UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDED
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement.
[_] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2)).
|_| Definitive Proxy Statement
[_] Definitive additional materials.
[_] Soliciting material pursuant to Rule 14a-11 (c) or Rule 14a-12.
MAGNITUDE INFORMATION SYSTEMS, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1. Amount Previously Paid: _____________________________________
2. Form, Schedule or Registration Statement No.: _______________
3. Filing Party: _______________________________________________
4. Date Filed: _________________________________________________
MAGNITUDE INFORMATION SYSTEMS, INC.
401 State Route 24
Chester, New Jersey 07930
--------------------------
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
-------------------------
November __, 2005
-------------------------
NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders ("Special
Meeting") of Magnitude Information Systems, Inc. (the "Company") will be held at
401 State Route 24, Chester, New Jersey 07930 on December 7, 2005, at 10:30
a.m., for the following purposes, all as more fully described in the attached
Proxy Statement:
1. To elect four directors to serve until the 2006 Annual Meeting of
Stockholders and until their successors are elected and qualified (Proposal
One);
2. To ratify an amendment to the Company's Certificate of Incorporation
increasing the number of authorized common shares from 200,000,000 to
300,000,000 (Proposal Two);
3. To ratify and approve the Amendment to the Employment Agreement of
Steven D. Rudnik, President and Chief Executive Officer (Proposal Three);
4. To consider and act upon a proposal to ratify the appointment of
Rosenberg Rich Baker Berman & Company as the Company's independent registered
public accounting firm for the fiscal year ended December 31, 2005 (Proposal
Four); and
5. To transact such other business as may properly come before the meeting
and any and all adjournments thereof.
The Board of Directors has fixed the close of business on October 21, 2005,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting or any adjournment thereof.
You are requested to date, sign and return the accompanying form of proxy
in the envelope enclosed for that purpose (to which no postage need be affixed
if mailed in the United States) whether or not you expect to attend the meeting
in person. The proxy is revocable by you at any time prior to its exercise and
will not affect your right to vote in person in the event you attend the meeting
or any adjournment thereof. The prompt return of the proxy will be of assistance
in preparing for the meeting and your cooperation in this respect will be
appreciated.
By Order of the Board of Directors
/s/ Joerg H. Klaube
---------------------------------
Joerg H. Klaube, Secretary and
Chief Financial Officer
Chester, New Jersey
November __, 2005
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MAGNITUDE INFORMATION SYSTEMS, INC.
401 State Route 24
Chester, New Jersey 07930
--------------------------
PROXY STATEMENT
--------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 7, 2005
--------------------------
This Proxy Statement and the accompanying form of proxy is furnished to
stockholders of Magnitude Information Systems, Inc. ("Company") in connection
with the solicitation of proxies, in the accompanying form, by the Board of
Directors of the Company for use in voting at the Special Meeting of
Stockholders to be held at 401 State Route 24, Chester, New Jersey 07930 on
December 7, 2005, at 10:30 a.m., and at any and all adjournments thereof. Any
proxy given pursuant to this solicitation may be revoked by the person giving it
by giving notice to the Secretary of the Company in person, or by written
notification actually received by the Secretary, at any time prior to its being
exercised. Unless otherwise specified in the proxy, shares represented by
proxies will be voted FOR the election of the nominees listed herein.
The Company's executive offices are located at 401 State Route 24 Chester,
New Jersey 07930. On or about November __, 2005, this Proxy Statement and the
accompanying form of proxy, together with a copy of the Company's Annual Report
on Form 10-KSB, as amended, for the fiscal year ended December 31, 2004,without
exhibits, are to be mailed to each stockholder of record as of the close of
business on October 21, 2005.
VOTING SECURITIES
The Board of Directors has fixed the close of business on October 21,
2005, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Special Meeting. Only stockholders of record at
the close of business on that date will be entitled to vote at the Special
Meeting or any and all adjournments thereof. As of October 21, 2005, the Company
had issued and outstanding 139,106,672 shares of Common Stock, the Company's
only class of voting securities outstanding. Each stockholder of the Company
will be entitled to one vote for each share of Common Stock registered in his
name on the record date. The presence, in person or by proxy, of a majority of
all of the outstanding shares of Common Stock constitutes a quorum at the
Special Meeting. Proxies relating to "street name" shares that are returned to
the Company but marked by brokers as "not voted" will be treated as shares
present for purposes of determining the presence of a quorum on all matters but
will not be treated as shares entitled to vote on the matter as to which
authority to vote is withheld by the broker ("broker non-votes"). The election
of directors requires a plurality vote of those shares voted at the Special
Meeting with respect to the election of directors. "Plurality" means that the
individuals who receive the largest number of votes cast "FOR" are elected as
directors. Consequently, any shares not voted "FOR" a particular nominee
(whether as a result of a direction to withhold authority or a broker non-vote)
will not be counted in such nominee's favor. All other matters to be voted on
will be decided by the affirmative vote of a majority of the shares present or
represented at the Special Meeting and entitled to vote. On any such matter, an
abstention will have the same effect as a negative vote, but because shares held
by brokers will not be considered entitled to vote on matters as to which the
brokers withhold authority, a broker non-vote will have no effect on the vote.
3
SHARE OWNERSHIP
The following table sets forth certain information as of October 21, 2005
(on which date 139,106,672 shares of the Company's Common Stock were
outstanding), with respect to (i) those persons or groups known to the Company
to beneficially own more than 5% of the Company's Common Stock, (ii) each
director and nominee, (iii) each executive officer whose compensation exceeded
$100,000 in fiscal 2005, and (iv) all directors and executive officers as a
group:
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership(1) Class
---------------- ---------------------- ----------
Ivano Angelastri 1,150,000 (2) 0.83%
Mark Chroscielewski - -
Senior Vice President
Business Development
Steven L. Gray 708,100 0.51%
Steven W. Jagels 622,083 (3) 0.45%
Senior Vice President
Information Systems
Joerg H. Klaube - -
Senior Vice President
Secretary and
Chief Financial Officer
Steven D. Rudnik 2,827,709 (4) 2.01%
Chief Executive Officer
President
Joseph J. Tomasek - -
Address of all persons above: c/o the Company.
