. Each share of Preferred Stock is convertible into 500 shares of
the Company's Class A Common Stock or $0.20 per share and is entitled to receive
dividends in an amount equal to the equivalent per share dividend declared on
the Class A Common Stock when and as declared by the Board of Directors. On
February 3, 1999, Frederick Adler and Euro-America II, L.P. (collectively the
"Investor Group") converted certain indebtedness owing to them from the Company
in the aggregate amount of $1,057,318 into 10,573 shares of the Company's
Preferred Stock. Upon conversion the Investor Group would be issued an
equivalent of 5,286,590 shares of the Company's Class A Common Stock. The
Investor Group also purchased an additional $425,000 or 4,250 shares of
Preferred Stock, which upon conversion the Investor Group would be issued an
equivalent of 2,125,000 shares of the Company's Class A Common Stock. On April
29, 1999, the Board approved the issuance of an additional 62,500 shares of
Preferred Stock. As of May 18, 1999, the company has sold a total of 51,073
shares of Preferred Stock.
Management Changes
On February 3, 1999, Harvey Wm. Glasser, ("Dr. Glasser") the Company's
former Chairman and Chief Executive Officer, exchanged each share of Class B
Common Stock held by him for one share of Class A Common Stock of the Company,
and resigned from his position as Chief Executive Officer and Chairman of the
Board. On that same day, Mr. Ali Al-Dahwi was appointed Chief Executive Officer
and Mr. John P. McCracken resigned from the Board. The Company has yet to
appoint a Chairman of the Board. On March 10, 1999, Dr. Glasser resigned from
the Board.
Forward-looking Statements
In addition to the historical information contained herein, this Form
10-QSB contains forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to risks and uncertainties,
including risks and uncertainties set forth in this Form 10-QSB that may cause
actual results to differ materially. These forward-looking statements speak only
as of the date hereof. The Company disclaims any intent or obligation to update
these forward-looking statements.
8
<PAGE>
RESULTS OF OPERATIONS
Three months ended March 31, 1999 as Compared to Three months ended March 31,
1998
Net revenues from continuing operations for the three months ended
March 31, 1999 ("Third Quarter Fiscal 1999") were $373,000. Revenues for the
same period last year were comprised only of discontinued operations. The net
loss for the Third Quarter Fiscal 1999 was $1,334,000 or $0.35 per share and was
primarily due to expenses associated with the development and introduction of
the Company's new flagship product, netRunner.
Nine months ended March 31, 1999 as Compared to Nine months ended March 31, 1998
Net revenues for the Nine Months Fiscal 1999 were $760,000. Revenues
for the same period last year were comprised only of discontinued operations.
Revenues for the current period include Cambio Networks operations following its
acquisition in September 1998.
During the month of January 1999 the Company entered into two
agreements to license its netRunner operations support system with two global
telecommunications companies. These agreements will generate over $1,000,000 in
revenues comprised of license, professional services and support fees over the
next 15 months. Cambio first introduced its flagship product, netRunner, in late
October 1998, and a few months later was selected by Hewlett-Packard, a leading
global provider of computing solutions, as a subcontractor to provide the
software and professional services in connection with these projects. The
Company believes it will continue to see more orders from Hewlett-Packard in the
near future as it cultivates and solidifies its global presence.
netRunner is designed to run under Windows 95, 98 or NT operating
systems using current development technologies. Extensions to netRunner are
continuously being developed to allow the product to integrate and interface to
other commonly used third party network element management products, help desks
and data bases allowing the Company's customers to economically implement the
plan and design of their network and manage increasing network costs
effectively.
Immediately following the acquisition of Cambio Networks in September
1998, the Company implemented a restructuring plan involving the closing and
relocating of Cambio Networks' headquarters from Bellevue, Washington to an
already existing office in Dallas, Texas. In addition, the Company moved its
research and development offices to El Paso, Texas and it assimilated Cambio
Networks' finance and accounting functions into its already existing
capabilities in Emeryville, California. The Company maintained its sales and
service offices domestically in Parsippany, New Jersey until its closure in
December 1998. The sales and services offices are currently in Washington D.C.,
Dallas, TX, and El Paso, TX in the U.S. and internationally in Egypt and the
United Kingdom. In an effort to further consolidate its operations, in February
1999 it decided to close its Emeryville, California office and move all finance
and administrative functions to its El Paso, Texas office.
