SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-8
REGISTRATION STATEMENT
Under the Securities Act of 1933
MAGNITUDE INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2228828
State or other jurisdiction of (Primary Standard Industrial (I.R.S.Employer
incorporation of organization) Classification Code Number) Identification No.)
50 Tannery Road
Branchburg, New Jersey 08876
(908) 534-6400
(Address and Telephone Number of Registrant's Principal (Zip Code)
Executive Office)
Resignation Agreement with Michael G. Martin
(700,000 shares of common stock)
(Full title of the plans)
Steven D. Rudnik, President
50 Tannery Road
Branchburg, New Jersey 08876
(908) 534-6400
(Name, Address and Telephone number, including area code, of agent for service)
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Copies to:
Joseph J. Tomasek, Esq.
77 North Bridge Street
Somerville, New Jersey 08876
(908) 429-0030
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Amount maximum maximum Amount of
securities to to be offering price aggregate registration
be registered registered per share (1) offering price (1) fee
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<S> <C> <C> <C> <C> <C>
Common Stock (1) 700,000 $0.90 $630,000 $191.00
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</TABLE>
(1) Calculated in accordance with 457(c) using the closing price for the common
stock on January 28, 2000.
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Part I - Information Required in the Section 10(a) Prospectus
The documents containing information specified in Part I (plan
information and registrant information) will be sent or given to the consultants
and employees as specified by Rule 428(b)(1). Such documents need not be filed
with the Securities and Exchange Commission either as part of this registration
statement or as prospectuses or prospectus supplements pursuant to Rule 424. The
documents and the documents incorporated by reference in this registration
statement pursuant to Item 3 of Part II of this form taken together constitute a
prospectus that meets the requirements of Section 10(a) of the Securities Act of
1933.
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MAGNITUDE INFORMATION SYSTEMS, INC.
700,000 shares of common stock
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Certain officers, directors, employees and consultants of Magnitude
Information System may sell up to 700,000 shares of common stock.
Magnitude Systems will not receive any proceeds from
this offering.
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Please see the risk factors beginning on page 7 to read about certain
factors you should consider before buying shares of common stock.
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Magnitude Information System's, Inc's common stock is quoted on the
OTC Bulletin Board under the symbol MAGY. On January 28, 2000 the last sale
price of the common stock as reported on the Bulletin Board was $.90
The mailing address of our principal executive offices is 50 Tannery
Road, Branchburg, New Jersey 08876.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined that this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
The date of this prospectus is February 1, 2000.
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TABLE OF CONTENTS
The Company . . . . . . . . . . . . . . . . . . . . . . .. . . .. . 6
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Available Information . . . . . . . . . . . . . . . . . . . . . . . 9
Incorporation of Certain Documents by Reference . . . . . .. . ......9
Selling Securityholders . . . . . . . . . . . . . . . . . .. . . . 11
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . 12
Description of Securities . . . . . . . . . . . . . . . . .. . . .. 13
Transfer Agent and Registrar . . . . . . . . . . . . . . . . . . . 16
Legal Matters . . . . . . . . . . . . . . . . . . . . . . .. . . . . 16
Experts . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 16
Indemnification of Directors and Officers . . . . . . . . .. . . . 16
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The Company
Magnitude Information Systems, Inc. (the "Company" or "Magnitude") was
incorporated as a Delaware corporation on April 19, 1988 under the name
Fortunistics Inc. On March 4, 1993, the Company changed its name to Whitestone
Industries, Inc. On July 14, 1997, the Company changed its name to Proformix
Systems, Inc., and on November 18, 1998, the Company changed its name to
Magnitude Information Systems, Inc. .
The Company's primary product is an integrated suite of proprietary
software modules marketed under the name "Magnitude EMS" (Ergonomic Management
System) which are designed to help individual computer users and businesses deal
with potentially preventable repetitive stress injury (RSI). These software
modules can be applied individually or together in a comprehensive ergonomic and
early intervention program that seeks to modify a user's behavior by monitoring
computer usage patterns over time and warning the user when to break a dangerous
trend in repetitive usage of an input device, such as a keyboard or mouse. The
product was developed to train people working on computers, monitor computer-use
related activities and evaluate a user's risk exposure and propensity towards
injury or loss of effectiveness in connection with his/her day-to-day work.
Moreover, the software enables a company to not only address the issue of health
risks involving employees and to minimize resulting potential liabilities, but
delivers a powerful tool to increase overall productivity.
BACKGROUND
On June 24, 1997, the Company entered into an acquisition agreement whereby
it acquired substantially all of the outstanding stock of Proformix, Inc., a
Delaware corporation and manufacturer of ergonomic keyboarding systems.
Proformix, Inc. in November 1998 changed its name to Magnitude, Inc. and is
hereafter referred to as Magnitude, Inc.. The Company and Magnitude, Inc. remain
as two separate legal entities whereby Magnitude, Inc. operates as a subsidiary
of Magnitude Information Systems, Inc.. The operations of the newly combined
entity are currently comprised solely of the operations of Magnitude, Inc.
On February 2, 1998, the Company entered into an Agreement and Plan of
Merger with Rolina Corporation, a privately held New Jersey software developing
firm, and on April 30, 1998, into an Asset Purchase Agreement with Vanity
Software Publishing Co., a Canadian developer of specialized software, whereby
the Company, in return for payments in form of cash and equity, acquired the
rights to certain software products and related assets, with such software
products subsequently forming the basis for the further development during the
year of the Company's proprietary "Magnitude EMS" (Ergonomic Management System)
software product. The "Magnitude EMS" system was introduced to the market in
November 1998 and has since been expanded and enhanced through newer releases.
On November 18, 1998, the Company and its wholly owned subsidiary
Magnitude, Inc. entered into an Asset Purchase Agreement and several related
agreements with 1320236 Ontario Inc. ("OS"), a publicly traded Canadian
designer, manufacturer and distributor of office furniture pursuant to which OS
acquired Magnitude, Inc.'s hardware product line comprised of ergonomic keyboard
platform products and accessories, and all related inventory and production
tooling and warehousing assets, and all intellectual property rights including
the Proformix name, against a cash consideration and an ongoing contingent
stream of royalty payments on OS' sales of the Proformix hardware products. With
the sale of the hardware product line, the Company's business is now focused
exclusively on the further development and marketing of its new software
products. Recently proposed Federal OSHA workplace ergonomics regulations
involving mandatory compliance guidelines for industry where potentially
preventable repetitive stress injuries occur have opened a potentially very
large market for the Company's products. This development comes against the
backdrop of a Notice of Allowance by the US Patent and Trademark Office
on the Company's patent application for its Magnitude EMS software.
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Risk Factors
Substantial Competition.
The computer software industry and products developed for the
computer workplace face intense competition. We will be at a competitive
disadvantage in seeking to compete with other companies having more assets,
larger technical staffs, established market shares and greater financial and
operational resources than us. There can be no assurance that we will be able to
meet the competition and operate profitably.
Possible Loss of Entire Investment.
The common stock offered hereby is highly speculative,
involves a high degree of risk and should not be purchased by any person who
cannot afford the loss of his entire investment. A purchase of our common stock
in this offering would be unsuitable for a person who cannot afford to sustain
such a loss.
Dependence Upon Key Personnel.
We are substantially dependent upon the continued services of
Steven D. Rudnik, our President and Chief Executive Officer. The loss of the
services of Mr. Rudnik through incapacity or otherwise would have a material
adverse effect upon our business and prospects. To the extent that his services
become unavailable, we will be required to retain other qualified personnel, and
there can be no assurance that we will be able to recruit and hire qualified
persons upon acceptable terms. We do not maintain key person life and disability
insurance on the life of Mr. Rudnik.
Possible Volatility of Stock Prices.