All Directors and Executive Officers 5,307,892 3.76%
as a Group (7 persons)
Christoph Marti 10,300,000 (5) 7.13%
Kuerzestrasse 25, CH-4562 Biberist, Switzerland
Victor Cilli 13,666,666 (6) 9.32%
61 E. Central Ave., Maywood, N.J. 07607
James Morton 7,848,700 (7) 5.55%
* The Company also has issued and outstanding as of October 21, 2005, 305,666
shares of its Senior Convertible Preferred Stock, with concentrations in excess
of 10% for one or more of the holders of such stock, however, none of such
shares bear any voting rights.
4
- ----------------------------
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days of October 21, 2005. For purposes of
computing the percentage of outstanding shares of Common Stock held by
each person or group of persons named above, any security which such
person or persons has or have the right to acquire within such date is
deemed to be outstanding but is not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person. Except
as indicated in the footnote to this table and pursuant to applicable
community property laws, the Company believes based on information
supplied by such persons, that the persons named in this table have sole
voting and investment power with respect to all shares of Common Stock
which they beneficially own.
(2) Includes 425,000 shares and 125,000 warrants held by affiliates.
(3) Includes options to acquire 602,083 shares.
(4) Includes options to acquire 1,244,375 shares and warrants for 250,000
shares.
(5) Includes warrants for 5,300,000 shares.
(6) Includes 4,583,333 shares held by affiliates and warrants for 7,583,333
shares also held by affiliates.
(7) Includes warrants for 1,666,667 shares and 2,542,777 shares and warrants
for 688,000 shares held by affiliates.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
The Company's Certificate of Incorporation, as amended, and Restated Bylaws
provide for the Company's business to be managed by or under the direction of
the Board of Directors. Under the Company's Certificate of Incorporation, as
amended and Restated Bylaws, the number of directors is fixed from time to time
by the Board of Directors. The Board of Directors is currently fixed at a
minimum of four (4) and a maximum of nine (9). There are currently four members
on the Board of Directors. Pursuant to the Company's Certificate of
Incorporation, as amended, and Restated Bylaws, the Board of Directors, on
October 11, 2005, voted to nominate Steven D. Rudnik, Ivano Angelastri, Steven
Gray and Joseph J. Tomasek as Directors for a one (1) year term until the 2006
Annual Meeting.
The names and ages of all executive officers, directors and significant
employees of the Company are as follows:
Name Positions Term Served (Expires)
- -------- --------------- ---------------------------------
Steven D. Rudnik Director (Chairman Feb. 11, 2000 (2004)
of the Board)
President, Chief Executive Jan. 8, 1999 (March 2, 2004)
Officer
Mark Chroscielewski Sr. Vice President Jan.2, 2003
Business Development
Joerg H. Klaube Sr. Vice President, Secretary, Jul. 31, 1997 (April 15, 2004)
Chief Financial Officer
Steven W. Jagels Sr. Vice President Feb. 18, 1998
Steven L. Gray Director May 18, 2000 (2004)
Ivano Angelastri Director May 18, 2000 (2004)
Joseph J. Tomasek Director Feb. 11, 1999 (2004)
5
There are no family relationships among the Company's Officers and Directors.
Steven D. Rudnik, Age 46 - Chairman and Chief Executive Officer,
President. Mr. Rudnik personally developed many of the copyrighted software
products offered by Magnitude Information Systems. Mr. Rudnik co-founded Rolina
Corporation in 1996. Prior to 1996, Mr. Rudnik had executive level positions in
software product development and software company operations. In 1983, Mr.
Rudnik joined Randall-Helms International, Inc. Over the next 13 years, he
conceived and developed four independent families of stock market modeling
software products aimed at the worldwide "large cap" institutional investor
market. These product families generated over US$ 25 million in sales from more
than 400 clients in 23 countries. Mr. Rudnik was Executive Vice President and
Partner at Randall-Helms when it was sold in 1995.
Mark Chroscielewski, Age 47 - Senior Vice President Business Development.
Since joining the Company in January 2003 Mark Chroscielewski manages our
strategic alliances and develops new marketing strategies to present our
products to both the productivity and ergonomic segments of the corporate
marketplace. Prior to joining our Company, Mr. Chroscielewski was the principal
of a consulting firm, specializing in the development of proprietary data mining
software, modeled for corporate customers seeking an enterprise-wide application
for their customer relations management programs. This software was utilized by
Columbia/HCA, the largest healthcare enterprise in the world, to support its
healthcare claims protocol. Mark's experience includes the co-founding, in 1988,
of a multi-national software marketing enterprise, CrossZ International. As
Chairman and Chief Executive Officer, Mr. Chroscielewski grew this company to 80
plus employees, established international operations, sold product to many
fortune 100 companies including American Express, Philip Morris and MCI while
raising approximately $37 million in equity capital to fund its business and
growth. After participating in its initial public offering in 1997, CrossZ
Software was sold to an Italian consortium, Intelitec in 2002, and is now now
called CrossZ Solutions SA
Joerg H. Klaube, Age 64 - Chief Financial Officer, Senior Vice President.