Selling, general and administrative ("SG&A") expenses for the Nine
Months Fiscal 1999 were $3,751,000 a 237% increase from SG&A expenses of
$1,114,000 for the Nine Months Fiscal 1998. The increase in SG&A expenses was
primarily due to increased expenses associated with launching netRunner coupled
with the closure and or relocation of its offices as described above and
amortization of the goodwill associated with the acquisition of Cambio Networks.
SG&A expenses for the Nine Months Fiscal 1998 include only the administrative
costs not associated with the discontinued operations.
Research and development ("R&D") expense for the Nine Months Fiscal
1999 was $313,000. The Company incurred R&D expenses primarily as a result of
its new product development.
9
<PAGE>
Net interest expense for the Nine Months Fiscal 1999 was $62,000 as
compared to a net interest expense of $16,000 for the Nine Months Fiscal 1998.
The increase relates to debt assumed in the acquisition of Cambio Networks'
interest expense on its existing debt.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had negative working capital of
$2,747,000, compared to working capital of $2,176,000 at June 30, 1998. The
Company's working capital position decreased following the acquisition of Cambio
Networks due to the consolidation of accounts and the elimination receivables
from the subsidiary . The Company had no cash and cash equivalents at March 31,
1999, as compared to $1,324,000 at June 30, 1998. The Company's cash and working
capital position decreased due to loans made to Cambio Networks prior to the
closing of the acquisition and the continued funding of the operations after the
closing of the acquisition.
During the Nine Months Fiscal 1999, the Company's operating activities
used cash of $1,954,000, as compared to cash provided by operating activities of
$44,000 during the same period in the prior fiscal year. The cash used for
operating activities during the Nine Months Fiscal 1999 is primarily the result
of the losses incurred.
As of June 30, 1998, the Company had net operating loss carryforwards
of approximately $8,500,000. Availability of the Company's net operating loss
carryforwards if not utilized will expire at various dates through the year
2013. Utilization of net operating loss carryforwards may be limited due to the
recent sales of its preferred stock.
The Company has no current material commitments for capital
expenditures. The Company also expects to make routine capital improvements to
its facilities in the normal course of business.
The Company's current operations are cash flow negative and as of March
31, 1999, the Company had negative working capital of $2,283,000. The Company
will need additional capital to fund its operations. There can be no assurance
that capital will be available, or that, if available, it can be obtained on
terms favorable to the Company. If adequate funds are not available, the
Company's liquidity could be impaired, which would have a material adverse
effect on its business.
In May 1999 the Company completed the sale of $3.6 million of Series B
Convertible Preferred Stock through direct purchase and conversion of
indebtedness.
Inflation in recent years has not had a significant effect on the
Company's business and is not expected to adversely effect the Company in the
future unless the current rate of inflation increases significantly.
Other Factors That May Affect Future Operating Results
Cambio Networks has incurred significant net losses since its
inception. There can be no assurance that the Company will be profitable in any
future period. The Company's business will also subject to the risks inherent in
the operation of a new business enterprise, and there can be no assurance it
will be able to successfully address such risks.
Fluctuating Operating Results. Factors that may contribute to future
fluctuations in the Company's quarterly and annual operating results include,
but are not limited to: (i) development and introduction of new operating
systems and new product development expenses; (ii) introduction or enhancement
of products by the Company; (iii) changes in pricing policies of the Company or
its competitors; (iv) increased competition; (v) technological changes in
computer systems and environments; (vi) the ability of the Company to timely
develop, introduce and market new products; (vii) quality control of products
sold; (viii) market readiness to deploy systems management products for
distributed computing environments; (ix) market acceptance of new products and
product enhancements; (x) customer order deferrals in anticipation of new
products and product enhancements; (xi) the Company's success in expanding its
sales and marketing programs; (xii) personnel changes; (xiii) foreign currency
exchange rates; (xiv) mix of products sold; (xv) acquisition costs; and (xvi)
general economic conditions.
10
<PAGE>
Intense Competition. The markets in which the Company competes are
intensely competitive, highly fragmented and rapidly changing. In order to
compete effectively, the Company will have to enhance current products, enhance
the operability of its products with one another and develop new products in a
timely fashion.
The Company anticipates continued growth in competition in the
telecommunications industry and consequently, the entrance of new competitors
into the software systems market in the future. To maintain and improve its
competitive position, the Company must continue to develop and introduce, in a
timely and cost-effective manner, new product sets, new product features and
services and support that keep the Company competitive with its competitors. The
principal competitive factors in the Company's market are quality, performance,
price, customer support and training, business reputation, and product
attributes such as scalability, compatibility, functionality and acceptance. In
addition, the Company competes with a number of companies that have
substantially greater financial, technical, sales, marketing and other resources
as well as greater name recognition than the Company. As a result, the Company's
competitors may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
promotion and sale of their products and services than can the Company. There
can be no assurance that the Company will be able to compete successfully with
its existing competitors or with new competitors.
