As filed with the Securities and Exchange Commission on July 14, 2000
Registration No. 333-34512
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
ADDENDUM NO. 1 to FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
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MAGNITUDE INFORMATION SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2228828
(State of Incorporation) (I.R.S. Employee Identification No.)
401 Route 24, Chester, New Jersey 07930
(908)879-2722
-----------
(Address, including zip code, and telephone number,
including area code, of Rregistrant's
principal executive offices)
STEVEN D. RUDNIK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MAGNITUDE INFORMATION SYSTEMS, INC.
401 ROUTE 24
CHESTER, NEW JERSEY 07930
(908)879-2722
-----------
(Address, including zip code, and telephone number,
including area code, or agent for service)
----------------
COPIES TO:
JOSEPH J. TOMASEK, ESQ.
75-77 NORTH BRIDGE
SOMERVILLE, NEW JERSEY 08876
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time
to time after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act of 1933 registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
===============================================================================
PROPOSED PROPOSED
TITLE OF MAXIMUM MAXIMUM MAXIMUM AMOUNT
SECURITIES AMOUNT OFFERING AGGREGATE OF
TO BE TO BE PRICE PER OFFERING REGISTRA-
REGISTERED REGISTERED SHARE (1) (PRICE(1) TION (FEE)(1
_______________________________________________________________________________
Common Stock 19,482,086 shares $ 1.91 $ 37,210,784 $11,276
$.0001 par value per share
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(1) Estimated solely for the purpose of computing the registration fee
required by Section 6(b) of the Securities Act and computed pursuant to
Rule 457(c) under the Securities Act based upon the average of the high
and low prices of the Common Stock on April 5, 2000 as reported on the
Electronic Bulletin Board over-the-counter market maintained by the
National Association of Securities Dealers, Inc. (the ANASD@).
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.
===============================================================================
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<PAGE>
PRELIMINARY PROSPECTUS: SUBJECT TO COMPLETION July __, 2000
MAGNITUDE INFORMATION SYSTEMS, INC.
19,482,086 SHARES
COMMON STOCK
---------------
This is an offering of 19,482,086 shares of common stock of Magnitude
Information Systems, Inc. (the ACompany@ or Magnitude@) issued or issuable under
currently exercisable warrants, convertible preferred stock , convertible notes
and stock options. The warrants, convertible notes and stock options were issued
by Magnitude to certain securityholders of Magnitude in private transactions
during the past two years. The shares of common stock, either already issued or
issuable upon the exercise of the warrants and stock options or upon the
conversion of the convertible notes, may be sold from time to time by or on
behalf of certain securityholders of Magnitude. See ASelling Securityholders@.
Only the selling securityholders identified in this prospectus are offering
shares to be sold in the offering. Magnitude is not selling any shares in the
offering. Magnitude's common stock is quoted on the Electronic Bulletin Board,
over-the-counter market under the symbol "MAGY." On July 12 April 5, 2000, the
average of the high and low prices reported of the common stock on the
Electronic Bulletin Board was $1.225 $1.91.
Magnitude will not receive any of the proceeds from the sale of the
common stock by the selling securityholders. Magnitude will receive the proceeds
from the cash exercise of any of the warrants and stock options. See AUse of
Proceeds@. The selling stockholders may sell their shares from time to time
throughout the offering through any legally available means, including brokers
in public sales at market prices, directly or through agents in private sales at
negotiated prices. They may also sell shares in open market transactions in
reliance upon Rule 144 under the Securities Act, provided they comply with the
requirements of Rule 144.
You may contact Magnitude at Magnitude's principal executive offices
located at 401 Route 24, Chester, New Jersey 07930 or by phone at (908)879-2722.
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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THIS INVESTMENT INVOLVES CERTAIN HIGH RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
---------------
The date of this prospectus is July ___, 2000
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not seeking an offer to buy these securities in
any state where the offer or sale is not permitted.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. Our Securities
and Exchange Commission filings are available to the public over the Internet at
the Securities and Exchange Commission's web site at http://www.sec.gov. You may
also read and copy any document we file at the Securities and Exchange
Commission's public reference rooms located at 450 Fifth Street, N.W.,
Washington, DC 20549, and its public reference facilities in New York, New York
and Chicago, Illinois. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference rooms and their
copy charges.
This prospectus is part of a Form S-3 registration statement that we
filed with the SEC. This prospectus provides you with a general description of
the securities that may be offered for sale, but does not contain all of the
information that is in the registration statement. To see more detail, you
should read the entire registration statement and the exhibits filed with the
registration statement. Copies of the registration statement and the exhibits
are on file at the offices of the Commission and may be obtained upon payment of
the fees prescribed by the Commission, or examined without charge at the public
reference facilities of the Commission described above.
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone to provide you with different information.
Neither Magnitude nor any selling securityholder is making an offer of
the securities covered by this prospectus in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
prospectus supplement or in any other document incorporated by reference in this
prospectus is accurate as of any date other than the date on the front of those
documents.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the Securities and Exchange Commission
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the
Securities and Exchange Commission under Sections 13(a), 13(c), 14 and 15(d) of
the Securities Exchange Act of 1934 until the selling securityholders sell all
of the securities:
(a)(1) Our Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999.
(2) Our Quarterly Report on Form 10-QSB for the quarter ended March
31, 2000.
(3) Our Current Report on From 8-K filed with the Commission on
April 26, 2000.
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<PAGE>
All future reports and definitive proxy or information statements filed
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
after the date of this registration statement and prior to the filing of a
post-effective amendment which indicates that all securities offered by this
prospectus have been sold or which deregisters all securities then remaining
unsold shall be deemed to be incorporated by reference into this Registration
Statement and to be a part of this registration statement from the date of
filing of such documents.
Upon request, we will provide without charge a copy of this prospectus,
and a copy of any and all of the information that has been or may be
incorporated by reference in this prospectus. Requests for such copies should be
directed to Magnitude Information Systems, Inc., 401 Route 24, Chester, New
Jersey 07930 (telephone: 908-879-2722).
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have authorized
no one to provide you with different information. We are not making an offer
of these securities in any state where the offer is not permitted. You should
not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of this
document.
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<PAGE>
INFORMATION ABOUT MAGNITUDE
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 "ErgoManagerTM" 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 business combination took the
form of a reverse acquisition. 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 ErgoManagerTM software product. The
ErgoManagerTM system was introduced to the market in November 1998 and has since
been expanded and enhanced through newer releases.
6
<PAGE>
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 certain design principles underlying its
ErgoManagerTM software.
7
<PAGE>
RISK FACTORS
You should carefully consider the risks described below when evaluating
your ownership of the Magnitude common stock. The risks and uncertainties
described below are not the only ones Magnitude faces. Additional risks and
uncertainties we are presently not aware of or that we currently consider
immaterial may also impair Magnitude's business operations.
If any of the following risks actually occurs, Magnitude's business,
financial condition or results of operations could be materially adversely
affected. In such case, the trading price of the Magnitude common stock could
decline significantly.
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.
Substantial Losses - Lack of Profitability.