Joined Magnitude, Inc. in December 1994. From 1993 to 1994 he was Vice President
Administration for Comar Technologies Inc., a computer retail firm, and from
1983 to 1993 Chief Financial Officer for Unitronix Corporation, a publicly
traded software design and computer marketing firm. Prior to that, Mr. .Klaube
was employed for 16 years with Siemens Corp., the US subsidiary of Siemens AG,
where he served most recently as Director of Business Administration for its
Telecommunications Division. He graduated from the Banking School in Berlin,
Germany, and holds an MBA degree from Rutgers University.
Steven W. Jagels, Age 46 - Senior Vice President Information Systems. Mr.
Jagels joined Magnitude in February 1998. Mr. Jagels has 20 years of software
development experience in such diverse disciplines as clinical laboratory
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analysis, stock market modeling, artificial intelligence, and retail business
applications. Mr. Jagels also has experience in the software industry, including
software management, project development, systems analysis, and training. Prior
to his software career, Mr. Jagels had five years experience in biomedical
engineering and management.
Steven L. Gray, Age 57 - Director. Mr. Gray was elected to serve on the
Board on May 18, 2000. He is a resident of Venice, Florida. For the past six
years, Mr. Gray has served as the President and is a shareholder of a private
Florida corporation engaged in the retail distribution of nutritional products.
This corporation has a customer base in nine countries. Prior to that time, Mr.
Gray ran his own real estate development company, specializing in the design and
construction of multi-family housing.
Ivano Angelastri, Age 43 - Director. Mr. Angelastri was elected to serve
on the Board on May 18, 2000. He is a resident of Zurich, Switzerland. Mr.
Angelastri has been active in portfolio management services for many years.
Since January 24, 2001 he is a director of T&T Vermoegensverwaltungs AG, Zurich,
Switzerland, whose main business is asset management and financial consulting
services for private and institutional clients. Prior to his current position,
Mr. Angelastri served as Managing Director of Megan Services where he performed
financial advisory and portfolio management services.
Joseph J. Tomasek, Age 58 - Director. Mr. Tomasek was appointed a director
in February 2000. He has been engaged in the private practice of corporate and
securities law in his own law firm for the last ten years. Mr. Tomasek was
appointed to serve as general counsel for the Company in 1999. In addition to
his work with the Company, Mr. Tomasek represents several other clients in the
area of corporate law.
EXECUTIVE COMPENSATION
The following table sets forth all compensation and executive capacities for the
fiscal years ended December 31, 2004, December 31, 2003, and December 31, 2002,
for the chief executive officer and for each executive officer whose aggregate
cash remuneration exceeded $100,000, for all executive officers as a group, and
for certain other most highly compensated employees:
- -----------------------------------------------------------------------------------------------------------------------------------
Other Restricted Securities All
Name and Annual Stock Underlying Other
Principal Position Year Salary ($) Bonus ($) Compensation($) Awards ($) Options ($) Compens.($)
------------------ ---- ---------- --------- --------------- ---------- ----------- -----------
(1) (2) (3) (4) (5)
- -----------------------------------------------------------------------------------------------------------------------------------
Steven D. Rudnik 2004 133,333(6) 13,364 36,000 - 3,250
Chief Executive Officer, 2003 133,333(7) - 15,262 27,000 - 3,250
President 2002 133,333(8) - 12,560 42,000 - 3,250
- ---------------------------------------------------------------------------------------------------------------------------------
Mark Chroscielewski 2004 125,000 - 6,000 - - 8,400
Sr. Vice President 2003 125,000 - 6,000 - - 8,400
Business Development 2002 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Joerg H. Klaube 2004 125,000 - 11,404 36,000 - 1,710
Sr. Vice President, 2003 125,000 - 11,404 67,000 - 1,710
CFO 2002 125,000 - 9,087 42,000 - 1,710
- ---------------------------------------------------------------------------------------------------------------------------------
Steven W. Jagels 2004 108,333 - 9,000 - - 1,940
Sr. Vice President 2003 108,333 - 11,083 - - 1,940
Information Systems 2002 108,333 - 9,000 - - -
- ---------------------------------------------------------------------------------------------------------------------------------
All executive officers
As a group (4 persons) 2004 491,666 - 39,768 72,000 - 15,300
- ---------------------------------------------------------------------------------------------------------------------------------
7
- -----------------------
(1) The value of other non-cash compensation, except for the items listed under
(2), (3), (4) and (5), that was extended to or paid for individuals named
above did not exceed 10% of the aggregate cash compensation paid to such
individual, or to all executive officers as a group.
(2) Consists of automobile expenses allowances and vacation pay-out.
(3) During 2004, the Board of Directors approved stock awards of 300,000
restricted shares to Rudnik and of 300,000 restricted shares to Klaube.
During 2003, the Board of Directors approved stock awards of 300,000
restricted shares to Rudnik and of 800,000 restricted shares to Klaube.
During 2002, the Board of Directors approved stock awards of 300,000
restricted shares each to Rudnik and Klaube. These shares are listed in the
table above at the market price for unrestricted stock quoted at the time
of the award. The number and value of the aggregate restricted stock
holdings at the end of fiscal year 2003 (using market prices of
unrestricted stock at the end of the fiscal year) are as follows: S.Rudnik:
4,744,445 shares - $616,778; J.Klaube: 1,400,000 shares - $182,000. The
valuation of stock awards and end-of-year holdings is in conformity with
guidelines set forth for SEC Regulation S-B Item 402 (b)(2)(iv). All such
shares are fully vested. The Company does not currently foresee to pay
dividends on any of these shares.
(4) .See table for "Stock Options" below.
(5) Consists of premiums for health and personal life insurance.
(6) During 2004, the Board of Directors approved the issuance of 16,667 shares
of Series E Senior Convertible Stock, since converted into 1,666,667
restricted shares, and warrants for the purchase of 833,333 common shares,
exercisable during three years at $0.15/share, in lieu of $100,000 cash
salary; the stated salary figure includes such common shares, valued at the
nominal $100,000 which they replaced.