Risks Associated With International Operations. Historically, revenues
from sales outside the United States have accounted for a significant amount of
Cambio Networks' total revenues. The Company believes that its success depends
upon continued expansion of its international operations. The Company currently
has sales and service offices in the United Kingdom and Egypt. International
expansion may require the Company to establish additional foreign offices, hire
additional personnel and recruit additional international resellers. This may
require significant management attention and financial resources and could
adversely affect the Company's operating margins. To the extent the Company is
unable to effect these additions efficiently and in a timely manner, its growth,
if any, in international sales will be limited, and its business, operating
results and financial condition could be materially adversely affected. There
can be no assurance that the Company will be able to maintain or increase
international market demand for its products.
International operations subject the Company to a number of risks
inherent in developing products for sale outside of the United States, including
the potential loss of developed technology, imposition of governmental controls,
export license requirements, restrictions on the export of critical technology,
political and economic instability, trade restrictions, difficulties in managing
international operations, cultural differences in the conduct of business,
extended accounts receivable collection cycles, greater difficulty in accounts
receivable collection, unexpected changes in regulatory requirements and royalty
and withholding taxes that restrict the repatriation of earnings, tariffs and
other trade barriers, the burden of complying with a wide variety of foreign
laws, and the risk of foreign currency gains and losses. There can be no
assurance that any of the factors described herein will not have a material
adverse effect on the Company's future international sales and operations and,
consequently, its business, operating results and financial condition.
Reliance on Significant Customers. Historically, Cambio Networks has
generated a significant portion of its total revenues from a limited number of
customers, some of which have exceeded 10% of revenues. This concentration of
customers can cause the Company's revenues and earnings to fluctuate from
quarter to quarter based on these customers' requirements and the timing of
their orders. Although the Company believes it has good relationships with its
largest customers and has in the past received a substantial portion of its
revenues from repeat business with established customers, none of the Company's
major customers has any obligation to purchase additional products or services,
and these customers generally have acquired fully-paid licenses to their
installed systems. Therefore, there can be no assurance that any of the
Company's major customers will continue to purchase new systems, systems
enhancements and services in amounts similar to previous years. A reduction,
delay or cancellation in orders from any of its major customers would have a
material adverse effect on the Company's results of operations and financial
condition. In addition, the acquisition by a third party of one of the Company's
major customers could result in the loss of that customer and have a material
adverse effect on the Company's results of operations and financial condition.
11
<PAGE>
Rapid Technological Change and Requirement for Frequent Product
Transitions. The market for the Company's products is intensely competitive,
highly fragmented and characterized by rapid technological developments,
evolving industry standards and rapid changes in customer requirements. The
introduction of products embodying new technologies, the emergence of new
industry standards or changes in customer requirements could render the
Company's existing products obsolete and unmarketable. As a result, the
Company's success depends upon its ability to continue to enhance existing
products, respond to changing customer requirements and develop and introduce in
a timely manner, new products that keep pace with technological developments and
emerging industry standards. Customer requirements include, but are not limited
to, product operability and support across distributed and changing
heterogeneous hardware platforms, operating systems, relational databases and
networks. There can be no assurance that the Company's products will achieve
market acceptance or will adequately address the changing needs of the
marketplace or that the Company will be successful in developing and marketing
enhancements to its existing products or new products incorporating new
technology on a timely basis. The Company has in the past experienced delays in
product development, and there can be no assurance that the Company will not
experience further delays in connection with its current product development or
future development activities. If the Company is unable to develop and introduce
new products, or enhancements to existing products, in a timely manner in
response to changing market conditions or customer requirements, the Company's
business, operating results and financial condition will be materially adversely
affected. Because the Company has limited resources, the Company must restrict
its product development efforts and its porting efforts to a relatively small
number of products and operating systems. There can be no assurance that these
efforts will be successful or, even if successful, that any resulting products
or operating systems will achieve market acceptance.
Dependence on Key Employees. The Company is highly dependent on the
principal members of its management staff, including Mr. Ali Al-Dahwi, its
President and Chief Executive Officer, the loss of whose services would have a
material adverse effect on the Company's business. Cambio does not maintain any
key person life insurance policy on the life of any employee. Failure to attract
and retain key personnel could have a material adverse effect on the Company's
business, financial condition and results of operations.