There can be no assurance that a pubic market price for the
common stock will continue. The market prices of the common stock may be
significantly affected by factors such as announcements by us or our
competitors, as well as variations in our results of operations and market
conditions in general. The market price may also be affected by movements in
prices of stocks in general. The relatively limited amount of publicly trading
shares (float) renders our securities especially susceptible to sharp price
fluctuations.
Penny Stock Regulations
The Securities Enforcement Penny Stock Act of 1990 requires
specific disclosure to be made available in connection with trades in the stock
of companies defined as "penny stocks". The Commission has adopted regulations
that generally define a penny stock to be any equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. Such
exceptions include any equity security listed on NASDAQ and any equity security
issued by an issuer that has (I) net tangible assets of at least $2,000,000, if
such issuer has been in continuous operation for three years; (ii) net tangible
assets of at least $5,000,000, if such issuer has been in continuous operation
for less than three years; or (iii) average annual revenue of at
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least $6,000,000, if such issuer has been in continuous operation for less than
three years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risk associated therewith as
well as the written consent of the purchaser of such security prior to engaging
in a penny stock transaction. The regulations on penny stocks may limit the
ability of the purchasers of our securities to sell their securities in the
secondary marketplace. Our common stock is currently considered a penny stock.
The Year 2000.
State of Readiness
We are dependent upon computers to operate our business and
therefore are exposed to Year 2000 ("Y2K") problems. In the fall of 1998, we
initiated a Y2K compliance program with the following objectives; (I) updating
and/or replacing aging hardware; and (ii) assuring company-wide Y2K compliance.
With the assistance of outside consultants, we have identified
that the computer systems used for accounting purposes were not Y2K compliant.
In order to make these systems compliant, we elected to replace the software
utilized. The new software was installed during the second quarter of 1999. As a
result of our preparations, we have not experienced any material Y2K problems
since the beginning of the year 2000.
Cost.
The total costs for achieving Y2K compliance were less than
$10,000. Most of this cost was due to the acquisition of Y2K compliant software
and replacement of certain computer hardware.
Risks Associated with Forward Looking Statements.
This prospectus contains "forward-looking statements" which
can be identified by the use of words such as "intend," "anticipate," "believe,"
"estimate," "project," or "expect" or similar statements. The statements in
"Risk Factors" are cautionary statements. They identify important factors with
respect to forward-looking statements, that could cause actual results to differ
materially from those forecasted in such statements. All forward-looking
statements in this prospectus are expressly qualified in their entirety by the
cautionary statements in this paragraph.
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Available Information
We are a voluntary reporting company and file current,
quarterly and annual reports with the Securities and Exchange Commission in
compliance with the informational requirements of the Securities Exchange Act of
1934 (the "1934 Act"). However, our common shares are not registered under the
1934 Act. As a result, our proxy statements are not filed with the Securities
and Exchange Commission but are prepared in accordance with the laws of the
State of Delaware. In addition, because our common shares are not registered
under the 1934 Act, our officers and directors as well as any holders of 10% or
more of our common stock are not required to file individual reports describing
their common stock holdings in our Company or changes in their ownership
positions. Our current, quarterly and annual reports can be inspected and copied
at the Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Room 1204, Everett McKinley Dirksen Building, 219 South Dearborn
Street, Chicago, Illinois 60604; and 7 World Trade Center, Suite 1300 New York,
New York 10048. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission at its principal office at
450 fifth Street, N.W., Washington, D.C. 20549. Information on the operation of
the Public Reference Room can be obtained by calling the Commission at
1-800-SEC-0330. Such reports and other information may also be inspected without
charge at a website maintained by the Commission. The address of the website is
http://www.sec.gov.
This prospectus does not contain all of the information set
forth in the registration statement of which this prospectus is a part and which
we have filed with the Commission. For further information with respect to us
and the securities offered hereby, reference is made to the registration
statement, including the exhibits filed as a part thereof, copies of which can
be inspected at, or obtained at prescribed rates from the Public Reference
Section of the Commission at the address set forth above. Additional updating
information with respect to us may be provided in the future by means of
appendices or supplements to the prospectus.
We hereby undertake to provide without charge to each person
to whom a copy of this prospectus is delivered, upon written or oral request of
such person, a copy of any and all of the information that has been or may be
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into such documents).
Requests should be directed to Magnitude Information Systems, Inc., 50 Tannery
Road, Branchburg, New Jersey 08876 (908) 534-6400.
Incorporation of Certain Documents by Reference
We hereby refer to the following documents previously filed by
Magnitude Information Systems with the Securities and Exchange Commission, and
incorporated these documents in this prospectus:
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(a) Annual Report on Form 10-KSB for its fiscal year ended December 31, 1998;
(b) Quarterly Reports on Forms 10-QSB for the periods ended March
31, 1999, June 30, 1999 and September 30, 1999;
(c) All other reports filed pursuant to Section 13(a) and 15(d) of
the Exchange Act since our fiscal year ended December 31,
1998. All documents filed by us with the Commission pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
hereto, but prior to the termination of the offering of securities made
by this prospectus shall be deemed to be incorporated by reference
herein and to be part hereof from their respective dates of filing.
Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this prospectus, to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this prospectus.
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Selling Securityholders
This prospectus covers common stock that has been issued to
the selling securityholders, or may be acquired upon exercise of stock options
held by the selling securityholders, named herein or to be supplementally named,
as of January 31, 2000.
The following table sets forth as of January 31, 2000 certain
information with respect to the selling securityholder, Michael G. Martin.
Magnitude Information Systems will not receive any of the proceeds from the
sale of the common stock
. Securities Securities
Owned Prior Securities Owned
to Offering (1) Offered Herein After Offering (2)
--------------- -------------- --------------------
Name of Selling
Securityholder Common Stock Common Stock Amount %
Michael G. Martin, 1,450,000(3) 700,000 750,000 6.72 %
Former Chairman
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(1) For purposes of this table, each person listed above is deemed to own
shares of common stock if he has the right to acquire the common stock
within 60 days of January 28, 2000. For purposes of computing the
percentage of outstanding shares of common stock held by each selling
securityholder, any security which they have the right to acquire
within such date is deemed to be outstanding. Except as indicated in
the footnotes to this table and pursuant to applicable community
property laws, we believe, based on information supplied by selling
securityholder, that they have sole voting and investment power with
respect to all the shares of common stock which they own.
(2) For purposes of this table, the number and percentage of common stock
owned after the offering presumes the sale of all the common stock
offered herein.
(3) Includes stock options to purchase 750,000 shares of common stock.
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Plan of Distribution
Each selling securityholder may offer and sell the shares of
common stock from time to time at their discretion on the OTC Bulletin Board, or
otherwise, at prices and at terms then prevailing or at prices related to the
then current market price, or at negotiated prices. The distribution of the
shares of common stock may be effected from time to time in one or more
transactions including, without limitation; (a) a block trade in which the
broker-dealer so engaged will attempt to sell the common stock as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) face-to-face or other direct transactions between the selling
securityholder and purchasers without a broker-dealer or other intermediary. In
effecting sales, broker-dealers or agents engaged by a selling securityholder
may arrange for other broker-dealers or agents to participate. From time to
time, the selling securityholder may pledge, hypothecate or grant a security
interest in some or all of the common stock owned by him, and the pledgees,
secured parties or persons to whom such securities have been hypothecated shall,
upon foreclosure in the event of default, be deemed to be selling
securityholders hereunder. In addition, the selling securityholder may from time
to time sell short the common stock, and in such instances, this prospectus may
be delivered in connection with such short sale and the common stock offered
hereby may be used to cover such short sale.
Sales of the common stock may also be made pursuant to Rule
144 under the Securities Act of 1933, as amended, where applicable. The selling
securityholders' shares may also be offered in one or more underwritten
offerings, on a firm commitment or best efforts basis. Magnitude Information
Systems will not receive proceeds from the sale of the selling securityholders'
common stock.