(7) During 2003, the Board of Directors approved the issuance of 1,000,000
restricted shares in lieu of $100,000 cash salary; the stated salary figure
includes such shares, valued at the nominal $100,000 which they replaced.
(8) During 2002, the Board of Directors approved the issuance of 1,100,000
restricted shares in lieu of $110,000 cash salary; the stated salary figure
includes such shares, valued at the nominal $110,000 which they replaced.
(9) The value of other non-cash compensation, except for the items listed under
(2), (3), (4) and (5), that was extended to or paid for individuals named
above did not exceed 10% of the aggregate cash compensation paid to such
individual, or to all executive officers as a group.
8
STOCK OPTION GRANTS IN LAST FISCAL YEAR:
The Company did not grant any stock options to any officer, director
or employee of the Company during fiscal year 2004 under the Company's 1997
Stock Option Plan, the Company's 2000 Stock Incentive Plan, or outside of any
plan nor did any officer, director or employee of the Company exercise any
previously granted stock options or warrants during this period.
In May, 2005, the Company issued 1,000,000 shares of common stock
and 1,000,000 warrants, exercisable at $0.15 per share over three years, to our
president and chief executive officer in lieu of $100,000 cash of his base
salary for 2005.
Employment Agreements
In April 2002, the Company entered into an employment agreement with Steven D.
Rudnik, its current President and Chief Executive Officer, to serve as President
and Chief Executive Officer of the Company for a period of five years, replacing
an earlier employment agreement dated February 1998, as amended. Base salary
under the agreement is $133,333 per year with predetermined increases effective
upon the Company achieving certain revenue goals. The agreement also calls for
the grant of certain stock awards and incentive and non-statutory stock options
and eligibility for the Company's benefit programs. The Company will also
provide reimbursement of ordinary and necessary business expenses and a monthly
car allowance. The agreement provides for severance compensation to be
determined pursuant to a formula established therein, payable to the officer if
the employment agreement is terminated or is not renewed by the Company. A
non-competition/non-solicitation restriction applies for 24 months after
termination of employment. Proposal Three of this proxy statement seeks
shareholder approval to a proposed amendment to Mr. Rudnik's employment
agreement at page 18 of this proxy statement.
In April 2002, the Company entered into an employment agreement with Joerg H.
Klaube, its current Senior Vice President and Chief Financial Officer, to serve
in that capacity for a period of five years, replacing an earlier employment
agreement dated April 1996, as amended. Base salary under the agreement is
$125,000 per year with predetermined increases effective upon the Company
achieving certain revenue goals. The agreement also calls for the grant of
certain stock awards and incentive and non-statutory stock options and
eligibility for the Company's benefit programs. The Company will also provide
reimbursement of ordinary and necessary business expenses and a monthly car
allowance. The agreement provides for severance compensation to be determined
pursuant to a formula established therein, payable to the officer if the
employment agreement is terminated or is not renewed by the Company. A non-
competition/non-solicitation restriction applies for 24 months after termination
of employment.
In April 2002, the Company entered into an employment agreement with Steven W.
Jagels, its current Senior Vice President Information Technology, to serve in
that capacity for a period of five years. Base salary under the agreement is
$108,333 per year with predetermined increases effective upon the Company
achieving certain revenue goals. The agreement also calls for the grant of
certain stock awards and incentive and non-statutory stock options and
eligibility for the Company's benefit programs. The Company will also provide
reimbursement of ordinary and necessary business expenses and a monthly car
allowance. The agreement provides for severance compensation to be determined
pursuant to a formula established therein, payable to the officer if the
employment agreement is terminated or is not renewed by the Company. A
non-competition/non-solicitation restriction applies for 24 months after
termination of employment.
9
COMPENSATION OF DIRECTORS:
Outside directors are awarded stock options for 40,000 shares each upon
commencement of their office. In addition, the three incumbent outside directors
have been granted, in 2004, restricted stock awards for services rendered, as
follows: I. Angelastri 300,000 common shares; S. Gray 450,000 common shares, J.
Tomasek 800,000 common shares.
During 2004, one outside director of the Company who also serves as the
Company's general and securities counsel, was paid an aggregate $164,184 for
legal services. One other outside director was paid $10,400 for services
performed.
BOARD MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Meeting Attendance. During the fiscal year ended December 31, 2004, there
were 13 meetings of the Board of Directors. The Board of Directors has one
standing committee, the Audit Committee.
AUDIT COMMITTEE
The Company has appointed an Audit Committee in accordance with the
provisions of the Sarbanes-Oxley Act of 2002, comprised of two non-employee
directors, Steven Gray and Ivano Angelastri, who meet the definition of
independent pursuant to the rules of the SEC and the rules applicable to
companies whose securities are traded on the Electronic Bulletin Board, OTC
market maintained by the National Association of Securities Dealers, Inc. Steven
Gray meets the definition of an Audit Committee Financial Expert as such term is
used in the rules and regulations of the SEC. The Board of Directors has adopted
a written charter, a copy of which is included in this proxy statement as
Exhibit D. The Audit Committee's responsibilities include: overseeing the
integrity of the Company's financial statements, the Company's compliance with
legal and regulatory requirements, the independent auditor's qualifications and
independence, the performance of the Company's independent auditors and other
matters as may be assigned by the Board of Directors. The Audit Committee did
not issue any reports during fiscal year 2004.