Year 2000 Compliance. The Company is currently evaluating the potential
impact of the Year 2000 difficulties on the processing of date-sensitive
information by the Company's computerized information system. The Year 2000
problem is the result of computer programs being written using two digits
(rather than four) to define the applicable year. Any of the Company's computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in miscalculations
or system failures. Based on preliminary information, the costs of addressing
the potential problems are not currently expected to have a material adverse
effect on the Company's financial position, liquidity or results of operations
in future periods. The software currently offered by the Company is either
designed to be Year 2000 compliant or has been upgraded to be Year 2000
compliant. However, if the Company, or its customers or vendors, are unable to
resolve such processing issues in a timely manner, it could pose a material
financial risk. Accordingly, the Company plans to devote the necessary resources
to resolve all significant Year 2000 issues in a timely manner.
12
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
On January 31, 1999, the Company's Board of Directors (the "Board")
approved the issuance of up to 37,500 shares of a newly created Series
B Convertible Preferred Stock (the "Preferred Stock") for $100.00 per
share, an aggregate consideration of up to $3,750,000. Each share of
Preferred Stock is convertible into 500 shares of the Company's Class A
Common Stock or $0.20 per share and is entitled to receive dividends in
an amount equal to the equivalent per share dividend declared on the
Class A Common Stock when and as declared by the Board of Directors. On
April 29, 1999, the Board approved the issuance of an additional 62,500
shares of Preferred Stock. As of May 18, 1999, the company has sold a
total of 51,073 shares of Preferred Stock.
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. Exhibit No.
10.4 Certificate of the Designations, Powers, Preferences, and
Rights of the Series B Convertible Preferred Stock.
27.1 Financial Data Schedule.
B. Reports on Form 8-K
None
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Cambio, Inc.
/s/ Ali Al-Dahwi
- ------------------------------
Ali Al-Dahwi
President and Chief Executive
Officer
/s/ Carolyn J. Durrett
- ------------------------------
Carolyn J. Durrett
Controller
(Principal Accounting
and Financial Officer)
May 18, 1999
14
CERTIFICATE OF THE DESIGNATIONS, POWERS,
PREFERENCES AND RIGHTS
OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
(Par Value $.01 Per Share)
of
CAMBIO INC.
--------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
--------------------
The undersigned duly authorized officers of Cambio Inc., a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "Corporation"),
DO HEREBY CERTIFY:
FIRST: That Article 4 of the Corporation's Restated Certificate of
Incorporation provides that the Corporation is authorized to issue 1,000,000
shares of preferred stock, $.01 par value per share, in any number of series,
with such designations, rights and preferences as may be determined from time to
time by the Board of Directors.
SECOND: That pursuant to such authority expressly vested in the Board
of Directors of the Corporation, said Board of Directors duly adopted the
resolution set forth below, providing for the designation and issuance of one
hundred thousand (100,000) shares of Series B Convertible Preferred Stock, $.01
par value per share:
RESOLVED, that this Board of Directors, pursuant to authority expressly
vested in it by the provisions of the Certificate of Incorporation of the
Corporation, hereby authorizes the issue from time to time of a series of
Preferred Stock of the Corporation (which series shall be in addition to any
other series of preferred stock of the Corporation otherwise authorized) and
hereby fixes the designations, preferences and the relative, participating,
optional or other rights, and the qualifications, limitations or restrictions
thereof, in addition to those set forth in said Certificate of Incorporation, to
be in their entirety as follows:
Section 1. Number of Shares and Designation. One hundred thousand
(100,000) shares of the preferred stock, $.01 par value, of the Corporation are
hereby constituted as a series of preferred stock of the Corporation designated
as "Series B Convertible Preferred Stock" (the "Series B Preferred Stock"). The
Series B Preferred Stock will rank senior in all respects to all other equity
securities of the Corporation.
Section 2. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of each share of Series B Preferred Stock outstanding
on the date of such liquidation, dissolution or winding up of the affairs of the
Corporation shall be entitled to receive, prior to and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock of the Corporation, par value $.01 per share (the
"Common Stock"), or any other class of Preferred Stock of the Corporation, by
reason of their ownership thereof, an amount equal to one hundred dollars
($100.00) per share (the "Liquidation Value") of each share of Series B
Preferred Stock
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<PAGE>
held by the holders (subject to adjustment for stock splits, combinations,
reclassifications or similar events affecting such shares).