From time to time, the selling securityholder may transfer,
pledge, donate or assign its common stock to lenders, family members and others
and each of such persons will be deemed to be a selling securityholder for
purposes of this prospectus. The plan of distribution for the selling
securityholders' shares of common stock sold hereunder will otherwise remain
unchanged, except that the transferees, pledgees, donees or other successors
will be selling securityholders hereunder.
Including, and without limiting the foregoing, in connection
with distributions of the common stock, selling securityholders may enter into
hedging transactions with broker-dealers and the broker-dealers may engage in
short sales of the common stock in the course of hedging the positions he
assumes. They may also enter into option or other transactions with
broker-dealers that involve the delivery of the common stock to the
broker-dealers, who may then resell or otherwise transfer such common stock. The
selling securityholder may also loan or pledge the common stock to a
broker-dealer and the broker-dealer may sell the common stock so loaned or upon
default may sell or otherwise transfer the pledged common stock.
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Under applicable rules and regulations under the Exchange Act,
any person engaged in the distribution of the common stock may not bid for or
purchase shares of common stock during a period which commences one business day
(5 business days, if Magnitude Information Systems, Inc.'s float is less than
$25 million or its average daily trading volume is less than $100,000) prior to
the selling securityholder's participation in the distribution, subject to
exceptions for certain passive market making activities. In addition and without
limiting the foregoing, the selling securityholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M which provisions may
limit the timing of purchases and sales of shares of the common stock by them.
Magnitude Information Systems is bearing all costs relating to
the registration of the shares of common stock (other than fees and expenses, if
any, of counsel or other advisors to the selling securityholders). Any
commissions, discounts or other fees payable to broker-dealers in connection
with any sale of the shares of common stock will be borne by them.
Description of Securities
Our authorized capital stock consists of (i) 30,000,000 shares
of common stock, $.0001 par value per share; (ii) 3,000,000 shares of preferred
stock, of which 2,500 shares have been designated as cumulative preferred stock,
$.001 par value; 300,000 shares have been designated as Series A Senior
Convertible Preferred Stock; 350,000 shares have been designated as Series B
Senior Convertible Preferred Stock, and; 120,000 shares have been designated as
Series C Senior Convertible Preferred Stock.
Common Stock
Holders of common stock are entitled to one vote per share on
each matter submitted to vote at any meeting of shareholders. Shares of common
stock do not carry cumulative voting rights and therefore, holders of a majority
of the outstanding shares of common stock will be able to elect our entire board
of directors. Our board of directors have authority, without action by our
shareholders, to issue all or any portion of the authorized but unissued shares
of common stock, which would have the effect of reducing our shareholders
percentage of ownership and diluting the book value of the common stock.
Shareholder have no preemptive rights to acquire additional
shares of common stock. The common stock is not subject to redemption and
carries no subscription or conversion rights. In the event of our liquidation,
the holders of common stock are entitled to share equally in corporate assets
after the holders, if any, of preferred stock and after satisfaction of
liabilities. Holders of common stock are entitled to receive such dividends as
our board of directors may from time to time declare out of funds legally
available for such payment and after the cumulative preferred stock have been
satisfied. We have never paid cash dividends on our common stock and do not
anticipate that we will pay dividends in the future.
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Our shareholders have no preemptive rights to acquire
additional shares of common stock. The common stock is not subject to redemption
and carries no subscription or conversion rights. In the event of our
liquidation, the holders of shares of common stock are entitled to share equally
in corporate assets after the holders of preferred stock, described below, and
after satisfaction of liabilities. Holders of common stock are entitled to
receive such dividends as our board of directors may from time to time declare
out of funds legally available for the payment thereof after we have met all of
our obligations to pay all of the dividends required to be paid to the holders
of our preferred stock. We have never paid cash dividends on our common stock
and do not anticipate that we will pay such dividends in the future.
Preferred Stock
Cumulative Preferred Stock
We have authorized 2,500 shares of cumulative preferred stock,
of which 10 shares are outstanding. We anticipate exchanging all but one of
these shares for common and other preferred stocks. The cumulative preferred
stock does not have voting rights. The cumulative preferred stock ranks above
the common stock with respect to dividend rights, liquidation, dissolution and
redemption.
Series A Senior Convertible Preferred Stock
We have authorized 300,000 shares of Series A Senior
Convertible Preferred Stock (the "Series A Preferred" stock or shares). We
anticipate issuing part or all of the shares to certain creditors of our
Company, exchanging a certain amount of Series A Preferred shares for debt
obligations of the Company. The holders of the shares of Series A Preferred
stock will be entitled to receive cumulative annual dividends at the rate of 7%
during the first year after issuance, with this dividend rate increasing by
increments of one-half of one percent for every year thereafter until the rate
reaches 10% where the dividend rate will remain. The dividends will be payable
to the holders of the Series A Preferred stock semi-annually when declared by
our board of directors. The dividends payable to the holders of the Series A
Preferred stock and the liquidation rights of these securities rank prior to and
are superior to all classes and series of our common stock and of our Cumulative
Preferred Stock but are equal in rank to our Series B Senior Convertible
Preferred Stock and to our Series C Senior Convertible Preferred Stock described
below.
Except as is required by Delaware Law, the holders of Series A
Preferred do not have voting rights. The shares of Series A Preferred are
"convertible" into shares of our common stock at the option of the holder at a
conversion rate equal to 150% of the average trading price of our common shares
over a 20-day trading period before the date of issuance. We have the right to
buy back, or redeem part or all of these Series A Preferred shares, on an equal
and prorated basis, three years after we issue these shares by paying to the
holders the "Liquidation Price", or $5.00, per share together with a 15% "call
premium", or $0.75, for each share of the Series A Preferred we want to redeem.
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Series B Senior Convertible Preferred Stock
We have authorized 350,000 shares of Series B Senior
Convertible Preferred Stock (the "Series B Preferred" stock or shares). We
anticipate issuing part or all of the shares to future investors in our Company.
The holders of the shares of Series B Preferred stock will be entitled to
receive cumulative annual dividends at the rate of 7%. The dividends will be
payable to the holders of the Series B Preferred stock semi-annually when
declared by our board of directors. The dividends payable to the holders of the
Series B Preferred stock and the liquidation rights of these securities rank
prior to and are superior to all classes and series of our common stock and of
our Cumulative Preferred Stock but are equal in rank to our Series A Senior
Convertible Preferred Stock and to our Series C Senior Convertible Preferred
Stock described below.
Except as is required by Delaware Law, the holders of Series B
Preferred do not have voting rights. The shares of Series B Preferred are
"convertible" into shares of our common stock at the option of the holder at the
conversion rate of 10 common shares for one share of Series B Preferred stock.
We have the right to buy back, or redeem part or all of these Series B Preferred
shares, on an equal and prorated basis, three years after we issue these shares
by paying to the holders the "Liquidation Price", or $9.00, per share together
with a 10% "call premium", or $0.90, for each share of the Series B Preferred we
want to redeem.
Series C Senior Convertible Preferred Stock
We have authorized 120,000 shares of Series C Senior
Convertible Preferred Stock (the "Series C Preferred" stock or shares). We
anticipate issuing 100,000 shares of the Series C Preferred stock in exchange
for certain debt obligations and outstanding preferred stock of our Company. The
holders of the shares of Series C Preferred stock will be entitled to receive
cumulative annual dividends at the rate of 7%. The dividends will be payable to
the holders of the Series C Preferred stock monthly. The dividends payable to
the holders of the Series C Preferred stock and the liquidation rights of these
securities rank prior to and are superior to all classes and series of our
common stock and of our Cumulative Preferred Stock but are equal in rank to our
Series A Senior Convertible Preferred Stock and to our Series B Senior
Convertible Preferred Stock described above.
Except as is required by Delaware Law, the holders of Series C
Preferred do not have voting rights. The shares of Series C Preferred are
"convertible" into shares of our common stock at the option of the holder at the
conversion rate of 10 common shares for one share of Series C Preferred stock.