The Board of Directors performed the functions of the compensation
committee, reviewing, negotiating and approving the proposed Amendment to
Employment Agreement of Steven D. Rudnik, our President and Chief Executive
Officer, subject to the approval of Company stockholders, and is discussed in
this proxy statement under Proposal Three found at page 18 below. In addition,
the Board of Directors performed the functions of a nominating committee, and
each of our directors, Steven D. Rudnik, Steven Gray, Ivano Angelastri and
Joseph Tomasek participates in the consideration of director nominees. The Board
of Directors has not yet appointed a nominating committee nor has it adopted a
charter for such a committee prior to the date hereof. The Board of Directors
believes that it can serve and perform the functions of a nominating committee,
to wit, selecting and recommending individual nominees for election to the
Board, as it is presently constituted. Board members Steven Gray and Ivano
Angelastri, serving in their capacities as Board members performing the
functions of a nominating committee, are deemed independent under the rules
applicable to companies whose securities are traded on the Electronic Bulletin
Board, OTC market maintained by the National Association of Securities Dealers,
Inc. The Board of Directors has not adopted a policy with regard to the
consideration of any director candidates recommended by stockholders since prior
to the date of this proxy statement, no stockholder has ever recommended a
director candidate to management or to the Board of Directors.
10
Independence of Directors
- -------------------------
The Company's common stock is listed for trading on the Electronic bulletin
Board and follows the NASD rules in determining whether a director is
independent. The Board of Directors also consults with counsel to ensure that
the Board's determinations are consistent with those rules and relevant
securities and other laws regarding director independence. Consistent with these
considerations, the Board of Directors has affirmatively determined that Steven
Gray and Ivano Angelastri will be independent directors for the ensuing year.
The remaining directors are not independent because they are either employed by
the Company or are paid over $60,000 per year for services rendered to the
Company.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers to file with the SEC initial reports of ownership and
changes in ownership of our Common Stock during the fiscal year ended December
31, 2004. We believe that our officers and directors complied with all these
filing requirements during the fiscal year.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 31, 2000, the Company and its President and Chief Executive
Officer agreed to convert a current liability payable to him in the amount of
$374,890 into a Company obligation, of which $100,000 was subsequently
classified as due on demand, which was repaid in April 2002, with the remaining
balance of $274,890 maturing July 1, 2002. On February 19, 2002, the maturity of
the term portion of $274,890 was extended to July 2003, and the board of
directors of the Company approved a change in the conversion option towards a
rate of $0.10 per share. In January 2004, $175,000 was repaid and the maturity
of the remaining open balance of $99,890 was extended to January, 2005. This
amount is currently open and unpaid and payable on demand.
In January 2004, the Company and its President and Chief Executive Officer
agreed to convert most of his base salary for the remainder of the year 2004
into 16,667 shares of convertible preferred stock, convertible into 1,666,667
restricted common shares, and 833,333 warrants, exercisable during three years
at the price of $0.15 per share, in lieu of $100,000 cash. The Company also
repaid $239,088 notes payable due to this officer.
During the first quarter in 2004, an outside director of the Company was
awarded a stock grant for 150,000 restricted common shares, for services
rendered. The same director exercised an option for 250,000 restricted common
shares at the price of $0.01 per share which option was acquired by him in a
private transaction with an unrelated party.
During the third quarter, five directors and officers of the Company
received a total 1,500,000 restricted common shares as remuneration for services
as members of the board of directors. One outside director who also serves as
the legal and securities counsel of the Company received 500,000 restricted
common shares as compensation for his commitment and agreement to continue to
invoice the Company for legal services at a reduced rate, in connection with
legal services rendered during fiscal year 2004.
11
During the third quarter the Company's chief executive officer extended
short term loans aggregating $100,000 to the Company. These loans carried
interest at the rate of 10% per year and were subject to a loan origination fee
of 4%. At December 31, 2004, all such loans had been repaid.
During 2004, one outside director of the Company who also serves as the
Company's general and securities counsel, was paid an aggregate $164,184 for
legal services. One other outside director was paid $10,400 for services
performed.
Shareholder Communications with the Board
Shareholders wishing to communicate with members of the Board of Directors
or with the audit committee may send an email to shareholder@magnitude.com,
indicating to which director or directors the email should be directed.
Alternatively, shareholders may send a letter to the Secretary of the Company
with instructions as to which director(s) is to receive the communication. The
Company's Secretary will forward the written communication to each member of the
Board of Directors identified by the security holder or, if no individual
director is identified, to all members of the Board of Directors.
Director Attendance at Special and Annual Meetings of Shareholders
The Company's policy is to request that each director attend the Company's
all annual and special meetings of shareholders. All of the Company's directors
attended the last meeting of shareholders in 2000.
MATTERS TO BE BROUGHT BEFORE THE MEETING
PROPOSAL ONE
ELECTION OF DIRECTORS
The Board of Directors is currently comprised of four (4) members whose
terms expire at the next annual meeting of shareholders or until their
successors are duly elected and qualified.
We have nominated Steven D. Rudnik, Steven L. Gray, Ivano Angelastri and
Joseph J. Tomasek for terms that will expire at our next annual meeting in the
year 2006.
Unless you indicate that your vote is withheld, the proxies
solicited by the Board of Directors will be voted FOR the election of the
nominees. In case any of the nominees become unavailable for election to the
Board of Directors, an event which is not anticipated, the persons named as
proxies, or their substitutes, shall have full discretion and authority to vote
or refrain from voting for any other candidate in accordance with their
judgment.
The nominees, their ages, the year in which each began serving as a
director, and their business experience is set forth above at page 5 of this
proxy statement
12
PROPOSAL TWO
INCREASE IN AUTHORIZED COMMON SHARES
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
On October 11, 2005 the Board of Directors unanimously approved an
amendment to the Company's Certificate of Incorporation to permit the Company to
issue up to 300,000,000 shares of common stock. The resolution was as follows:
"RESOLVED, that the Company's Certificate of Incorporation shall be amended
to increase the common shares that the Company is authorized to issue from
200,000,000 to 300,000,000 shares."