All of the preferential amounts to be paid to the holders of the Series
B Preferred Stock under this Section 2 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of the Common
Stock or any other class or series of Preferred Stock in connection with such
liquidation, dissolution or winding up. After the payment or the setting apart
for payment to the holders of the Series B Preferred Stock of the preferential
amounts so payable to them and the preferential amounts payable to any other
classes or series of Preferred Stock, the holders of the Series B Preferred
Stock, shall be entitled to receive, pro rata with the Common Stock, as if the
Series A Preferred Stock and any such other applicable class or series of
Preferred Stock are converted into the number of shares of Common Stock into
which the Series B Preferred Stock, and other such class or series of Preferred
Stock, are then convertible pursuant to the Certificate of Incorporation of the
Corporation and the applicable Certificate of Designations, Powers, Preferences
and Rights of such Series of Preferred Stock (as amended, to the extent
applicable), all remaining assets of the Corporation. If the assets or surplus
funds to be distributed to the holders of the Series B Preferred Stock are
insufficient to permit the payment to such holders of their full preferential
amount, the assets and surplus funds legally available for distribution shall be
distributed ratably among the holders of the Series B Preferred Stock in
proportion to the full preferential amount each such holder is otherwise
entitled to receive.
Section 3. Merger, Consolidation, Sale of Assets. Any merger or
consolidation of the Corporation with or into another corporation in which the
Corporation shall not survive, or the sale or transfer of all or substantially
all of the assets of the Corporation to another entity, or a merger or
consolidation in which the Corporation is the survivor but its Common Stock is
exchanged for stock, securities or property of another entity shall be treated
as a liquidation, dissolution or winding up of the Corporation and shall entitle
the holder of Series B Preferred Stock to receive at the closing, in cash,
securities or other property, amounts as specified in Section 2.
Section 4. Conversion into Common Stock. The holder of any shares of
the Series B Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series B Preferred Stock shall be
convertible, without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Series B Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the
Liquidation Value by the Conversion Price, determined as hereinafter provided,
with respect to such shares. The Conversion Price in effect initially shall be
$0.20 per share (subject to adjustment pursuant to Section 7.2 of that certain
Series B Convertible Preferred Stock Purchase Agreement, dated as of February 1,
1999 (the "Purchase Agreement"), by and among the Corporation and the Purchasers
named therein). Notwithstanding the foregoing, in the event that the
Corporation, within eighteen months from the Initial Closing (as such term is
defined in the Purchase Agreement), issues and sells not less than an aggregate
of $1 million of additional shares of Common Stock (or securities convertible
into Common Stock) other than Excluded Stock (as hereinafter defined) to
financial investors (whether individual or institutional) for a consideration
per share of Common Stock of less than $0.20, then and in such event, the
Conversion Price in effect with respect to the Series B Preferred Stock shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) equal to the consideration per share for which such additional shares are
issued and sold. As used in this Section 4(a), "Excluded Stock" shall mean (i)
shares of Common Stock (or securities convertible into Common Stock) or options
for the purchase of Common Stock issued, sold or granted by the Corporation to
any of its employees, directors or consultants pursuant to a bona fide employee
stock purchase, option or similar benefit plan or incentive program or other
compensation arrangement approved by the Board of Directors of the Corporation
or (ii) shares of Common Stock (or securities convertible into Common Stock)
issued, sold or granted to joint venturers, partnering entities or other
companies with which the Corporation has a relationship involving or pertaining
to product development, or the manufacturing, development, marketing or
repackaging of products or any analogous relationship. The Conversion Price at
which shares of Common Stock shall be deliverable upon conversion of Series B
Preferred Stock without the payment of any additional consideration by the
holder thereof, shall be subject to adjustment, in order to adjust the number of
shares of Common Stock into which the Series B Preferred Stock is convertible,
as provided in this Section 4.
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<PAGE>
(b) Mechanics of Conversion. No fractional shares of Common Stock shall
be issued upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall round the share amount to the nearest whole share number.