We have the right to buy back, or redeem part or all of these Series C Preferred
shares, on an equal and prorated basis, three years after we issue these shares
by paying to the holders the "Liquidation Price", or $9.00, per share together
with a 10% "call premium", or $0.90, for each share of the Series C Preferred we
want to redeem.
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Transfer Agent and Registrar
The transfer agent and registrar for our common stock is
Securities Transfer Corp., 16910 Dallas Parkway, Suite 100, Dallas, Texas 75248.
Legal Matters
The legality of the shares offered hereby has been passed upon
by Joseph J. Tomasek, Esq., 77 North Bridge Street, Somerville, New Jersey.
Experts
Our consolidated financial statements incorporated in this
registration statement by reference to our Annual Report on Form 10-KSB for the
year ended December 31, 1998 have been audited by Rosenberg, Rich, Baker, Berman
& Company, independent auditors, as stated in their report, which is
incorporated herein by reference (which report expresses an unqualified opinion)
and have been so incorporated in reliance upon the report of such firm, given
upon their authority as experts in accounting and auditing.
Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of
Delaware and Article 7 of our Certificate of Incorporation contain provisions
for indemnification of our officers, directors, employees and agents. The
Certificate of Incorporation requires us to indemnify such persons to the
fullest extent permitted by Delaware law. Each person will be indemnified in any
proceeding if he acted in good faith and in a manner which he reasonably
believed to be in, or not opposed to, our best interests. Indemnification would
cover expenses, including attorney's fees, judgments, fines and amounts paid in
settlement.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers, and controlling
persons, we have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expense incurred or
paid by one of our directors, officers, or controlling persons in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, we
will, unless in the opinion of its counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issues.
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PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Certain Documents by Reference
The documents listed below have been filed by us with the
Commission and are incorporated herein by reference:
(a) Annual Report on Form 10-KSB for its fiscal year ended December 31, 1998;
(b) Quarterly Reports on Forms 10-QSB for the periods
ended March 31, 1999, June 30, 1999 and September 30,
1999;
(c) All other reports filed by the Company pursuant to
Section 13(a) and 15(d) of the Exchange Act since the
Company's fiscal year ended December 31, 1998.
All documents filed by us with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent hereto, but
prior to the termination of the offering of the securities made by this
prospectus shall be deemed to be incorporated by reference herein and to be part
hereof from their respective dates of filing.
Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this prospectus, to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this prospectus.
Item 4. Description of Securities
Our authorized capital stock consists of (i) 30,000,000 shares
of common stock, $.0001 par value per share; and (ii) 3,000,000 shares of
preferred stock, of which (a) 2,500 shares have been designated as cumulative
preferred stock, $.001 par value, (b) 300,000 shares have been designated as
Series A Senior Convertible Preferred stock, $.001 par value, (c) 350,000 shares
have been designated as Series B Senior Convertible Preferred stock, $.001 par
value and (d) 120,000 shares have been designated as Series C Senior Convertible
Preferred stock, $.001 par value.
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Common Stock
Holders of common stock are entitled to one vote per share on
each matter submitted to vote at any meeting of shareholders. Shares of common
stock do not carry cumulative voting rights and therefore, holders of a majority
of the outstanding shares of common stock will be able to elect our entire board
of directors. Our board of directors have authority, without action by our
shareholders, to issue all or any portion of the authorized but unissued shares
of common stock, which would have the effect of reducing our shareholders
percentage of ownership and diluting the book value of the common stock.
Shareholders have no preemptive rights to acquire additional
shares of common stock. The common stock is not subject to redemption and
carries no subscription or conversion rights. In the event of our liquidation,
the holders of common stock are entitled to share equally in corporate assets
after the holders of preferred stock, described below, and after satisfaction of
liabilities. Holders of common stock are entitled to receive such dividends as
our board of directors may from time to time declare out of funds legally
available for such payment, after payment of all required dividends has been
made to the holders of our preferred stock, described below. We have never paid
cash dividends on our common stock and do not anticipate that we will pay
dividends in the future.
Preferred Stock
Cumulative Preferred Stock
We have authorized 2,500 shares of cumulative preferred stock,
of which 10 shares are outstanding. We anticipate exchanging common and other
preferred stock for all but one of the outstanding cumulative preferred shares.
The cumulative preferred stock does not have voting rights. The cumulative
preferred stock ranks above the common stock with respect to dividend rights,
liquidation, dissolution and redemption.
Series A Senior Convertible Preferred Stock
We have authorized 300,000 shares of Series A Senior
Convertible Preferred Stock (the "Series A Preferred" stock or shares). We
anticipate issuing part or all of the shares to certain creditors of our
Company, exchanging a certain amount of Series A Preferred shares for debt
obligations of the Company. The holders of the shares of Series A Preferred
stock will be entitled to receive cumulative annual dividends at the rate of 7%
during the first year after issuance, with this dividend rate increasing by
increments of one-half of one percent for every year thereafter until the rate
reaches 10% where the dividend rate will remain. The dividends will be payable
to the holders of the Series A Preferred stock semi-annually when declared by
our board of directors. The dividends payable to the holders of the Series A
Preferred stock and the liquidation rights of these securities rank prior to and
are superior to all classes and series of our common stock and of our Cumulative
Preferred Stock but are equal in rank to our Series B Senior Convertible
Preferred Stock
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and to our Series C Senior Convertible Preferred Stock described below.
Except as is required by Delaware Law, the holders of Series A
Preferred do not have voting rights. The shares of Series A Preferred are
"convertible" into shares of our common stock at the option of the holder at a
conversion rate equal to 150% of the average trading price of our common shares
over a 20-day trading period before the date of issuance. We have the right to
buy back, or redeem part or all of these Series A Preferred shares, on an equal
and prorated basis, three years after we issue these shares by paying to the
holders the "Liquidation Price", or $5.00, per share together with a 15% "call
premium", or $0.75, for each share of the Series A Preferred we want to redeem.
Series B Senior Convertible Preferred Stock
We have authorized 350,000 shares of Series B Senior
Convertible Preferred Stock (the "Series B Preferred" stock or shares). We
anticipate issuing part or all of the shares to future investors in our Company.
The holders of the shares of Series B Preferred stock will be entitled to
receive cumulative annual dividends at the rate of 7%. The dividends will be
payable to the holders of the Series B Preferred stock semi-annually when
declared by our board of directors. The dividends payable to the holders of the
Series B Preferred stock and the liquidation rights of these securities rank
prior to and are superior to all classes and series of our common stock and of
our Cumulative Preferred Stock but are equal in rank to our Series A Senior
Convertible Preferred Stock and to our Series C Senior Convertible Preferred
Stock described below.
Except as is required by Delaware Law, the holders of Series B
Preferred do not have voting rights. The shares of Series B Preferred are
"convertible" into shares of our common stock at the option of the holder at the
conversion rate of 10 common shares for one share of Series B Preferred stock.
We have the right to buy back, or redeem part or all of these Series B Preferred
shares, on an equal and prorated basis, three years after we issue these shares
by paying to the holders the "Liquidation Price", or $9.00, per share together
with a 10% "call premium", or $0.90, for each share of the Series B Preferred we
want to redeem.
Series C Senior Convertible Preferred Stock
We have authorized 120,000 shares of Series C Senior
Convertible Preferred Stock (the "Series C Preferred" stock or shares). We
anticipate issuing 100,000 shares of the Series C Preferred stock in exchange
for certain debt obligations and outstanding preferred stock of our Company. The
holders of the shares of Series C Preferred stock will be entitled to receive
cumulative annual dividends at the rate of 7%. The dividends will be payable to
the holders of the Series C Preferred stock monthly. The dividends payable to
the holders of the Series C Preferred stock and the liquidation rights of these
securities rank prior to and are superior to all classes and series of our
common stock and of our Cumulative Preferred Stock but are equal in rank to our
Series A Senior Convertible Preferred Stock and to our Series B Senior
Convertible Preferred Stock described above.