We have a history of losses and if we do not achieve profitability we
may not be able to continue our business in the future. We have incurred
substantial operating losses since our inception, which has resulted in an
accumulated deficit of approximately $11,298,013 as of December 31, 1999 of
which approximately $7 million are attributable to its discontinued hardware
product line. For the fiscal years ended December 31, 1999 and 1998, we incurred
losses of $2,391,948 and $2,530,909, respectively. For the first quarter ended,
March 31, 2000, we had additional losses of $783,497. We have financed our
operations primarily through the sales of equity and debt securities. Our
expense levels are high and our revenues are difficult to predict. We anticipate
incurring additional losses until we increase our client base and revenues. We
may never achieve or sustain significant revenues or profitability. If we are
unable to achieve increased revenues, we will continue to have losses and may
not be able to continue our operations.
Additional Financing Requirements.
We could be required to cut back or stop operations if we are unable to
raise or obtain needed funding. Our ability to continue operations will depend
on our positive cash flow, if any, from future operations or our ability to
raise additional funds through equity or debt financing. In February, 2000 we
received a firm commitment for private financing of $3.0 million of equity in
order to obtain the working capital necessary to continue to finance our
operations and execute our business plan. Although we anticipate that future
revenues and our current cash balance will be sufficient to fund our current
operations and capital requirements for the current fiscal year, we cannot give
you any assurance that we will not need additional funds before such time. We
have no current arrangements for additional financing and we may not be able to
obtain additional financing on commercially reasonable terms, if at all. We
could be required to cut back or stop operations if we are unable to raise or
obtain funds when needed.
8
<PAGE>
Limited Operating History.
We have a limited operating history as a software product company and
have made only limited sales of our products. Our total revenues for software
sales and licenses for the years ended December 31, 1999 and 1998 were
approximately $260,703 and $72,486, respectively.
Uncertainty of Market Acceptance.
Our revenues depend on sales of our specialized software products and
we are uncertain whether there will be broad market acceptance of these
products. Our revenue growth for the foreseeable future is largely dependent
upon increased sales of our ErgoManagerTMsuite of software products. Since the
introduction of our ErgoManagerTM software products in November, 1998 and
through December 31, 1999 revenue from our software products has been
approximately $270,000 (prior to this time, we had sales of approximately
$63,000 based upon a predecessor version of the ErgoManagerTM software}. For the
quarter ended March 31, 2000, we had revenues from the sales of software product
licenses of $100,022. Our future financial performance will depend upon the
successful introduction and customer acceptance of our ErgoManagerTM software
products as well as the development of new and enhanced versions of this product
as well as other related software products that may be developed in the future.
Revenue from products such as ErgoManagerTM depend on a number of factors,
including the influence of market competition, technological changes in the
ergonomic workplace market, our ability to design, develop and introduce
enhancements on a timely basis and our ability to successfully establish and
maintain distribution channels. If we fail to achieve broad market acceptance of
our ErgoManagerTM products, it would have a material adverse effect on our
business, operating results and financial condition.
Lack of Distribution Network and Strategic Relationships.
Inability to enter into strategic relationships with indirect channel
partners could have a material adverse effect on us. As part of our sales and
marketing efforts, we are seeking to develop strategic relationships with
indirect channel partners, such as original equipment manufacturers and
resellers. We have limited financial, personnel and other resources to undertake
extensive marketing activities ourselves. Therefore, our software products will
depend on our ability to develop and maintain strategic marketing relationships
with indirect channel partners and their ability to market and distribute our
software products. If we are unable to enter into and maintain such arrangements
or if such arrangements do not result in the successful commercialization of our
software products, then this could have a material adverse effect on our
business, operating results and financial condition.
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.
9
<PAGE>
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.
In addition, we believes that our future prospects will depend in large
part upon our ability to attract, train and retain highly-skilled technical,
managerial, sales and marketing personnel. However, competition for personnel in
the software industry is intense, and, at times, we have had difficulty locating
candidates with appropriate qualifications within various desired geographic
locations, or with certain industry-specific expertise. If our competitors
increase their use of non-compete agreements, the pool of available technical
personnel may further narrow in certain jurisdictions, even if the non-compete
agreements are ultimately unenforceable. The failure to attract, train, retain
and manage productive sales and sales support personnel would have a material
adverse effect on our business, financial condition and results of operations.
If we lose the services of one or more of our key employees, our
business, operating results, financial condition or business prospects could be
materially adversely affected. We have several programs in place to retain key
personnel, including granting of stock options that vest annually over four or
five years. A number of key employees have vested stock options with exercise
prices lower than our current stock price. These potential gains provide these
employees the economic freedom to explore personal objectives both within and
outside of our Company, which may result in the loss of one or more key
employees during the coming years.
It is widely recognized that the software industry in which we compete
is at or beyond a condition of full employment. We may not be able to attract,
train and retain the personnel it requires to develop, market, sell and support
new or existing software or to continue to grow. Also, to penetrate successfully
key vertical markets, we must attract, train and retain personnel with
industry-specific expertise.
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 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 aswell 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.
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<PAGE>
There is Intense Competition in the Industry
The market for ergonomic application software is expected to become
intensely competitive. Although we are not aware of any ergonomic software that
competes with our ErgoManagerTM software products currently, competitors will
certainly enter this marketplace. Although we believe our success will be due in
part to our early entry into the computer workplace market, we expect other
software product manufacturers to develop and sell similar products.
Intense competition could lead to increased price competition in the
market, forcing us to reduce prices. As a result, our gross margins may decline
and we may lose our first-to-market advantage which, in turn, could have a
material adverse effect on our business, financial condition and results of
operations. In addition, we may be unable to compete successfully with any new
competitors.
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.
Magnitude Has Limited Protection of Intellectual Property and Proprietary Rights
and May Potentially Infringe Third Party Intellectual Property Rights.
We consider certain aspects of our software and documentation to be
proprietary, and rely on a combination of contract, patent, copyright, trademark
and trade secret laws and other measures to protect this information.
Outstanding applications may not result in issued patents and, even if issued,
the patents may not provide any meaningful competitive advantage. Existing
copyright laws afford only limited protection. We believe that the rapid pace of
technological change in the computer software industry has made patent, trade
secret and copyright protection less significant than factors such as:
o knowledge, ability and experience of our employees;
o frequent software product enhancements; and
o timeliness and quality of support services.
Patent, trade secret and copyright protections may be inadequate, and
our competitors may independently develop ergonomic software products that are
substantially equivalent or superior to our software products. We do not believe
that our software products, our trademarks or other proprietary rights infringe
on the property rights of any third parties. However, third parties may assert
infringement claims against us and our products. These assertions could require
us to enter into royalty arrangements or could result in costly litigation.
11
<PAGE>
Magnitude May Experience Product Liability Claims
Although our license agreements contain provisions designed to limit
our exposure to potential product liability claims, these provisions could be
invalidated by unfavorable judicial decisions or by federal, state or local laws
or ordinances. Although we have not experienced any product liability claims to
date, use of our software in mission critical applications may create a risk
that a third party may pursue a claim against us. Although we carry product
liability insurance, if a product liability claim against us was successful, the
resulting damages or injunctive relief could have a material adverse affect on
our business, financial condition and results of operations.