Before any holder of Series B Preferred Stock shall be entitled to receive
certificates representing shares of Common Stock issuable upon conversion of the
Series B Preferred Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series B Preferred Stock, and shall give written notice
to the Corporation at such office in the manner specified in the Purchase
Agreement (which notice shall be irrevocable once tendered, unless otherwise
agreed to in writing by the Corporation) that such holder elects to convert the
same, and shall state therein such holder's name or the name or names of such
holder's nominees in which such holder wishes the certificate or certificates
for shares of Common Stock to be issued. The Corporation shall, as soon as
practicable after receipt of the certificate(s) representing Series B Preferred
Stock, issue and deliver at such office to such holder of Series B Preferred
Stock, or to such holder's nominee or nominees, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled
as aforesaid, together with cash in lieu of any fraction of a share, and a
certificate or certificates for such shares of Series B Preferred Stock as were
represented by the certificates surrendered and not converted. Conversions
pursuant to Section 4(a) shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of the shares of Series B
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as of
the close of business on such date.
(c) Adjustment to Conversion Price for Stock Splits, Combinations,
Dividends and Distributions.
(i) Stock Splits and Combinations. In the event the
Corporation shall at any time or from time to time effect a subdivision
of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased,
and, conversely, in the event the Corporation shall at any time or from
time to time combine the outstanding shares of Common Stock, the
Conversion Price then in effect immediately before the combination
shall be proportionately increased. Any adjustment pursuant to this
Section 4(c)(i) shall become effective at the close of business on the
date the subdivision or combination becomes effective.
(ii) Dividends and Distributions of Common Stock. In the event
the Corporation at any time or from time to time shall make or issue,
or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the
Conversion Price then in effect shall be decreased as of the time of
such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying
the Conversion Price then in effect by a fraction:
(x) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date, and
(y) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on
the date fixed therefor, the Conversion Price shall be recomputed
accordingly as of the close of business on such record date and
thereafter the Conversion Price shall be adjusted pursuant to this
Section 4(c)(ii) as of the time of actual payment of such dividends or
distributions.
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<PAGE>
(iii) Other Dividends and Distributions. In the event the
Corporation at any time or from time to time shall make or issue, or
fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then
and 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 thereupon,
the amount of securities of the Corporation that they would have
received had their Series B Preferred Stock been converted into Common
Stock on the date of such event and had thereafter, during the period
from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such
period giving application to all adjustments called for during such
period under this Section 4 with respect to the rights of holders of
the Series B Preferred Stock.
(d) Adjustment for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon the conversion of the Series B Preferred Stock shall
be changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for in Section 4(c), or a reorganization, merger, consolidation or sale of
assets provided for in Section 3, then and in each such event the holder of each
share of Series B Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Series B Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided in this Section 4.
(e) No Impairment. The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Section 4 by the Corporation
but shall at all times in good faith assist in the carrying out of all the
provisions of this Section 4 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Series B Preferred Stock that by its terms is convertible against
impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Series B Preferred
Stock pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of the Series B Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of such Series B Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Conversion Price at the time in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon the conversion of the
Series B Preferred Stock.
(g) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, the Corporation shall mail to each
holder of Series B Preferred Stock, at least ten (10) days prior to the date
specified herein, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution.
(h) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
the Series B Preferred Stock, and all other shares of all classes or series of
Preferred Stock which are then convertible into Common Stock. If the Conversion
Price of the Series B Preferred Stock is at any time less than the par value of
the Common Stock, the Corporation shall cause to be taken such action (whether
by lowering the par value of the Common Stock, by converting the Common Stock
from par value to no par value, or otherwise) as will permit the conversion of
the Series B Preferred Stock without any additional
18
<PAGE>
payment by the holder thereof and the issuance of the Common Stock, which Common
Stock, upon issuance, will be fully paid and nonassessable.
Section 5. Redemption.
(a) Redemption at the Option of the Corporation. The Corporation, at
the option of the Board of Directors, may, at any time and from time to time
upon written notice (which notice shall specify the date and place of redemption
and the number of shares and the certificate numbers thereof which are to be
redeemed) given not less than twenty (20) nor more than ninety (90) days prior
to the date fixed for redemption, redeem all or any part of the outstanding
shares of the Series B Preferred Stock by paying therefor in cash the
Liquidation Value for each share, provided, however, that (i) the market price
of a share of Common Stock is equal to or greater than an amount equal to 500%
of the then applicable Conversion Price and (ii) the Common Stock has traded on
the principal market for the Common stock with an average daily volume in excess
of 50,000 shares for a period of 30 consecutive trading days. At least two
business days prior to the redemption date specified in such notice, each holder
of the Series B Preferred Stock may give the Corporation written instructions
with respect to the application of funds legally available for redemption of
such holder's shares of the Series B Preferred Stock.