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Except as is required by Delaware Law, the holders of Series C
Preferred do not have voting rights. The shares of Series C Preferred are
"convertible" into shares of our common stock at the option of the holder at the
conversion rate of 10 common shares for one share of Series C Preferred stock.
We have the right to buy back, or redeem part or all of these Series C Preferred
shares, on an equal and prorated basis, three years after we issue these shares
by paying to the holders the "Liquidation Price", or $9.00, per share together
with a 10% "call premium", or $0.90, for each share of the Series C Preferred we
want to redeem.
Item 5. Interests of Named Experts and Counsel
The legality of the shares offered hereby has been passed upon
by Joseph J. Tomasek, Esq., 77 North Bridge Street, Somerville, New Jersey
08876.
Item 6. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of
Delaware and Article 7 of our Certificate of Incorporation contain provisions
for indemnification of our officers, directors, employees and agents. The
Certificate of Incorporation requires us to indemnify such persons to the
fullest extent permitted by Delaware law. Each person will be indemnified in any
proceeding if he acted in good faith and in a manner which he reasonably
believed to be in, or not opposed to, our best interests. Indemnification would
cover expenses, including attorney's fees, judgments, fines and amounts paid in
settlement.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers, and controlling
persons, we have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expense incurred or
paid by one of our directors, officers, or controlling persons in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, we
will, unless in the opinion of its counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issues.
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Item 7. Exemption from Registration Claimed
Not applicable.
Item 8. Exhibits
5.1 Opinion of Joseph J. Tomasek, Esq.
10.1 Resignation Agreement with Michael G. Martin dated January 28, 2000
23.1 Consent of Joseph J. Tomasek, Esq. (included in Exhibit 5.1)
23.2 Consent of Rosenberg, Rich, Baker, Berman & Company
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Item 9. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes;
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to the Registration Statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the Registration Statement
or any material change of such information in the Registration Statement;
Provided however that paragraphs (a)(1)(I) and (a)(1)(ii)
shall not apply to information contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions or otherwise, the
registrant has been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the
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payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, therewith
duly authorized, on January 28, 2000
MAGNITUDE INFORMATION SYSTEMS, INC.
By: /S/ STEVEN D. RUDNIK
Steven D. Rudnik, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below, hereby constitutes and appoints Steven D. Rudnik, his
true and lawful attorney-in-fact, with full power of substitution and
resubstitution, for his and in his name, place and stead, in any and all
capacities, to sign any or all amendments or supplements to this Registration
Statement and to file the same with all exhibits thereto and other documents in
connection therewith, with the Commission, granting unto said attorney-in-fact
full power and authority to do and perform each and every act and thing
necessary or appropriate to be done with respect to this Registration Statement
or any amendments or supplements hereto and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed by the following persons in their
respective capacities with Magnitude Information Systems, Inc. and on the dates
indicated.
Signature Title Date
- ----------- ------- -------
/s/ STEVEN D. RUDNIK President, CEO and Director January 28, 2000
- --------------------
Steven D. Rudnik (Principal Executive Officer)
/s/ JOERG H. KLAUBE Chief Financial Officer January 28, 2000
Joerg H. Klaube (Principal Financial Officer)
Director
Paul Chernis
/s/ PETER J. BUSCETTO Director January 28, 2000
- ---------------------
Peter J. Buscetto
/s/ SEYMOUR KROLL Director January 28, 2000
Seymour Kroll
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/s/ JOHN DUNCAN Executive Vice President
John Duncan and Director January 28, 2000
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Exhibit 5.1
LAW OFFICES OF
JOSEPH J. TOMASEK
ATTORNEY AT LAW
Joseph J. Tomasek 77 North Bridge Street (908)429-0030
Member N.J., N.Y., and Ill. Bars Somerville, New Jersey ---
08876 (908)429-0040
E-mail: [email protected]
January 31, 2000
Magnitude Information Systems, Inc.
50 Tannery Road
Branchburg, New Jersey 08876
Re: Registration Statement on Form S-8, dated January 31, 2000
Gentleman:
We have acted as counsel to Magnitude Information Systems, Inc. ("Company"), a
Delaware corporation, pursuant to a Registration Statement on Form S-8, as filed
with the Securities and Exchange Commission on January 31, 2000 ("Registration
Statement"), covering 700,000 shares of the Company's Common Stock, $.0001 par
value ("Common Stock" issued pursuant to a certain agreement.
In acting as counsel for the Company and arriving at the opinion s as expressed
below, we have examined and relied upon originals or copies, certified or
otherwise identified to our satisfaction, of such records of the Company,
agreements and other instruments, certificates of officers and representatives
of the Company, certificates of public officials and other documents as we have
deemed necessary or appropriate as a basis for the opinion s expressed herein.
In connection with our examination we have assumed the genuineness of all
signatures, the authenticity of all documents tendered to us as originals, the
legal capacity of natural persons and the conformity to original documents of
all documents submitted to us as certified or photostated copies.
Based on the foregoing, and subject to the qualifications and limitations set
forth herein, it is our opinion that:
1. The Company has authority to issue the Common Stock in the manner and under
the terms set forth in the Registration Statement.
2. The Common Stock has been duly authorized and when issued, delivered and paid
for by recipients in accordance with their respective terms, will be validly
issued, fully paid and non-assessable.
We express no opinion with respect to the laws other than those of the State of
New Jersey and Federal Laws of the United States of America, and we assume no
responsibility as to the applicability or the effect of the laws of any other
jurisdiction.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and its use as part of the Registration Statement.
We are furnishing this opinion to the Company solely for its benefit in
connection with the Registration Statement. It is not to be used, circulated,
quoted or otherwise referred to for any other purpose.
Very truly yours,
/s/ JOSEPH J. TOMASEK
Joseph J. Tomasek, Esq.
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Exhibit 23.2
[LETTERHEAD OF ROSENBERG RICH BAKER BERMAN & COMPANY
January 31, 2000
Magnitude Information Systems, Inc.
50 Tannery Road
Branchburg, New Jersey 08876
Re: Registration Statement on Form S-8, dated January 31, 2000
Gentleman:
We hereby consent to the incorporation by reference of Form 10-KSB of our report
dated April 7, 1999 relating to the consolidated financial statements of
Magnitude Information Systems, Inc. and Subsidiaries (formerly Proformix
Systems, Inc. and Subsidiaries) in this Registration Statement on Form S-8, and
to the reference to our firm under the caption "Experts".
Very truly yours,
/s/ ROSENBERG RICH BAKER BERMAN & COMPANY
Rosenberg Rich Baker Berman & Company
magnitud.s-8
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Exhibit 10.1
RESIGNATION AGREEMENT
THIS RESIGNATION AGREEMENT (this "Agreement") is made this 28th day of January,
2000 by and between MICHAEL G. MARTIN, residing at 65 Nicole Terrace,
Bridgewater, New Jersey 08807 ("Martin") and MAGNITUDE INFORMATION SYSTEMS,
INC., a Delaware corporation, having its principal offices at 50 Tannery Road,
Unit 8, Branchburg, New
Jersey 08876 (the "Company").
B A C K G R O U N D:
WHEREAS, Martin and the Company agree that it is in the best interests of Martin
and the Company to terminate their business relationship as provided herein.
NOW, THEREFORE, it is agreed:
1. Resignation. Martin hereby tenders his resignation as a director,
Chairman of the Board of Directors and employee to the Company, a copy of which
is attached hereto as Exhibit A, effective as of the date hereof.
2. Termination of Employment Agreement. Upon the execution and delivery
of this Agreement, a certain Employment Agreement, dated July 18, 1997, by and
between Martin and the Company as well as any and all amendments or superseding
and subsequent contracts, agreements or understandings between the parties,
whether written or oral, shall automatically terminate effective as of the date
hereof.