Our Stock Price is Volatile and There is a Risk of Litigation
The trading price of our common stock has in the past and may in the
future be subject to wide fluctuations in response to factors such as the
following:
o revenue or results of operations in any quarter failing to
meet the expectations, published or otherwise, of the
investment community;
o announcements of technological innovations by us or our
competitors;
o new products or the acquisition of significant customers by
us or our competitors;
o developments with respect to patents, copyrights or other
proprietary rights by us or our competitors;
o changes in recommendations or financial estimates by
securities analysts;
o conditions and trends in the software industry generally;
o adoption of new accounting standards affecting the software
industry; and
o general market conditions and other factors.
Further, the stock market has experienced in recent months and may
continue in the future to experience extreme price and volume fluctuations that
particularly affect the market prices of equity securities of high technology
companies that often are not related to or are disproportionate to the operating
performance of such companies. These broad market fluctuations, as well as
general economic, political and market conditions have, and may continue to
have, a material adverse effect on the trading price of our common stock.
Fluctuations in the price of our common stock may expose us to the risk of
securities class action lawsuits. We cannot assure you that there will not be
lawsuits in the future or that future lawsuits will not have a material adverse
effect on our business, financial condition and results of operations.
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<PAGE>
There Could Be Adverse Effects of Potential Securities Issuances
Of the 19,482,086 common shares offered in this prospectus, 4,572,332
of these Common Shares have already been issued to the selling securityholders.
If the selling securityholders were to exercise their rights under their
warrants, convertible notes, convertible preferred stock and stock options to
purchase or convert into the remaining 14,909,754 common shares offered in this
prospectus and then sell them, the market price of our common stock could be
materially adversely affected. As of March 31, 2000, the substantial majority of
the warrants, convertible notes and stock options had exercise prices below the
current market price of our common stock.
USE OF PROCEEDS
The selling securityholders will receive the net proceeds from the sale
of common stock. Magnitude will not receive any of the proceeds from any sale of
the shares by the selling securityholders. Magnitude will receive the proceeds
from the cash exercise of any of the warrants and stock options and intends to
use any such cash proceeds received for general corporate purposes, which may
include repaying indebtedness, making additions to its working capital, funding
future acquisitions or for further developing its products and hiring additional
personnel.
SELLING SECURITYHOLDERS
All of the common stock offered is either already issued or is issuable
under currently exercisable warrants and stock options or pursuant to
convertible notes and convertible preferred stock issued or issuable by
Magnitude to the selling securityholders in private transactions exempt from the
registration requirements of the Securities Act pursuant to the private
placement exemption of Section 4(2). Magnitude may from time to time supplement
or amend this prospectus, as required, to provide other information with respect
to the selling securityholders.
The following table sets forth certain information regarding ownership of
Magnitude's common stock by the selling securityholders as of March 31, 2000,
including their names, and the number of shares of common stock owned by them
and offered pursuant to this prospectus. The selling securityholders listed in
the table do not necessarily intend to sell any of their shares. Magnitude filed
the registration statement, which includes this prospectus, due to the
registration rights granted to the selling securityholders, not because they had
expressed an intent to immediately sell their shares. Holders of approximately
7,000,000 shares have agreed not to sell such shares for a period of one year.
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<TABLE>
<CAPTION>
No. of Transaction
Name of Beneficial Holdings Common Shares Summary % of Class
Selling Before the Offering Offered Hereby Note Exhibit after Offering
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
929595 Ontario Ltd. 760 380 (9) 4.23 **
Abrams, P. 11,400 5,700 (9) 4.23 **
Alexander, I. 3,376 1,688 (9) 4.23 **
Angelastri, I. 850,000 600,000 (6) 4.9;4.12 **
Angelastri, I. (see above} 250,000 (10) **
Angelastri-Keller, S. 200,000 200,000 (6) 4.9;4.12 **
Aniso Stiftung 404,664 404,664 (6) 4.9;4.12 **
Barbaro, R.D. in Trust 22,392 11,196 (9) 4.23 **
Benoliel, I. 1,646 823 (9) 4.23 **
Blue Fuel Corporation 2,306 1,153 (9) 4.23 **
Brandstatter, A. 2,306 1,153 (9) 4.23 **
Brant Investment Ltd. 53,146 26,573 (9) 4.23 **
Burri, E. 200,000 200,000 (13) 4.9;4.14 **
Carrel, R. 500,100 333,400 (13) 4.15;4.18 **
Carrel, R. (see above} 166,700 (13) 4.9 **
Carter, G. 14,819 14,819 (9) 4.23 **
Christoph, M. 100,000 100,000 (6) 4.9;4.12 **
Corbett, W.&M. 100,000 100,000 (14) 4.19 **
Cumming, F. 33,619 5,000 (10) **
Curtis, J. 2,470 1,235 (9) 4.23 **
Cynamon Holding Corp. 8,232 4,116 (9) 4.23 **
Dean, M. 100,000 100,000 (5) 4.3 **
Dellelce, P. 1,646 823 (9) 4.23 **
Duncan, J. 210,000 500,000 (10) **
ES-LEA Holdings Ltd. 15,072 7,536 (9) 4.23 **
Ferrier Lullin Bank&Trust 4,940 2,470 (9) 4.23 **
Fiala, D. 14,819 14,819 (9) 4.23 **
Fireworks Creative Inc. 658 329 (9) 4.23 **
First Marathon Sec. 9,351 3,523 (9) 4.23 **
GGD Associates 275,000 275,000 (10) **
Gray, S. 537,000 537,000 (5) 4.3 **
Groconi Holdings, Inc. 1,120 560 (9) 4.23 **
Heuberger, R. 200,000 200,000 (6) 4.9;4.12 **
Hinst, R. 100,000 100,000 (5) 4.3 **
Jackson Hewitt Invest.Svc 400,000 400,000 (8) 4.3;4.13 **
Keenan, L. 6,838 3,419 (9) 4.23 **
Kesselring, R. 555,500 555,500 (13) 4.9 **
Klaube, J. 100,100 100,000 (10) **
Kroll, S. 618,792 324,926 (3) 4.10;4.11 1.18%
Kroll, S. (see above} 119,866 (10) **
Kutkrvicius, J. 3,294 1,647 (9) 4.23 **
Lalande, A. 824 412 (9) 4.23 **
Liebel, P. 2,305 2,305 (9) 4.23 **
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
No. of Transaction
Name of Beneficial Holdings Common Shares Summary % of Class
Selling Before the Offering Offered Hereby Note Exhibit after Offering
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Liechtensteinische Lbank 500,000 500,000 (13) 4.9;4.14 **