(b) Redemption at the Option of the Holder. In the event (i) that the
Corporation breaches or fails to comply with its obligations under this
Certificate of Designations or the Purchase Agreement, which breach or failure
is material or has a material adverse effect on the business or prospects of the
Corporation, and such breach or failure of compliance continues for a period of
thirty (30) days after notice thereof has been given to the Corporation, (ii) of
a sale of all or substantially all of the assets of the Corporation, (iii) of an
occurrence which causes the Corporation to become insolvent or (iv) that the
Corporation goes "private," then each holder of shares of the Series B Preferred
Stock shall be entitled to compel the Corporation to redeem any or all of such
holder's shares of the Series B Preferred Stock; provided that such redeeming
holder shall have given written notice thereof to the Corporation at least
thirty (30) days prior to the requested date of redemption. Such notice shall
state the number of shares of the Series B Preferred Stock to be redeemed. On or
after the redemption date, as specified in such notice, the holder requesting
redemption shall surrender such holder's certificate for the number of shares to
be redeemed as stated in the notice to the Corporation. On such redemption date,
to the extent the Corporation shall have funds legally available therefor, the
Corporation shall redeem the shares of the Series B Preferred Stock requested to
be redeemed at the Liquidation Value. To the extent there are insufficient funds
legally available for redemption of all shares of Series B Preferred Stock
requested to be redeemed, legally available funds shall be applied to each
holder's shares of Series B Preferred Stock pro rata in accordance with the
number of shares requested to be redeemed by each holder of shares of Series B
Preferred Stock, and each holder's shares shall be redeemed in accordance with
the instructions received from such holder or, if no instructions are received
from a holder, such holder's shares of Series B Preferred Stock shall be
redeemed pro rata in accordance with the number of shares of Series B Preferred
Stock held by such holder. As soon as practicable, the Corporation shall give
written notice to each holder of shares of Series B Preferred Stock redeemed or
to be redeemed indicating the number of shares redeemed or to be redeemed and
the certificate numbers thereof. If less than all of the shares of Series B
Preferred Stock requested to be redeemed are redeemed, all unredeemed shares
shall remain outstanding and shall be entitled to all the rights and preferences
of outstanding shares of Series B Preferred Stock hereunder. In case less than
all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares without cost to
the holder thereof.
(c) Legally Available Funds. For the purpose of determining whether
funds are legally available for redemption of shares of Series B Preferred Stock
as provided herein, the Corporation shall value its assets at the highest amount
permissible under applicable law. If on any redemption date funds of the
Corporation legally available therefor shall be insufficient to redeem all the
shares of the Series B Preferred Stock required to be redeemed as provided
herein, funds to the extent legally available shall be used for such purpose and
the Corporation shall apply such funds to each holder's shares of Series B
Preferred Stock pro rata according to the number of shares held by each holder
of Series B Preferred Stock, and each holder's shares shall be redeemed in
accordance with the instructions received from such holder or, if no
instructions are received from a holder, such holder's shares of Series B
Preferred Stock shall be redeemed pro rata in accordance with the number of
shares of Series B Preferred Stock held by such holder.
19
<PAGE>
(d) Termination of Conversion. In the event the Corporation has mailed
written notice of redemption to the holders of record of shares of the Series B
Preferred Stock in accordance with the terms of Section 5(a) hereof, the
holder's right to convert such shares called for redemption shall cease at the
close of business on the redemption date, unless the Corporation defaults in the
payment of the redemption price.
Section 6. Voting Rights. In addition to the voting rights required by
the laws of the State of Delaware and by Section 7, the holders of shares of
Series B Preferred Stock shall vote, as a single class with all other
stockholders of the Corporation, on all matters voted on by the stockholders of
the Corporation, with each such holder of Series B Preferred Stock entitled to
the number of votes equal to the number of shares of Common Stock into which
such holder's shares would then be convertible. Except as set forth herein or in
the Purchase Agreement, or as otherwise provided by law, holders of Series B
Preferred Stock shall have no special voting rights and their consent shall not
be required for taking any corporate action. These voting rights will apply
notwithstanding that an insufficient number of shares of Common Stock may be
reserved for issuance upon conversion of the Series B Preferred Stock.
Section 7. Covenants. So long as any of the shares of Series B
Preferred Stock authorized hereby shall be outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of the
holders of not less than a majority of such outstanding shares of Series B
Preferred Stock:
(a) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws if such
action would alter or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, the Series
B Preferred Stock;
(b) reclassify any Common Stock into shares having any
preference or priority as to assets superior to or on a parity with any
such preference or priority of the Series B Preferred Stock; or
(c) create or issue any securities of the Corporation which
have equity features and which rank on a parity with or senior to the
Series B Preferred Stock upon liquidation or other distribution of
assets.