Upon the execution and delivery of this Agreement, the Company and Martin shall
execute and deliver a certain "Restrictive Covenant Confidentiality Agreement",
dated the same date, a copy of which is annexed hereto as Exhibit B.
3. Mutual Releases. The Company hereby releases Martin, his heirs,
executors and administrators forever, effective upon the date this Agreement is
executed and delivered, from any and all claims, except (a) claims as to which
Section 102 (b)(7) of the Delaware General Corporation Law does not permit the
elimination of director liability and (b) securities law violations.
Conjunctively, Martin hereby releases the Company, its directors, officers,
employees and agents forever, effective upon the date
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hereof, from any and all claims. The Company hereby agrees to indemnify Martin
for any claim released above and for any claim brought by a director, officer,
employee or agent of the Company which is brought by reason of that status,
effective upon the date hereof.
4. Martin's Cumulative Preferred Shares: Partial Conversion to Common
Shares. Martin and the Company agree that $350,000 of the $900,000 principal
amount represented by nine (9) Cumulative Preferred Shares held of record by
Martin shall be exchanged for 700,000 shares of the Common Stock issued by the
Company (the "Common Shares") upon the execution and delivery of this Agreement.
In addition, the Company shall file a registration statement on Form S-8
registering the subject 700,000 shares of the Common Stock of the Company on
behalf of Martin under the Securities Act of 1933, as amended within one (1)
business day of the date of this Agreement.
5. Cumulative Preferred Shares and Company Note: Partial Conversion to
Preferred Shares. Martin and the Company agree that the remaining principal
balance of $550,000 U.S. of the Cumulative Preferred Shares and the Company's
debt due Martin and represented by the February 11, 1999 Company promissory note
in the original principal amount of $351,059.67 shall be exchanged for $900,000
U.S. principal amount of a new series of Company preferred shares, the
"Certificate of Designations" for which preferred shares is attached hereto as
Exhibit C (the "Martin Preferred Shares"): the parties acknowledge that the
Martin Preferred Shares shall have rights, among others, to a 7%, per annum,
dividend payment to be paid monthly. The Company hereby undertakes to prepare
and file a registration statement with the U.S. Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended, registering
a sufficient number of the Company's common shares in order to accommodate any
election to convert the Martin Preferred Shares into common shares on or before
August 1, 2000.
Upon the execution and delivery of this Agreement, the Company shall deliver a
certificate representing the $900,000 in principal amount of the Martin
Preferred Shares to Martin.
6. Restrictive Covenant - Confidentiality Agreement. In consideration of
the promises made by Martin in the "Restrictive Covenant - Confidentiality
Agreement" to be executed and delivered at the same time as this Agreement, a
copy of which is annexed hereto as Exhibit B, the Company agrees to pay to
Martin a monthly fee in the amount of $5,555 over the 36-month term of that
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agreement. In addition and in accordance with the terms and provisions set forth
therein, the Company agrees to pay Martin's New Jersey Cobra health insurance
premium payments and the premium payments for Martin's term life insurance ($1
million) for the next 18 month period.
7. Company Covenants. The parties hereby make the following
covenants, effective upon the execution and delivery of this
Agreement, as follows:
A. The Company covenants that it shall not issue a series of
preferred shares that will have dividend and/or liquidation rights superior to
those of the Martin Preferred Shares as long as such shares remain issued and
outstanding, except, however, the Company shall be permitted to authorize and
issue a series of preferred shares that may have dividend and/or liquidation
rights superior to those set forth in the Martin Preferred Shares on condition
that such preferred shares are issued only to creditors holding the
approximately $1.4 million of principal debt represented by the private
placement Company promissory notes set forth in and reflected on the Company's
audited financial statements for the fiscal year ended December 31, 1998.
B. In the event the Company chooses to exercise its right to
redeem some or all of the Series B Senior Convertible Preferred Stock (the "B
Preferred Stock"), the Company covenants that it shall at the same time
repurchase at the redemption price a prorata portion of the Martin Preferred
Shares based upon the relative principal amounts of the B Preferred Stock and
the Martin Preferred Shares, outstanding immediately prior to the notice of
redemption. For example, if the Company chooses to exercise its right to redeem
$200,000 of the principal amount of the B Preferred Stock and there is
outstanding immediately prior to the notice of redemption $1,000,000 of
principal amount of the B Preferred Stock and $500,000 of principal amount of
Martin Preferred Shares the Company shall be obligated by this covenant to
repurchase $100,000 of the principal amount of the Martin Preferred Shares at
the same time it elects to redeem such amount of the B Preferred Stock.
C. Martin covenants that he will not sell any common shares of
the Company received from any conversion of any series of Company preferred
stock for a period of 12 months following the execution and delivery of this
Agreement, except, however, the
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700,000 Company common shares identified in Section 4 above.
8. Representations and Warranties. A. The Company hereby
represents and warrants to Martin, effective upon the date of this
Agreement, the following:
(i) The Company is duly organized under the laws of
the State of Delaware and has all requisite authority to enter into and perform
all of its obligations set forth in this Agreement.
(ii) The execution and delivery of this Agreement
has been approved and authorized by the Board of Directors of the
Company.
B. Martin hereby represents and warrants to the
Company, effective upon the date of this Agreement, as follows:
(i) He is fully authorized to enter into and
perform all of his obligations set forth in this Agreement.
(ii) His execution, delivery and performance of this
Agreement shall not violate any agreement or contract to which he is a party.
9. Deliveries to be Made. Upon the execution and delivery of this
Agreement, the parties shall deliver or undertake, as the case may be, the
following:
A. The execution and delivery by the Company and Martin of the
Restrictive Covenant - Confidentiality Agreement, a copy of which is annexed
hereto as Exhibit B.
B. The Company shall issue its irrevocable order to its stock
transfer agent to issue a certificate representing 700,000 Company Common Shares
in the name of Martin.
C. The Company shall file a registration statement on Form S-8
with the Securities and Exchange Commission (the "SEC") registering the 700,000
Company Common Shares on behalf of Martin within 24 hours; simultaneously, the
Company shall issue its opinion to its stock transfer agent that the certificate
or certificates representing the 700,000 Company Common Shares should not bear a
restrictive legend since they have been registered under the Securities Act of
1933, as amended. The Company hereby
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<PAGE>
undertakes to indemnify Martin from and against any liability arising out of or
in connection with any action by the SEC that invalidates this registration
statement.
D. The Company shall deliver a certificate representing
$900,000 U.S. in principal amount of the Martin Preferred Shares in the name of
Martin in exchange for receipt of the Company February 11, 1999 Promissory Note,
referenced in Section 5 above, and in exchange for the delivery of the 9 shares
of Company Cumulative Preferred Stock (also referenced in Section 5 above) or,
if lost, an appropriate affidavit of lost stock certificate.
10. Entire Agreement - Modification. This Agreement, including all of
the Exhibits attached hereto, supersedes all prior agreements, understandings,
contracts and promises made between the parties hereto, whether oral or written,
and may not be amended or modified except by a writing signed by the parties.
11. Notices. Except as otherwise expressly provided herein, any notice,
consent, or other communication required or permitted to be given hereunder
shall be in writing and shall be sent either (a) by E-mail and overnight express
mail delivery or (b) by telecopy and overnight express mail delivery; a written
notice sent in either such manner shall be deemed received upon the earlier of
the first business day after the date either an E-mail or telecopy notice is
received or when the required written notice sent overnight express mail
delivery is received, with proof of delivery. All written notices shall be
addressed to a party at the following address:
If to Magnitude Information Systems, Inc.:
Steven D. Rudnik, President
Magnitude Information Systems, Inc.
50 Tannery Road, Unit 8
Branchburg, New Jersey 08876
with a copy to:
Michael Hanrahan, Esq.