Liechtensteinische Lbank (see above} 1,667,250 (13) 4.16;4.17 **
Logie, T. 1,646 823 (9) 4.23 **
Lu, L. 1,646 823 (9) 4.23 **
Luescher, D. 40,000 40,000 (6) 4.9;4.12 **
Lynch, T. 2,306 1,153 (9) 4.23 **
Manis, W. 6,586 3,293 (9) 4.23 **
Martin, M. 1,850,000 1,000,000 (7) 4.20 4.89%
Martin, M. (see above} 100,000 (10) **
Masionis, S. 4,940 2,470 (9) 4.23 **
Merhavia Construct.Ltd. 1,520 760 (9) 4.23 **
Miller, P. 300,000 300,000 (8) 4.3;4.13 **
MJE Partners 210,000 210,000 (2) 4.1;4.2;4.3;4.4 **
Murphy, J. 11,400 5,700 (9) 4.23 **
Niro, G. 1,646 823 (9) 4.23 **
Paine Webber C/F G.She 420,000 420,000 (2) 4.1;4.2;4.3;4.4 **
Pisani, B.M. 592,567 420,000 (4) 4.6;4.7 1.17%
Print-O-Plast Ltd. 2,306 1,153 (9) 4.23 **
Reiter, S. 950 950 (9) 4.23 **
Reman Partners AG 300,000 300,000 (13) 4.9;4.14 **
Rogivue, N. 375,000 250,000 (13) 4.15;4.18 **
Rogivue, N. (see above} 125,000 (13) 4.9 **
Roni Excavating Ltd. 1,520 760 (9) 4.23 **
Rudnik, S. 2,302,558 150,000 (11) **
Rudnik, S. (see above} 749,780 (12) 4.21 **
Rudnik, S. (see above} 1,325,000 (10) **
Sal Investments Inc. 11,400 5,700 (9) 4.23 **
Saperia, E. 4,446 2,223 (9) 4.23 **
Schuerch Asset MgmtGm 170,000 120,000 (6) 4.9;4.12 **
Schuerch, K. 250,000 250,000 (10) **
Schuerch, U. 1,208,500 800,000 (6) 4.9;4.12 **
Schuerch, U. (see above} 69,500 (13) 4.9 **
Schuerch, U. (see above} 139,000 (13) 4.15;4.18 **
Schuerch, U. (see above} 200,000 (10) **
Shear Holdings Ltd. 950 475 (9) 4.23 **
Shear, E. 4,116 2,058 (9) 4.23 **
Shemano, G. 100,000 100,000 (14) 4.19;4.22 **
Sheppard, T. 1,647 1,647 (9) 4.23 **
Shulenberger, C. 5,928 2,964 (9) 4.23 **
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
No. of Transaction
Name of Beneficial Holdings Common Shares Summary % of Class
Selling Before the Offering Offered Hereby Note Exhibit after Offering
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Siegel, H. 931,000 831,000 (5) 4.3;4.4;4.5 **
Siegel, H. (see above} 100,000 (11) **
Stangel, G. 366,500 111,000 (13) 4.15;4.18 **
Stangel, G. (see above} 200,000 (10) **
Stangel, G. (see above} 55,500 (13) 4.9 **
Stanley, T. 14,819 14,819 (9) 4.23 **
Strasler, B. 2,470 2,470 (9) 4.23 **
Tapio, R. 222,000 222,000 (5) 4.3 **
Tarek, P. 5,598 2,799 (9) 4.23 **
Thomas, D. 65,860 32,930 (9) 4.23 **
Trull, R. 210,000 210,000 (2) 4.1;4.2;4.3;4.4 **
Twomey, L. 210,000 210,000 (2) 4.1;4.2;4.3;4.4 **
Unternaehrer, S. 1,111,000 1,111,000 (13) 4.15;4.18 **
Ushter Holdings Inc. 1,300 650 (9) 4.23 **
Vanity Software PublCo. 4,508 2,254 (9) 4.23 **
Viviana Partners, L.P 1,260,000 1,260,000 (1) 4.8;4.9 **
Wagner, T. 40,000 40,000 (6) 4.9;4.12 **
Ward, D. 100,000 100,000 (5) 4.3 **
Watson, K. 7,410 3,705 (9) 4.23 **
Xonnel Holdings Ltd. 11,400 5,700 (9) 4.23 **
Ziraldo, D. 6,586 3,293 (9) 4.23 **
18,952,376 19,482,086
</TABLE>
** less than 1 percent
Notes:
(1) Private Placement Pursuant to Section 4(2)
The Company is registering shares on behalf of an institutional investor, such
shares having been issued pursuant to his election to convert a convertible
promissory note dated April 23, 1999, into 660,000 common shares of the Company;
and 600,000 shares underlying a stock purchase warrant issued to the same
investor concurrent with the convertible note. The Company's net proceeds from
this transaction not including any proceeds that may accrue from exercise of the
warrant, totaled $300,000. The securities were issued in reliance upon
exemptions provided by Section 4(2) of the Securities Act, as a private
transaction with an accredited investor. A copy of the note and the form of the
warrant are attached hereto as Exhibits 4.8 and 4.9.
16
<PAGE>
(2) Private Placement Pursuant to Section 4(2)
The Company is registering shares on behalf of four private investors, such
shares having been issued pursuant to their election to convert convertible
promissory notes issued during June 1999, into an aggregate 550,000 common
shares of the Company; and 500,000 shares underlying stock purchase warrants
issued to the same investors concurrent with the convertible notes. The
Company's net proceeds from these transactions not including any proceeds that
may accrue from exercise of the warrants, totaled $250,000. The securities were
issued pursuant to subscription agreements certifying these investors as
accredited investors, and in reliance upon exemptions provided by Section 4(2)
of the Securities Act. The form of the subscription agreements, notes and
warrants are attached hereto as Exhibits 4.1, 4.2, 4.3 and 4.4 .
(3) Private Placement Pursuant to Section 4(2)
The shares to be registered represent shares underlying the current balance of a
convertible promissory note dated April 26, 1999, issued to a private investor
who presently is a Director of the Company, pursuant to a loan agreement of the
same date as amended on May 3, 1999. The note originally amounted to $200,000.
The securities were issued in reliance upon exemptions provided by Section 4(2)
of the Securities Act, as a private transaction with an accredited investor.
Copies of the loan agreement and note are attached hereto as Exhibits 4.10 and
4.11 .
(4) Private Placement Pursuant to Section 4(2)
The Company is registering shares on behalf of a private investor, such shares
having been issued pursuant to his election to convert a convertible promissory
note dated May 28, 1999, into 220,000 common shares of the Company; and 200,000
shares underlying a stock purchase warrant issued to the same investor
concurrent with the convertible note. The Company's net proceeds from this
transaction not including any proceeds that may accrue from exercise of the
warrant, totaled $100,000. The securities were issued in reliance upon
exemptions provided by Section 4(2) of the Securities Act, as a private
transaction with an accredited investor.
Copies of the note and warrant are attached hereto as Exhibits 4.6 and 4.7 .
(5) Private Placement Pursuant to Section 4(2)
The Company is registering shares on behalf of a private investor and five
transferees of the investor, such shares having been issued pursuant to his
election to convert several convertible promissory notes dating between June
1999 and November 1999 into a total of 990,000 common shares of the Company; and
900,000 shares underlying stock purchase warrants issued concurrent with the
convertible notes. The Company's net proceeds from these transactions not
including any proceeds that may accrue from exercise of the warrants, totaled
$450,000. The securities were issued in reliance upon exemptions provided by
Section 4(2) of the Securities Act, as a private transaction with an accredited
investor. The form of the subscription agreements, notes and warrants are
attached hereto as Exhibits 4.1, 4.2, 4.3, 4.4 and 4.5 .