Section 8. Status of Converted or Reacquired Stock. Any shares of
Series B Preferred Stock purchased, redeemed or otherwise acquired by the
Corporation in any manner whatsoever, and any shares of Series B Preferred Stock
converted pursuant to Section 4 hereof shall be retired and canceled promptly
after the acquisition or conversion thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock subject to the conditions
and restrictions on issuance set forth herein, in the Certificate of
Incorporation, or in any other Certificate of Designations creating a series of
Preferred Stock or any similar stock or as otherwise required by law.
Section 9. Preemptive Rights.
(a) Except (i) for issuances stock issued to employees,
officers or directors in connection with management options or
incentive plans approved by the Board of Directors and (ii) stock
issued in connection with any merger, acquisition or business
combination, the holders of the Series B Preferred Stock, in order to
enable such holders to maintain their fully diluted percentage
ownership of the Corporation, shall have preemptive rights, as
hereinafter set forth, to purchase any capital stock, including
warrants or securities convertible into capital stock, of the
Corporation hereafter issued by the Corporation so that a holder of the
Series B Preferred Stock shall hereafter be entitled to acquire a
percentage of capital stock which is hereafter issued equal to the same
percentage of the issued and outstanding Common Stock as is held
(directly or obtainable upon conversion of the Series B Preferred
Stock) by such holder of Series B Preferred Stock immediately prior to
the date on which the capital stock is to be issued on a fully diluted
basis.
(b) The Corporation shall, before issuing any additional
capital stock (other than the exceptions referred to in Section 9(a)
above), give written notice thereof to the holders of the Series B
Preferred Stock. Such notice shall specify what type of instrument the
Corporation intends to issue and the consideration which the
Corporation intends to receive therefor. For a period of twenty (20)
days following
20
<PAGE>
receipt of by the holders of the Series B Preferred Stock of such
notice, the Corporation shall be deemed to have irrevocably offered to
sell to the holders of the Series B Preferred Stock a sufficient number
of shares of such capital stock so that the holders of the Series B
Preferred Stock, if such holders elects to acquire such shares as
hereinafter set forth, shall be capable of acquiring the same
percentage of such shares as the percentage of Common Stock
beneficially owned (directly or obtainable upon conversion of the
Series B Preferred Stock) by such holders immediately prior to the
proposed issuance on a fully diluted basis. In the event any such offer
is accepted, in whole or in part, by the holders of the Series B
Preferred Stock, the Corporation shall sell such shares to the holders
of the Series B Preferred Stock for the consideration and on the
precise terms set forth in the Corporation's notice (given under the
first two sentences of this paragraph). In the event that one or more
holders of the Series B Preferred Stock elects not to, or fails to,
exercise its rights under this Section within the twenty (20) day
period, then the Corporation may issue the remaining shares of capital
stock to third persons but only for the same consideration set forth in
the Corporation's notice (given under the first two sentences of this
paragraph) and no later than ninety (90) days after the expiration of
such twenty day period. The closing for such transaction shall take
place as proposed by the Corporation with respect to the shares of
capital stock proposed to be issued at which closing the Corporation
shall deliver certificates for the shares of capital stock in the
respective names of the holders of he Series B Preferred Stock against
receipt of the consideration therefor.
(c) Notwithstanding any other provision hereof, the preemptive
rights granted to holders of Series B Preferred Stock by this Section
shall terminate with respect to a share of Series B Preferred Stock
upon the conversion or redemption of such share of Series B Preferred
Stock in accordance with the provisions hereof.
THIRD: That said determination of the designation, preferences and the
relative, participating, optional or other rights, and qualifications,
limitations or restrictions thereof, relating to said Series B Convertible
Preferred Stock, was duly made by the Board of Directors pursuant to the
provisions of the Certificate of Incorporation of the Corporation, as amended,
and in accordance with the provisions of Section 151 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, Cambio Inc. has caused this Certificate of the
Designations, Powers, Preferences and Rights of the Series B Convertible
Preferred Stock (par value $.01 per share) of Cambio Inc. to be executed and
attested this 5th day of May, 1999.
Cambio Inc.
By: /s/ Ali Al-Dahwi
----------------------
Name: Ali Al-Dahwi
Title: President and Chief
Executive Officer
21
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