The Board directed that the amendment be voted on by stockholders and a
copy of the proposed Amendment to the Company's certificate of incorporation is
included in this proxy statement as Exhibit A.
PURPOSE AND APPROVAL OF AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE AUTHORIZED SHARES OF COMMON STOCK
The Company's Certificate of Incorporation, as amended, currently authorizes the
issuance of 200,000,000 shares of Common Stock. The Company's Board of Directors
has unanimously adopted, subject to stockholder approval, an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of the Company's Common Stock from 200,000,000 shares to 300,000,000
shares. As of October 21, 2005, the Company has 139,106,672 shares of issued and
outstanding Common Stock, outstanding options to purchase 7,448,074 shares of
Common Stock as well as 47,519,350 outstanding common stock purchase warrants
and convertible preferred stock, convertible into 13,004,805 shares of Common
Stock. Of the 13,004,805 common shares underlying our outstanding convertible
preferred stock, 11,247,607 are only issueable in March, 2006, upon the
automatic conversion of the 112,476 Series E preferred shares issued to our
officers and directors in exchange for their surrender and cancellation of
11,247,607 common shares in September, 2005, to provide sufficient shares to
accommodate the Company's current private placement.
In September, 2005, our officers and directors surrendered for cancellation
4,507,709 stock options, 2,283,916 common stock purchase warrants and 11,247,607
common shares in order to provide sufficient authorized common shares to
accommodate the Company's current private placement. We replaced the surrendered
and cancelled common shares with shares of our Series E preferred stock which
are automatically convertible in March, 2006, into 11,247,607 common shares, the
amount of common shares equal to those surrendered. We also intend to reissue
the 4,507,709 stock options, and reserve and set aside 4,507,709 common shares
underlying these stock options, and to reissue 2,281,916 warrants, and reserve
and set aside 2,281,916 common shares underlying these warrants, to our officers
and directors to replace their previously canceled stock options, warrants and
the common shares underlying these securities following adoption by the
shareholders of the proposed amendment.
Each share of the Company's Common Stock entitles the holder to one vote on each
matter submitted to a vote of stockholders. There is no cumulative voting. The
holders of the Company's Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. Holders of the Company's
Common Stock have no preemptive, conversion or other subscription rights. There
are no redemption or sinking fund provisions available to the Company's Common
Stock.
13
The general purpose and effect of the amendment to the Company's Certificate of
Incorporation is to authorize 100,000,000 additional shares of Common Stock. The
Board of Directors has approved this amendment to provide additional common
shares: to accommodate outstanding options, warrants and convertible securities;
to provide sufficient common shares necessary to replace the 4,507,709 stock
options and 2,281,916 warrants surrendered by our officers and directors and
which stock options and warrants will have terms and provisions identical to
those surrendered, and will have an equal amount of underlying common shares as
those surrendered; to provide the 11,247,607 common shares necessary to replace
those previously surrendered for cancellation by our officers and directors
which will accommodate the automatic conversion in March, 2006 of the Series E
preferred stock issued to our officers and directors, and; to accommodate the
contemplated issuance of up to 8,333,332 common shares in our current private
placement.
At the present time, your Board of Directors intends to utilize an aggregate
18,037,232 of the new common shares to be authorized to underlie the 4,507,709
stock options, 2,281,916 common stock purchase warrants and the 112,476 Series E
preferred shares we will reissue or issue to replace those securities previously
surrendered by our officers and directors for cancellation, following the
adoption of the subject amendment. Apart from utilizing these new common shares
in connection with the replacement of stock options, warrants and common shares
for our officers and directors and except as intended for issuance in our
current private placement the Board of Directors has no other current plan,
arrangement or proposal to issue any additional shares of Common Stock. However,
you should know that if the Board of Directors deems it to be in the best
interests of the Company and the stockholders to issue additional shares of
Common Stock in the future from authorized shares, the Board of Directors
generally will not seek further authorization by vote of the Stockholders,
unless such authorization is otherwise required by law or regulations.
OUR OUTSTANDING PREFERRED STOCK
Our Outstanding Series A, Series C and Series E Preferred Stock.
We have issued an aggregate (1) 29,300 shares of Series A Preferred Stock, (2)
100,000 shares of Series C Preferred Stock and (3) 112,476 shares of Series E
Preferred Stock. The Series A and C preferred shares are presently convertible
into 1,757,198 common shares while the 112,476 Series E preferred shares are
automatically convertible into 11,247,607 common shares in March, 2006.
TERMS OF OUR 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-Special cumulative dividends before any dividends are declared
and paid upon the Common Stock, but on par with the holders of any Series B
Stock and Series C Stock, calculated against their liquidation price of $5.00
per share at the rate of 7% Specially 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% Specially. 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.
14
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.
TERMS OF OUR 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% Specially. 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.
TERMS OF OUR SERIES E STOCK
As stated above, we have 112,476 shares of Series E Stock currently
outstanding. Our shares of Series E Stock are automatically convertible into 100
Company common shares six months after their issuance, and will convert into an
aggregate 11,247,607 common shares. The Series E Stock accrues cumulative
dividends at the rate of 6% per annum on the stated value of the shares, payable
in cash upon their automatic conversion date and when declared by the Board of
Directors. The Series E Stock has priority in dividend payments over all of the
Company's common stock and all of the other series of Company preferred shares
outstanding. In the event of liquidation, the Series E Stock has rights to be
paid out of the net assets of the Company on a par, prorated basis with all of
the other series of outstanding preferred shares. The Company's outstanding
preferred stock have a liquidation preference and priority over the Company's
outstanding common stock. The holders of the Series E stock as well as the
holders of all other series of outstanding preferred shares, have no voting
rights.