Prickett, Jones & Elliott
1310 King Street, Box 1328
Wilmington, Delaware 19899
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If to Michael G. Martin:
Michael G. Martin
65 Nicole Terrace
Bridgewater, New Jersey 08807
with a copy to:
Richard J. Schachter, Esq.
Schachter, Trombodore, Offen
Stanton & Pavics
45 East High Street
Somerville, New Jersey 08876
12. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the day, month and year first above written.
ATTEST: MAGNITUDE INFORMATION SYSTEMS, INC.
/s/Joerg Klaube By:/s/Steven D. Rudnik
Joerg Klaube Steven D. Rudnik, President
Secretary
WITNESS:
/s/Richard J. Schachter /s/Michael G. Martin
Attorney At Law Michael G. Martin
State of New Jersey
resign.mgm
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EXHIBIT A
Board of Directors
Magnitude Information Systems, Inc.
50 Tannery Road, Unit 8
Branchburg, New Jersey 08876
Gentlemen:
I hereby voluntarily tender my resignation, effective as of the date hereof and
indicated below, from my positions as a director, officer and employee of
Magnitude Information Systems, Inc. and Magnitude, Inc. My resignations are not
conditioned upon acceptance by the Boards of Directors of Magnitude Information
Systems, Inc. or Magnitude, Inc.
Very truly yours,
/S/Michael G. Martin
Michael G. Martin
Dated: January 28, 2000
mart-exh.A
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EXHIBIT B
RESTRICTIVE COVENANT - CONFIDENTIALITY AGREEMENT
THIS RESTRICTIVE COVENANT - CONFIDENTIALITY AGREEMENT (this "Agreement"), made
this day of January, 2000, by and between Michael G. Martin, residing at 65
Nicole Terrace, Bridgewater, New Jersey 08807 ("Martin") and Magnitude
Information Systems, Inc., a Delaware corporation, having its principal offices
at 50 Tannery Road, Unit 8, Branchburg, New Jersey 08876 (the "Company").
B A C K G R O U N D :
WHEREAS, Martin and the Company have negotiated a certain Resignation Agreement
with the assistance of a third party investor pursuant to the general terms of
which Martin's Employment Agreement with the Company, dated July 18, 1997, among
other things, shall terminate, and;
WHEREAS, the Company has negotiated with Martin to make monthly payments to
Martin in return for his agreement to continue to abide by certain promises made
in his Employment Agreement during the term of this Agreement and thereafter,
and;
WHEREAS, Martin and the Company desire to set forth in this Agreement all of the
terms and conditions that shall govern their promises concerning issues of
noncompetition and confidentiality.
NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set
forth, the parties hereto agree as follows:
1. Noncompetition/Nonsolicitation. Martin hereby agrees that
during the term of this Agreement he shall not directly or indirectly, as a sole
proprietor, member of a partnership, stockholder or investor, officer or
director of a corporation, or as an employee, associate, consultant or agent of
any person, partnership, corporation or other business organization or entity
other than the Company: (a) engage in any business that is in competition with
any business actively conducted by the Company or any of its subsidiaries within
the various states in which the Company conducts business; (b) solicit or
endeavor to entice away from the Company or any of its subsidiaries any person
who is, or was during the then most recent 24-month period, employed by or
associated with the Company or any of its subsidiaries; (c) solicit
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or endeavor to entice away from the Company or any of its subsidiaries any
person or entity who is, or was within the then most recent 24-month period, a
customer, client or prospect of the Company or any of its subsidiaries; or (d)
perform any services in competition with the Company for or on behalf of any
such customer, client or prospect.
2. Confidentiality. Martin hereby covenants and agrees with the Company
that he will not at any time, except with the prior written consent of the
Company, directly or indirectly disclose any secret or confidential information
that he may learn or has learned by reason of his association with the Company
or any of its subsidiaries and affiliates. The term "confidential information"
includes information not previously disclosed to the public or to the trade by
the Company's management, or otherwise is not in the public domain, with respect
to the Company's, or any of its affiliates, subsidiaries, products, services,
facilities, applications and methods, trade secrets and other intellectual
property, systems, procedures, manuals, confidential reports, product or service
price lists, customer lists, technical information, financial information
(including the revenues, costs or profits associated with any of the Company's
products, business plans, prospects or opportunities.
3. Exclusive Property. Martin hereby acknowledges and confirms that all
confidential information is and shall remain the exclusive property of the
Company. All business records, papers and documents kept or made by Martin
relating to the business of the Company shall be and remain the property of the
Company.
4. Injunctive Relief. Without intending to limit the remedies available
to the Company, Martin acknowledges that a breach of any of the covenants
contained in this Agreement may result in material and irreparable injury to the
Company or its affiliates or subsidiaries for which there is no adequate remedy
at law; that it will not be possible to measure damages for such injuries
precisely and that, in the event of such a breach or threat thereof, the Company
shall be entitled to obtain a temporary restraining order and/or a preliminary
or permanent injunction restraining Martin from engaging in activities
prohibited by this Agreement or such other relief as may be required
specifically to enforce any of the covenants in this Agreement. If for any
reason a final decision of any court determines that the restrictions under this
Agreement are not reasonable or that consideration
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therefor is inadequate, such restrictions shall be interpreted, modified or
rewritten by such court to include as much of the duration and scope identified
in this Agreement as will render such restrictions valid and enforceable.
5. Payments. In consideration of Martin's promises made, the Company
shall commence to pay to Martin the sum of $5,555 on February 1, 2000 and on the
first day of each consecutive month thereafter for the next 35 consecutive
months until January 1, 2003 when the last payment is due. The Company shall be
required to make this payment no later than the 5th day of each month.
6. Term. This Agreement shall commence upon the date set forth above and
continue until January 31, 2003.
7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey and may not be modified
except by a writing signed by the parties.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the day, month and year first above written.
WITNESS:
/s/Richard J. Schachter /s/Michael G. Martin
Attorney At law Michael G. Martin
State of New Jersey
ATTEST: MAGNITUDE INFORMATION SYSTEMS, INC.
/s/Joerg Klaube By: /s/Steven D. Rudnik
Joerg Klaube, Secretary Steven D. Rudnik, President
rest-cov.mgm
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EXHIBIT C
CERTIFICATE OF POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE SHARES
OF THE PREFERRED STOCK OF
MAGNITUDE INFORMATION SYSTEMS, INC.
To Be Designated
Series C Senior Convertible Preferred Stock
Magnitude Information Systems, Inc., a Delaware corporation (the "Corporation"),
in accordance with Section 103 of the General Corporation Law of the State of
Delaware ("DGCL"), by its President, does hereby certify that during a meeting
on January 28, 2000, the Board of Directors of the Corporation duly adopted the
following resolutions providing for the issuance of a series of Preferred Stock
to be designated Series C Senior Convertible Preferred Stock, par value $.001,
and to consist of 120,000 shares:
RESOLVED, that the Corporation is hereby authorized to amend
its Certificate of Incorporation and to file a Certificate of
Designations of Preferred Stock to provide for 120,000 shares
of Series C Senior Convertible Preferred Stock, $.001 par
value ("Series C Senior Preferred"), pursuant to the terms and
conditions set forth in the Certificate of Designations;
RESOLVED, that the rights, privileges and limitations of each
share of Series C Senior Preferred shall be as follows:
1. Issuance. The series of Preferred Stock designated as Series C Senior
Preferred shall consist of 120,000 shares.
2. Dividends. The holders of said shares of Series C Senior Preferred shall be
entitled to receive cumulative dividends thereon at the rate of seven percent
(7%) per annum, payable monthly, before any dividend shall be declared, set
apart for, or paid upon the Common Stock of the Corporation. The Dividend Rate
shall accrue on the Liquidation Price (as hereinafter defined) of each share of
the Series C Senior Preferred. The dividends on the Series C Senior Preferred,
payable in cash, shall be cumulative, so that if the Corporation fails in any
fiscal year to pay such dividends on all the issued and outstanding Series C
Senior Preferred, such deficiency in the dividends shall be fully paid, but
without interest, before any dividends shall be paid on or set apart for the
Cumulative Preferred Stock or the Common Stock.