(6) Private Placement Pursuant to Section 4(2)
The Company is registering shares on behalf of nine private foreign investors,
of which 1,252,332 shares were issued pursuant to private placement
subscriptions entered into between the Company and such investors between
October 1999 and December 1999, and 1,252,332 shares underlying stock purchase
warrants issued to the same investors concurrent with the shares. The Company's
net proceeds from these transactions not including any proceeds that may accrue
from exercise of the warrants, totaled $626,166. The securities were issued
17
<PAGE>
pursuant to subscription agreements certifying these investors as accredited
investors, and in reliance upon exemptions provided by Section 4(2) of the
Securities Act. The form of the subscription agreements and warrants are
attached hereto as Exhibits 4.9 and 4.12.
(7) Resignation Agreement of Former Chairman
The shares to be registered represent shares underlying 100,000 shares of Series
C Senior Convertible Preferred Stock issued to the former chairman of the
Company pursuant to the terms of his Resignation Agreement dated January 28,
2000 (see Exhibit to Registration Statement on Form S-8 filed with the
Commission January 31, 2000). Exhibit 4.20 refers to the Certificate of
Designations for the Series C Senior Convertible Preferred Stock.
(8) Private Placement Pursuant to Section 4(2)
The Company is registering shares on behalf of two private investors, of which
400,000 shares were issued pursuant to private placement subscriptions entered
into between the Company and such investors in January and February 2000, and
300,000 shares underlying stock purchase warrants issued to the same investors
concurrent with the shares. The Company's net proceeds from these transactions
not including any proceeds that may accrue from exercise of the warrants,
totaled $200,000. The securities were issued pursuant to subscription agreements
certifying these investors as accredited investors, and in reliance upon
exemptions provided by Section 4(2) of the Securities Act. The form of the
subscription agreements and warrants are attached hereto as Exhibits 4.3 and
4.13 .
(9) Shares Underlying Warrants Issued Pursuant to Acquisition
The shares to be registered underlie warrants issued to former shareholders of
Vanity Software Publishing Corporation ("Vanity"), a Canadian software company.
On April 30, 1998, the Company signed an agreement to acquire substantially all
of the assets, subject to the assumption of certain liabilities, of Vanity in
exchange for 224,000 restricted shares of the common stock of the Company and
warrants to purchase an additional 224,000 shares at a price of $5.00 per share.
Such warrants carried "piggy-back" registration rights. The major asset of
Vanity was a proprietary ergonomic software package sold under the name
ErgoBreak(TM) that the Company integrated into its own software products suite
marketed under the ErgoManager(TM) label. The issuance of the aforesaid shares
and warrants was made pursuant to exemptions provided by Section 4(2) of the
Securities Act. Vanity subsequently offered to their shareholders which numbered
approximately fifty, an exchange of their shares in Vanity into a ratably
calculated number of units comprised of one common share of the Company and a
warrant for the purchase of one common share of the Company at the price of
US$5.00 each. Substantially all Vanity shareholders elected to accept this offer
following which Vanity requested, and the Company agreed to, cancel the shares
and warrant issued to Vanity and replace them with like securities issued in the
name of the individual Vanity shareholders. The form of warrant issued to the
former Vanity shareholders is attached hereto as Exhibit 4.23 .
(10) Shares Underlying Non-Statutory Stock Options
The Company is registering an aggregate 3,324,866 shares underlying
non-statutory stock options issued to certain present and past key employees, on
behalf of such employees and their transferees, as follows:
18
<PAGE>
a) Options for 1,325,000 shares, issued in 1998 to the current President
and Chief Executive Officer of the Company;
b) Options for 100,000 shares, issued in 1997 and 1998 to the current
Chief Financial Officer of the Company;
c) Options for 500,000 shares, issued in 1999 to the current Executive
Vice President of the Company;
d) Options for 1,399,866 shares that were granted to a former President and
Chief Executive Officer of the Company in 1998 and had previously been
registered on Form S-8 by a filing on June 17, 1998, on behalf of eight
individual assignees to whom such options were subsequently transferred.
(11) Shares Issued in Lieu of Cash Compensation to Officers
The current President and Chief Executive Officer of the Company had previously
agreed to accept 150,000 shares in lieu of cash remuneration during the period
May through December 1999, whereby such stock award carried "piggy-back"
registration rights. The current Vice President of Shareholder Relations had
agreed to accept a certain number of shares in lieu of cash compensation of
which 100,000 shares were to be issued on April 1, 2000, and whereby such stock
award carries "piggy-back" registration rights.
(12) Shares Underlying a Convertible Promissory Note issued to an Officer
and Director
In connection with the acquisition by the Company of Rolina
Corporation in February 1998, the Company issued 155,556 Common Shares to the
former principal of Rolina Corporation, Steven D. Rudnik who currently
serves as the Company's President and Chief Executive Officer, which shares
were subject to a put option exercisable by Mr. Rudnik at any time during the
90-day period commencing on February 1, 2000, pursuant to which if exercised,
the Company would be obligated to purchase said 155,556 Company Common Shares
for the purchase price of $2.41 per share. (the "Put Option"). In addition to
receipt of the Put Option, the Company, pursuant to the terms of the business
transaction, made payments to Mr.Rudnik of $125,000 and $100,000 following
the closing and to secure its obligation under the Put Option, gave
Mr. Rudnik a lien on the software that the Company acquired from his company.
In order to exercise the Put Option, Mr. Rudnik was required to give written
notice of the exercise to the Company during the mentioned 90-day period and
upon the Company's payment at $2.41 per share, Mr. Rudnik would surrender the
155,556 shares of the Company's Common Stock. On March 25, 2000, Mr. Rudnik,
gave notice to the Company of his exercise of the Put Option. Accordingly,
the Company incurred the obligation to pay $374,889.96 to Mr. Rudnik pursuant
to the Put Option for the 155,556 Common Shares. Pursuant to negotiations
between the Company and Mr. Rudnik, a certain "Third Amendment
to Agreement and Plan of Merger and First Amendment to Put Option"* was
consummated in April, 2000, pursuant to which Mr. Rudnik agreed: (a) that the
Company's obligation to pay the $374,889.96 for the 155,556 shares tendered
under the Put Option (the "Company's Obligation") would be deferred until March
31, 2002; (b) that the Company would pay Mr. Rudnik monthly interest on the
Company's Obligation at the rate of 7% annually, commencing February 1, 2000;
(c) that Mr. Rudnik would have the right to convert part or all of the Company's
Obligation into shares of the Company's common stock at a conversion rate of
$.50 per share, and; (d) that the Company would register a sufficient number of
its common shares in this offering in order to accommodate the full exercise by
Mr. Rudnik of the full amount of the Company's Obligation. *See Exhibit 4.21
attached hereto which contains all of the terms and conditions of this
agreement.
19
<PAGE>
(13) Private Placement Pursuant to Section 4(2)
The Company is registering a total 5,583,850 shares on behalf of eight
private foreign investors pursuant to private placement subscriptions entered
into between the Company and such investors, between January and March 2000.