The officers and directors who surrendered an aggregate 11,247,607 common shares
and received 112,476 Series E Stock in exchange, waived their rights to receive
any dividends associated with these shares of preferred stock.
1. Private Placements. Commencing in October,2004 and terminating in
April, 2005, we conducted a private placement and issued 13,970,000 units,
comprised of 14,220,000 common shares and 14,220,000 warrants, to 24
foreign-based and U.S. accredited investors at the subscription price of $0.10
per unit, raising gross proceeds of $1,422,000 and out of which the Company paid
aggregate fees of $101,000 to its Swiss and U.S. placement agents. Of this
15
amount, we paid one of our Swiss placement agents, S&I Consulting, $3,000 and
our other Swiss placement agent, Mr. Nicholas Rogivue, a finder's fee of
$20,000, and our U.S. placement agent vFinance, Inc., a placement fee of
$78,000. Commencing in July, 2005 and continuing through the date hereof, we are
engaged in our current private placement and have issued and have irrevocable
subscription agreements to issue an aggregate 9,083,333 units, comprised of
9,083,333 common shares and 9,083,333 warrants, to 6 foreign-based and U.S.
accredited investors at the subscription price of $0.06 per unit, raising gross
proceeds of approximately $545,000 and out of which the Company will pay
aggregate finder's fees to its Swiss placement agents of $12,000. We expect to
raise an additional approximate $250,000 in gross proceeds in our current
private placement upon these same terms which shall result in the issuance of an
additional 4,166,666 units, comprised of 4,166,666 common shares and 4,166,666
warrants. As a result of their continuing investments in our securities, Messrs.
Christoph Marti of Switzerland and Victor Cilli and James Morton of the U.S.,
each currently own in excess of 5% of our outstanding common shares: see, the
table under "SECURITY OWNERSHIP", below.
2. Stock Options, Warrants and Common Shares Surrendered for Cancellation.
In September, 2005, our officers and directors surrendered an aggregate
4,507,709 stock options, 2,281,916 common stock purchase warrants and 11,247,607
common shares in order to accommodate the Company's need to have available
common shares for its current private placement. We issued 112,476 shares of our
Series E convertible preferred shares to our officers and directors in exchange
for the cancellation of their aggregate 11,247,607 common shares. These Series E
preferred shares will automatically convert in March, 2006, into an amount of
common shares equal to those common shares. Following the adoption of the
Amendment to our Certificate of Incorporation, increasing our authorized common
shares from 200,000,000 to 300,000,000, we intend to replace all of the stock
options and common stock purchase warrants surrendered by our officers and
directors, without any change, modification or amendment of any of their terms
or provisions. In addition, we will authorize the issuance of the 11,247,607
common shares to underlie the 112,476 Series E preferred shares issued to our
officers and directors which are necessary to accommodate the automatic
conversion of these preferred shares in March, 2006.
3. Stock Issued in Lieu of Salary. In May, 2005, we issued
1,000,000 units, comprised of 1,000,000 common shares and 1,000,000 warrants, to
Steven D. Rudnik, our President, Chief Executive Officer and a Director, in lieu
of paying him $100,000 cash of his salary for fiscal year 2005. The 1,000,000
units paid to Mr. Rudnik, valued at the then private placement unit price of
$0.10 per unit, are equivalent to the $100,000 in salary for which these units
were issued.
4. Stock Issued for Consulting Services. Beginning in January, 2005 and
continuing through the date hereof, we issued an aggregate 3,350,000 common
shares and 1,200,000 stock options to consultants for investor relations and
general business consulting services rendered to the Company pursuant to the
terms of their consulting agreements.
As of October 21, 2005, we have outstanding 139,106,672 common shares, currently
exercisable stock options to purchase 7,448,074 common shares, warrants to
purchase 47,519,350 common shares all of which are currently exercisable,
convertible preferred stock, presently convertible into 1,757,198 common shares,
and irrevocable subscription agreements in our current private placement to
issue 1,500,000 common shares and common stock purchase warrants. These
outstanding securities currently require an authorized amount of 197,664,628
common shares, which amount does not include the aggregate 8,333,332 common
shares we contemplate issuing in our current private placement in the form of
4,166,666 units at the price of $.06 per unit to raise an approximate $250,000
in additional gross proceeds, with such units requiring 4,166,666 common shares
16
and 4,166,666 warrants, with an equivalent number of common shares underlying
these warrants. Following the reissuance of the stock options and common stock
purchase warrants to replace the 6,789,625 securities previously surrendered for
cancellation by our officers and directors, as well as authorizing the issuance
of 11,247,607 common shares to accommodate the conversion of the Series E
preferred shares and the issuance of 1,500,000 common shares and equivalents
pursuant to irrevocable subscription agreements and an aggregate 8,333,332
common shares and equivalents we plan to issue in our current private placement,
we will have 224,035,192 common shares outstanding on a fully diluted basis,
comprised of 151,270,946 outstanding common shares, currently exercisable stock
options to purchase 11,955,783 common shares, warrants to purchase 54,884,599
common shares and convertible preferred stock, convertible into 1,757,198 common
shares.
Accordingly, if our shareholders approve the amendment to our Certificate of
Incorporation to increase our authorized common shares from 200,000,000 to
300,000,000, we will utilize an aggregate 224,035,192 authorized common shares
to cover our existing and projected common share requirements. Except for the
plan to use the approximate 8,333,332 common shares and equivalents for our
current private placement needs, the Board of Directors has no other plans,
proposals or arrangements to issue any of the newly authorized shares of common
stock to effect any acquisitions, equity financings, stock dividends or stock
splits or other transactions that would involve the issuance of our common
stock.