3. Priority. The Series C Senior Preferred shall with respect to dividend rights
and liquidation rights rank prior to all classes and series of Common Stock and
the Cumulative Preferred Stock, and on a par with the Series A and B Senior
Convertible Preferred Stock.
4. Voting. Except as required by the DGCL and as provided in Section (7) below,
the holders of said shares of Series C Senior Preferred shall not be entitled to
any voting rights.
5. Cancellation. Shares of Series C Senior Preferred which have been issued and
reacquired in any manner, including shares purchased or converted into Common
Stock, exchanged or redeemed, shall be canceled on
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the books of the Corporation and shall not be considered outstanding for any
purpose.
6. Liquidation. In the event of any liquidation, dissolution, or winding up of
the affairs of the Corporation, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of the Series C Senior Preferred shall be entitled to receive, out of
the remaining net assets of the Corporation, the amount of nine ($9.00) Dollars
for each share of Series C Senior Preferred (the "Liquidation Price") held of
record by such holder, payable in cash or in shares of stock, securities or
other consideration, the value of which stock, securities or other consideration
shall be fixed by the Board of Directors, plus the amount of all dividends in
arrears on each such share up to the date fixed for distribution, provided,
however, that such remaining net assets are sufficient to cover all the before
mentioned payments and also like payments to holders of Series A and B Senior
Preferred, before any distribution shall be made to the holders of Common Stock
or Cumulative Preferred Stock of the Corporation. In case such remaining net
assets are insufficient to cover all such payments to holders of Series A, B and
C Senior Preferred, the holders of these series shall receive payments on a pro
rata basis.
7. Cumulative Dividends. During such time as there exist unpaid cumulative
dividends due on the Series C Senior referred, no reclassification of the shares
of the Corporation or capital reorganization of the Corporation in any manner
provided by law shall be valid unless (a) the holders of a majority of all the
Series C Senior Preferred approve, and (b) provision is made for the payment of
the aggregate unpaid cumulative dividends then in arrears.
8. Redemption.
(i) The Corporation shall have the right to redeem pro rata any or all of its
Series C Senior Preferred issued and outstanding at any time, with the Board of
Directors of the Corporation in its sole discretion deciding how many shares to
redeem, provided, however, that any such shares called for redemption have been
issued and outstanding for a minimum of three (3) years at the time of notice of
redemption to the holders of such shares, by paying to the holders thereof the
Liquidation Price for each share of Series C Senior Preferred held by such
holder plus a "call premium" of 10% of the Liquidation Price, together with the
amount of any accrued and unpaid dividends as may have accumulated thereon at
the time of redemption (the "Redemption Price").
(ii) At least 10 days but not more than 30 days prior to the date fixed by the
Board of Directors of the Corporation for the redemption of any shares of the
Series C Senior Preferred pursuant to subsection (i) above, a written notice
shall be mailed to the holder of record of such shares of Series C Senior
Preferred to be redeemed, at the address of such holder as shown on the records
of the Corporation, notifying such holder of the election of the Corporation to
redeem such shares, stating the date fixed for redemption thereof (hereinafter
referred to as the "Redemption Date"), and calling upon such holder to surrender
to the Corporation on the Redemption Date at the place designated in such notice
such holder's certificate or certificates representing the number of shares of
Series C Senior Preferred specified in such notice of redemption. On or after
the Redemption Date, each holder of shares of Series C Senior Preferred to be
redeemed shall present and surrender such holder's certificate or certificates
for such shares to the Corporation at the place designated in such notice and
thereupon the Redemption Price of such shares shall be paid to or to the order
of the person whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificate shall be canceled. From and after
the Redemption Date (unless default shall be made by the Corporation in payment
if the Redemption Price), all dividends on the Series C Senior Preferred shall
cease to accrue and all rights of the holders thereof as stockholders of the
Corporation, except the right to receive the Redemption Price thereof upon the
surrender of certificates
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representing the same, without interest thereon, shall cease and terminate and
such shares shall not thereafter be transferred (except with the consent of the
Corporation) on the books of the Corporation and such shares shall not be deemed
to be outstanding for any purpose whatsoever.
(iii) The holder of any shares of Series C Senior Preferred notified by the
Corporation of the redemption of such shares pursuant to subsection (ii) above
shall have the right to exercise his option to convert such shares of Series C
Senior Preferred into Common Stock of the Corporation pursuant to Section (9)
below, by notifying the Corporation in writing or via facsimile prior to the
Redemption Date of his election to convert, in the form prescribed therefore.
The Corporation, after receipt of such notice shall remove such shares from the
shares to be redeemed.
9. Conversion. Each share of Series C Senior Preferred shall be convertible at
any time prior to the Redemption Date, at the holder's option, into shares of
Common Stock of the Corporation on the basis of ten (10) shares of Common Stock
for 1 share of Series C Senior Preferred. The holder of any shares of Series B
Senior Preferred who elects to convert his or her Series C Senior Preferred into
Common Stock of the Corporation shall surrender, at the principal office of the
Corporation or at such other office or agency maintained by the Corporation for
that purpose, the certificate or certificates representing the shares of Series
C Senior Preferred to be converted, together with a written affidavit informing
the Corporation of his or her election to convert such shares, whereby the date
of receipt by the Corporation of such certificates and affidavit shall
constitute the "Conversion Date", and which affidavit, in case the Conversion
Date precedes the first anniversary of the date of issue of such certificate or
certificates representing the shares of Series C Senior Preferred to be
converted, includes an agreement with the Corporation not to sell or transfer
the shares of Common Stock to be issued pursuant to this conversion, before the
first anniversary of the date of issue of the certificate or certificates
representing the shares of Series C Senior Preferred being converted. As
promptly as practicable, and in any event within ten business days after
surrender of such certificates, the Corporation shall deliver or cause to be
delivered certificates representing the number of validly issued, fully paid and
non-assessable shares of Common Stock of the Corporation to which such holder of
Series C Senior Preferred so converted shall be entitled, and where the
Conversion Date precedes the first anniversary of the date of issue of the
certificates for Series C Senior Preferred to be converted, the agreed upon
restriction against sales or transfer shall be duly noted on such certificates.
Such conversion shall be deemed to have been made at the close of business on
the Conversion Date, so that the rights of the holders of the Series C Senior
Preferred shall thereafter cease except for the right to receive Common Stock of
the Corporation in accordance herewith, and such converting holder of Series C
Senior Preferred shall be treated for all purposes as having become the record
holder of such Common Stock of the Corporation at such time.
10. Anti-Dilution. In the event that, prior to the conversion of the Series C
Senior Preferred Stock by the holder thereof into Common Stock of the
Corporation, there shall occur any change in the outstanding shares of Common
Stock of the Corporation by reason of the declaration of stock dividends, or
through a recapitalization resulting from stock splits or combinations, without
the receipt by the Corporation of fair consideration therefor in the form of
cash, services or property, the conversion ratio of the Series C Senior
Preferred Stock into Common Stock of the Corporation provided for in Section (9)
above shall be adjusted such that any holder of Series C Senior Preferred Stock
converting such stock into Common Stock subsequent to such change in the
outstanding shares of Common Stock of the Corporation shall be entitled to
receive, upon such conversion, the same number of shares of Common Stock of the
Corporation that he would have received had he converted his Series C Senior
Preferred Stock to Common Stock prior to such change in the outstanding shares
of Common Stock of the Corporation.
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IN WITNESS WHEREOF, we, the undersigned, have executed and subscribed this
certificate on January 28, 2000. .
ATTEST: MAGNITUDE INFORMATION
SYSTEMS, INC.
/s/ Joerg H. Klaube By: /s/ Steven D. Rudnik
Joerg H. Klaube, Secretary Steven D. Rudnik, President
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