500,000 of such shares have been issued outright; an aggregate 3,055,900 shares
underlie conversion privileges accruing to a total of 305,590 shares of Series B
Senior Convertible Preferred Stock issued to or subscribed for by certain of
these investors; 500,000 shares underlie Company Common Stock Purchase Warrants
for the purchase of common shares at $1.00 per share issued to certain of these
investors; and 555,750 shares underlie Company Common Stock Purchase Warrants
for the purchase of shares at $0.90 per share, subscribed to by certain of these
investors. The common shares to be registered also include a total 972,200
shares underlying Company Common Stock Purchase Warrants for the purchase of
shares at $0.90 per share, which warrants have been assigned to certain of the
investors. With respect to the Company's Series B Senior Convertible Preferred
Stock (the "Series B Shares") the Company issued 194,440 Series B Shares in
March, 2000 to selling securityholders pursuant to the subscription agreements
upon receipt of payment of the agreed upon subscription prices. In June, 2000
and in compliance with the terms of its subscription agreement with the selling
securityholder, Liechtensteinische Lbank, pursuant to which the Company would
sell 111,150 Series B Shares and an equal number of Company Common Stock
Purchase Warrants, the Company issued an additional 27,788 Series B Shares and
an equal number of its Common Stock Purchase Warrants to this selling
securityholder. The Company is required under its subscription agreements with
the selling securityholders who acquired the 194,440 Series B Shares and a
similar number of Company Common Stock Warrants as it is under the subscription
agreement with this selling securityholder to register a sufficient number of
common shares underlying the Series B Shares and the Company Common Stock
Purchase Warrants once issued under this offering. Pursuant to the subscription
agreement with Liechtensteinische Lbank, the Company is required to issue an
additional 83,362 Series B Shares and an equal number of its Common Stock
Purchase Warrants during the months of July, August and September, 2000, upon
receipt of the subscription prices. As under the subscription agreements with
the other selling securityholders, the Company is obligated under its
subscription agreement with this selling securityholder to register a sufficient
number of its common shares to accommodate the full conversion of the 111,150
aggregate Series B Shares and the equal number of Company Common Stock Purchase
Warrants subscribed for within 30 days after their issuance. As mentioned above,
each Series B Share is convertible into 10 common shares at the election of a
selling securityholder and each of the Company Common Stock Purchase Warrants is
exercisable to purchase 5 Company common shares at the exercise price of $.90
per share. The Company is registering the 1,667,250 common shares in this
offering to accommodate the issuance of all of the 111,150 Series B Shares and
the equal number of Company Common Stock Purchase Warrants issued and to be
issued pursuant to its subscription agreement with Liechtensteinische Lbank. The
Company's net proceeds from these transactions not including any proceeds that
may accrue from exercise of the warrants, will total $2,725,000, of which
$2,050,000 have been received at the time of this offering. The securities were
issued or will be issued pursuant to subscription agreements certifying these
investors as accredited investors, and in reliance upon exemptions provided by
Section 4(2) of the Securities Act. The form of the subscription agreements are
attached hereto as Exhibits 4.14, 4.15 and 4.16 , and of the warrants as
Exhibits 4.9 and 4.17. Exhibit 4.18 refers to the Certificate of Designations
for the Series B Senior Convertible Preferred Stock.
(14) Shares Underlying Warrants Issued for Services
The Company is registering an aggregate 200,000 shares underlying two stock
purchase warrants issued pursuant to a consulting agreement with an unrelated
party. A copy of the consulting agreement is attached as Exhibit 4.22.
20
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Magnitude is currently authorized by its Certificate of Incorporation
to issue an aggregate 33,000,000 shares of capital stock, including 30,000,000
shares of Common Stock, $.0001 par value per share of which 14,591,980 were
issued and outstanding as of March 31, 2000 and 3,000,000 shares of Preferred
Stock, $0.01 par value per share of which: 2,500 shares have been designated as
Cumulative Preferred Stock, par value $0.0001 per share, of which 1 share was
outstanding as of March 31, 2000; 300,000 shares have been designated as Series
A Senior Convertible Preferred Stock (the "Series A Stock"), $0.001 par value
per share; 350,000 shares have been designated as Series B Senior Convertible
Preferred Stock (the "Series B Stock"), par value $0.001 per share, of which
194,440 shares were outstanding as of March 31, 2000, and; 120,000 shares have
been designated as Series C Senior Convertible Preferred Stock (the "Series C
Stock") par value $0.001 per share of which 100,000 shares were outstanding as
of March 31, 2000. Common Stock
The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Subject to
the rights and preferences of the holders of any outstanding Preferred Stock,
the holders of Common Stock are entitled to receive ratably such dividends as
are declared by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding-up of the Company, holders
of Common Stock have the right to a ratable portion of assets remaining after
the payment of all debts and other liabilities of the Company, subject to the
liquidation preferences, if any, of the holders of any outstanding Preferred
Stock. Holders of Common Stock have neither preemptive rights nor rights to
convert their Common Stock into any other securities and are not subject to
future calls or assessments by the Company. There are no redemption or sinking
fund provisions applicable to the Common Stock. The rights, preferences and
privileges of the holders of Common Stock may be subject to, and may be
adversely affected by, the rights of the holders of shares of Preferred Stock
that the Company may designate and issue in the future. Preferred Stock
The Board of Directors of the Company recently took action to create
and authorize the issuance of (1) up to 300,000 shares of Preferred Stock
designated as Series A Senior Convertible Preferred Stock (the "Series A
Stock"); (2) up to 350,000 shares of Preferred Stock designated as Series B
Senior Convertible Preferred Stock (the "Series B Stock') of which 194,440
shares were outstanding as of March 31, 2000, and; (3) up to 120,000 shares of
Preferred Stock designated as Series C Senior Convertible Preferred Stock (the
"Series C Stock") of which 100,000 shares were outstanding as of March 31, 2000.
The Series A Stock
The Series A Stock has no voting rights and their holders do not have a
right to cast a vote on shareholder matters. The holders of Series A Stock are
entitled to receive semi-annual cumulative dividends before any dividends are
declared and paid upon the Common Stock, but on par with the holders of any
21
<PAGE>
Series B Stock and Series C Stock, calculated against their liquidation price of
$5.00 per share at the rate of 7% annually during the first year of their
issuance, increasing thereafter in increments of 1/2 of 1% per year for the next
six years when the interest rate is fixed at 10% annually. In the event of a
liquidation, dissolution or winding up of the affairs of Magnitude and after
payment of its debts and liabilities, the holders are entitled to be paid out of
the remaining assets a liquidation price of $5.00 per share of Series A Stock,
on an equal basis with the holders of any Series B Stock and Series C Stock.
Magnitude has the right to redeem or buy back part or all of the Series A Stock
three years after their issuance by paying to the holders the liquidation price
($5.00 per share), any accumulated but unpaid dividends and a payment (a "call
premium") equal to 15% of the liquidation price. Holders of the Series A Stock
can convert their shares into Magnitude Common Stock at a conversion rate equal
to 150% of the "market price" of Magnitude's Common Stock at the time of
conversion. "Market price" is based upon the average bid and asked prices for
Magnitude's Common Stock as quoted by the then stock exchange during the 20
consecutive trading day period immediately preceding the conversion.
The Series B Stock
The Series B Stock has no voting rights and their holders do not have a
right to cast a vote on shareholder matters. The holders of Series B Stock are
entitled to receive semi-annual cumulative dividends before any dividends are
declared and paid upon the Common Stock, but on a par with the holders of any
Series A Stock and Series C Stock, calculated against their liquidation price of
$9.00 per share at the rate of 7% annually. In the event of a liquidation,
dissolution or winding up of the affairs of Magnitude and after payment of its
debts and liabilities, the holders are entitled to be paid out of the remaining
assets a liquidation price of $9.00 per share of Series B Stock, on an equal
basis with the holders of any Series A Stock and Series C Stock. Magnitude has
the right to redeem or buy back part or all of the Series B Stock three years
after their issuance by paying to the holders the liquidation price ($9.00 per
share), any accumulated but unpaid dividends and a payment (a "call premium")
equal to 10% of the liquidation price. Holders of the Series B Stock can convert
their shares into Magnitude Common Stock on the basis of 10 shares of Common
Stock for one share of Series B Stock at any time.
The Series C Stock
The Series C Stock has no voting rights and their holders do not have a
right to cast a vote on shareholder matters. The holders of Series C Stock are
entitled to receive monthly cumulative dividends before any dividends are
declared and paid upon the Common Stock, but on par with the holders of any
Series A Stock and Series B Stock, calculated against their liquidation price of
$9.00 per share at the rate of 7% annually. In the event of a liquidation,
dissolution or winding up of the affairs of Magnitude and after payment of its
debts and liabilities, the holders are entitled to be paid out of the remaining
assets a liquidation price of $9.00 per share of Series C Stock, on an equal
basis with the holders of any Series A Stock and Series B Stock. Magnitude has
the right to redeem or buy back part or all of the Series C Stock three years
after their issuance by paying to the holders the liquidation price ($9.00 per
share), any accumulated but unpaid dividends and a payment (a "call premium")
equal to 10% of the liquidation price. Holders of the Series C Stock can convert
their shares into Magnitude Common Stock on the basis of 10 shares of Common
Stock for one share of Series C Stock at any time.
22
<PAGE>
Cumulative Preferred Stock
The Company has designated 2,500 shares as "Cumulative Preferred
Stock", of which as of March 31, 2000, one share is issued and outstanding. The
Cumulative Preferred Stock is non-voting. Each share shall be entitled to
receive out of the surplus or net profits of the Company, cumulative dividends
thereon at the rate of $9,000 per year, payable quarterly, semi-annually, or
annually, as and when declared by the Board of Directors. The Cumulative
Preferred Stock shall, with respect to dividend rights, rights on liquidation,
winding up and dissolution and rights upon redemption, rank prior to all classes
and series of Common Stock.
23
<PAGE>
PLAN OF DISTRIBUTION
The selling securityholders may sell some or all of their shares at any
time and in any of the following ways. They may sell their shares:
o To underwriters who buy the shares for their own account and
resell them in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying
prices determined at the time of sale. Any public offering
price and any discount or concessions allowed or reallowed or
paid to dealers may be changed from time to time;
o Through brokers, acting as principal or agent, in
transactions, which may involve block transactions, on the
Electronic Bulletin Board, over-the-counter market or on other
exchanges on which the shares are then listed, in special
offerings, exchange distributions pursuant to the rules of the
applicable exchanges or in the over-the-counter market, or
otherwise, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated
prices or at fixed prices;
o Directly or through brokers or agents in private sales at
negotiated prices; or
o By any other legally available means.
Selling securityholders may pay part of the proceeds from the sale of
shares in commissions and other compensation to underwriters, dealers, brokers
or agents who participate in the sales. Holders of approximately 7,000,000
shares have agreed not to sell such shares for a period of one year.
Certain states may require shares to be sold only through registered or
licensed brokers or dealers. In addition, certain states may require the shares
to be registered or qualified for sale unless an exemption from registration or
qualification is available and complied with.
Magnitude has agreed to contribute to payments the selling
securityholders may be required to make under the Securities Act.
LEGAL MATTERS
The law firm of Joseph J. Tomasek, Esq., 75-77 North Bridge Street,
Somerville, New Jersey will render an opinion on the validity of the shares
offered under this prospectus.
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EXPERTS
Rosenberg Rich Baker Berman & Company, independent auditors, have
audited our consolidated financial statements included in our Annual Report on
Form 10-KSB for the year ended December 31, 1999, as set forth in their report,
which is incorporated by reference in this prospectus and elsewhere in the
registration statement. Our financial statements are incorporated by reference
in reliance on Rosenberg Rich Baker Berman & Company=s report, given on their
authority as experts in accounting and auditing.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS OR IN ANY PROSPECTUS SUPPLEMENT. IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
MAGNITUDE, ANY UNDERWRITER OR THEIR RESPECTIVE AFFILIATES. NEITHER THE DELIVERY
OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE FACTS SET FORTH HEREIN OR THEREIN OR IN THE AFFAIRS OF
MAGNITUDE SINCE THE DATE HEREOF. THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT
DO NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------
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TABLE OF CONTENTS
Page
Where You Can Find More Information..................................... 4
The Company............................................................. 6
Risk Factors............................................................ 8
Use of Proceeds......................................................... 13
Selling Securityholders................................................. 13
Description of Capital Stock............................................ 21
Plan of Distribution.................................................... 24
Legal Matters........................................................... 24
Experts................................................................. 25
19,482,086 Shares
Magnitude Information Systems, Inc.
Common Stock
--------------
PROSPECTUS
--------------
________, 2000
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Magnitude will pay all expenses incident to the offering and sale to
the public of the shares being registered other than any commissions and
discounts of underwriters, dealers or agents and any transfer taxes. Such
expenses are set forth in the following table. All of the amounts shown are
estimates except the Securities and Exchange Commission ("SEC") registration
fee.
SEC registration fee 11,276.00
Legal fees and expenses 10,000.00
Accounting fees and expenses 2,500.00
Miscellaneous expenses 1,000.00
Total 24,776.00
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, Magnitude has
included in its Certificate of Incorporation a provision to eliminate the
personal liability of it's directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, subject to certain exceptions. In
addition, the Bylaws of Magnitude require the Company to (i) indemnify the
officers and directors under certain circumstances, including those
circumstances in which indemnification would otherwise be discretionary, and
(ii) advance expenses to the officers and directors as incurred in connection
with proceedings against them for which they may be indemnified. Magnitude has
entered into indemnification agreements with the officers and directors
containing provisions that are in some respects broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
The indemnification agreements may require the companies, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
expenses incurred as a result of any proceeding against them as to which they
may be indemnified, and to obtain directors' and officers' insurance if
available on reasonable terms. Magnitude believes that these charter provisions
and indemnification agreements are necessary to attract and retain qualified
persons as directors and officers.
Magnitude understands that the staff of the Securities and Exchange
Commission is of the opinion that statutory, charter and contractual provisions
as are described above have no effect on claims arising under the federal
securities laws.
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ITEM 16. EXHIBITS
EXHIBIT INDEX
2.2 Agreement and Plan of Merger with Rolina Corporation and Steven D.
Rudnik, and Employment Agreement with Steven D. Rudnik, both of the
date February 2 , 1998, as filed as Exhibit to the Company's report on
Form 10-KSB for the year ended December 31, 1998. Incorporated herein
by reference.
3 (i) Articles of Incorporation and Amendments thereto, incorporated
herein by reference to Exhibits of previous filings with the
Commission.
3 (ii) Bylaws of the Company, incorporated herein by reference to
Exhibits of previous filings with the Commission.
4.1* Term Sheet
4.2* Form of Subscription Agreement
4.3* Form of Common Stock Purchase Warrant
4.4* Form of Convertible Promissory Note
4.5* Form of Subscription Agreement
4.6* Form of Convertible Grid Promissory Note
4.7* Form of Common Stock Purchase Warrant
4.8* Form of Convertible Promissory Note
4.9* Form of Common Stock Purchase Warrant
4.10* Loan Agreement with S.Kroll
4.11* Form of Convertible Promissory Note
4.12* Form of Subscription Agreement
4.13* Form of Subscription Agreement
4.14* Form of Subscription Agreement
4.15* Form of Subscription Agreement
4.16* Form of Subscription Agreement
4.17* Form of Common Stock Purchase Warrant
4.18* Amendment to the Company's Certificate of Incorporation as filed
with the State of Delaware on January 31, 2000,
and amended on March 20, 2000, designating a new class of Series B
Senior Convertible Preferred Stock.
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4.19* Form of Common Stock Purchase Warrant
4.20+ Amendment to the Company's Certificate of Incorporation as filed with
the State of Delaware on January 31, 2000, and amended on March 20,
2000, designating a new class of Series C Senior Convertible Preferred
Stock
4.21* Agreement with S.Rudnik, re: convertible debt
4.22* Consulting agreement with G.Shemano
4.23* Form of Common Stock Purchase Warrant
4.24+ Amendment to the Company's Certificate of Incorporation as filed with
the State of Delaware on January 31, 2000, and amended on March 20,
2000, designating a new class of Series A Senior Convertible Preferred
Stock.
5.1x Legal opinion and consent of Joseph J. Tomasek, Esq.
10.1* Resignation Agreement dated July 21, 1999, between J. Swon and B.
Deichl and the Company, incorporated herein by reference to the Exhibit
of Form S-8 filed with the Commission on August 3, 1999.
10.2* Resignation Agreement dated January 28, 2000, between M. Martin and the
Company, incorporated herein by reference to the Exhibit of Form S-8
filed with the Commission on January 31, 2000.
23.1x Independent Auditors' Consent
-------
+ Documents incorporated by reference to Magnitude's Annual Report filed on
Form 10-KSB for the fiscal year ended December 31, 1999 with the Securities
and Exchange Commission on March 30, 2000
* Previously filed as exhibits to the Registration Statement on Form S-3
with the Commission on April 11, 2000.
x To be filed by Amendment.
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ITEM 17. UNDERTAKINGS
A. UNDERTAKING PURSUANT TO RULE 415
The undersigned Registrant hereby undertakes: (1) To file, during any
period in which offers or sales are being made, a post-effective amendment to
this Registration Statement: II-1 22 (i) to include any prospectus required by
Section 10(a)(3) Securities Act of 1933 (the "Securities Act"); (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
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. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
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 to such information in the 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 that remain
unsold at the termination of this offering.
B. UNDERTAKING REGARDING FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT
DOCUMENTS BY REFERENCE
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 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. UNDERTAKING IN RESPECT OF INDEMNIFICATION
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 SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant 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 by it 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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D. UNDERTAKING PURSUANT TO RULE 430A
The undersigned Registrant hereby undertakes that: (1) For purposes of
determining any liability under the Securities Act, the information omitted from
the form of the prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective. (2) For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, MAGNITUDE INFORMATION SYSTEMS, INC., a corporation organized and
existing under the laws of the State of Delaware, certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-3 and has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Chester, State of New Jersey, on July 14, 2000
MAGNITUDE INFORMATION SYSTEMS, INC.
By:_s/Steven D. Rudnik
Steven D. Rudnik, President and
Chief Executive Officer
By: s/Joerg H. Klaube
Joerg H. Klaube, Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Steven D. Rudnik, his attorneys-in-fact, each
with the power of substitution, for him in any and all capacities, to sign any
amendments to this Registration Statement on Form S-3, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof. Pursuant to the requirements of the
Securities Act of 1933, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
s/ Steven D. Rudnik President and July 14, 2000
Steven D. Rudnik Chief Executive Officer
(Principal Financial Officer)
s/ Joerg H. Klaube Chief Financial Officer July 14, 2000
Joerg H. Klaube (Principal Financial Officer)
s/ John C. Duncan Executive Vice President
John C. Duncan and Director July 14, 2000
s/ Steven L. Gray Director July 14, 2000
Steven L. Gray
s/ Ivano Angelastri Director July 14, 2000
Ivano Angelastri
s/ Joseph J. Tomasek Director July 14, 2000
Joseph J. Tomasek
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Exhibit 4.18
EXHIBIT A
CORRECTED
CERTIFICATE OF POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE SHARES
OF THE PREFERRED STOCK OF
MAGNITUDE INFORMATION SYSTEMS, INC.
To Be Designated
Series B 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 B Senior Convertible Preferred Stock,
par value $.001, and to consist of 350,000 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 350,000 shares
of Series B Senior Convertible Preferred Stock, $.001 par
value ("Series B 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 B Senior Preferred shall be as follows:
1. Issuance. The series of Preferred Stock designated as Series B Senior
Preferred shall consist of 350,000 shares.
2. Dividends. The holders of said shares of Series B Senior Preferred
shall be entitled to receive cumulative dividends thereon at the rate of seven
percent (7%) per annum, payable semi-annually when declared by the Board of
Directors, 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 B Senior
Preferred. The dividends on the Series B 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 B 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.
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3. Priority. The Series B 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 C 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 B Senior Preferred shall not be
entitled to any voting rights.
5. Cancellation. Shares of Series B 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 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 B 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 B 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
C 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 B Senior Preferred, 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 B 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 B 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 B 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 B Senior Preferred pursuant to subsection (i) above, a written notice
shall be mailed to the holder of record of such shares of Series B 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 B Senior Preferred specified in such notice of redemption. On or after
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the Redemption Date, each holder of shares of Series B 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 B 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 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 B 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 B 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 B 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 B Senior Preferred. The holder of any
shares of Series B Senior Preferred who elects to convert his or her Series B
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 B 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 B 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 B 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 B 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 B 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 B 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 B Senior Preferred shall be treated for all purposes
as having become the record holder of such Common Stock of the Corporation at
such time.
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10. Anti-Dilution. In the event that, prior to the conversion of the
Series B 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 B Senior
Preferred Stock into Common Stock of the Corporation provided for in Section (9)
above shall be adjusted such that any holder of Series B 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, a number of shares of Common Stock of the
Corporation representing the same percentage of common shares outstanding as
represented by the shares that he would have received had he converted his
Series B Senior Preferred Stock to Common Stock prior to such change in the
outstanding shares of Common Stock of the Corporation.
IN WITNESS WHEREOF, we, the undersigned, have executed and subscribed
this certificate on January 28, 2000 .
/s/ Steven D. Rudnik
Steven D. Rudnik, President
ATTEST:
/s/ Joerg H. Klaube
Joerg H. Klaube, Secretary
4
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