In the event shareholders do not vote to approve the amendment to our
certificate of incorporation, increasing our authorized common shares to
300,000,000, we will not be able to: (1) replace the 6,791,625 options and
warrants as well as the 11,247,607 common shares previously surrendered by our
officers and directors for cancellation; (2) issue any of the 8,333,332 units we
intend to sell in our current private placement to new investors to raise
additional gross proceeds of approximately $250,000, the result of which could
have a material adverse effect on our plan of operations and financial
condition, requiring that we terminate employees and or reduce other costs of
our operations, or (3) issue any new common shares or their equivalents for any
proper corporate purpose, including stock issuances for equity financings or for
services rendered to the Company.
Potential Anti-Takeover and Other Effects of the Proposed Amendment
The increase in the authorized number of shares of Common Stock could have
some negative consequences to shareholders. The authorization of new shares of
Common Stock will not, by itself, have any effect on the rights of holders of
shares of Common Stock.However, the issuance of new shares of Common Stock could
affect the holders of our shares of the Common Stock in a number of ways. For
example, the voting power of our outstanding Common Stock will be diluted to the
extent we issue additional shares of Common Stock in the future. Also, the
issuance of Common Stock may result in a dilution of earnings per share of the
Common Stock.
The increase in the authorized number of shares of Common Stock could have an
anti-takeover effect. If the Company's Board of Directors desires to issue
additional shares in the future, such issuance could dilute the voting power of
a person seeking control of the Company, thereby deterring or rendering more
difficult a merger, tender offer, proxy contest or an extraordinary corporate
transaction opposed by Company management. Our Board has not proposed the
amendment to increase the authorized Common Stock for the purpose of making it
more difficult for a third party to acquire the Company, and Company management
is not aware of any specific proposal or takeover attempt by any third party at
the current time. However, the additional Common Stock authorized by this
amendment could be issued by Company management to discourage or defeat an
attempt to change control of the Company. For example, the Company could
privately place shares with purchasers who might side with the Board of
Directors in opposing a hostile takeover bid.
17
The Company's Existing Anti-Takeover Defenses
The Company's Articles of Incorporation do not contain any other provisions
which the Company reasonably believes has anti-takeover effects. Our Articles of
Incorporation and Bylaws contain other provisions that may have relevance in a
contest for control of the Company but which are not properly characterized as
takeover defenses. For example, our Bylaws contain procedural requirements with
respect to proposals by shareholders or nominations for directors at special or
annual meetings.
The Amendment to increase the number of authorized shares will have no effect on
the legal rights of the holders of the existing shares of Common Stock.
THE BOARD OF DIRECTORS HAS ADOPTED RESOLUTIONS THAT SET FORTH THE AMENDMENT,
DECLARE THE ADVISABILITY OF THE AMENDMENT, AND SUBMIT THE AMENDMENT TO THE
STOCKHOLDERS FOR APPROVAL. THE BOARD RECOMMENDS APPROVAL OF THE AMENDMENT BY THE
STOCKHOLDERS.
18
PROPOSAL THREE
APPROVAL OF AMENDMENT TO THE EMPLOYMENT AGREEMENT
FOR
STEVEN D. RUDNIK, PRESIDENT AND CHIEF EXECUTIVE OFFICER
On October 11, 2005, the Board of Directors approved an amendment to the
Company's current employment agreement with Steven D. Rudnik, our President and
Chief Executive Officer, subject to the approval of the Company's shareholders.
A copy of Mr. Rudnik's current Employment Agreement with the Company dated April
15, 2002, is included in this proxy statement as Exhibit B; a copy of the
proposed Amendment to Mr. Rudnik's Employment Agreement is included in this
proxy statement as Exhibit C.
CURRENT EMPLOYMENT AGREEMENT
In April, 2002, the Company entered into an employment agreement
with Steven D. Rudnik, the President and Chief Executive Officer, to serve in
such capacities for a five year term, ending in April, 2007. Pursuant to the
terms of this agreement, Mr. Rudnik is entitled to receive a base salary of
$133,333 each year of the term. Upon attainment by the Company of gross revenues
in amounts commencing at $750,000 and for each $250,000 increase in gross
revenues thereafter, the Company agreed to pay Mr. Rudnik an $11,111 increase in
the base salary for each remaining year during the term of the agreement. Mr.
Rudnik is also eligible to receive stock grants in the amount of 20,833 shares
upon the Company's attainment of gross revenues of $750,000 and for each
$250,000 increase in gross revenues thereafter up to $2,000,000, Mr. Rudnik may
earn additional stock grants of 20,833 shares; upon the attainment of $2,500,000
of gross revenues and for each $500,000 increase in gross revenues up to
$4,000,000, Mr. Rudnik may earn additional stock grants of 25,000 shares. Upon
attainment of $750,000 in gross revenues and for each $250,000 increase
thereafter up to $2,000,000, Mr. Rudnik may earn stock options to purchase
24,306 common shares at the exercise price that is the greater of $.10, or that
amount represented by the average trading price of the Company's common shares
during the 20 successive trading days immediately preceding the vesting dates of
the applicable stock options, as reported by the Electronic Bulletin Board,
over-the-counter market or on any successor stock exchange; upon the attainment
of $2,500,000 of gross revenues and for each $500,000 increase thereafter up to
$4,000,000, Mr. Rudnik shall receive stock options to purchase 100,000 shares.
As of the date of this proxy statement, the Company has not made any increased
base salary payment nor has it issued any stock grants or stock options to Mr.
Rudnik based upon the attainment of gross revenues. In addition, the Company
pays Mr. Rudnik a car allowance in the amount of $900 per month as well as
reimbursement for all maintenance and insurance costs for the automobile. As
well, the Company reimburses Mr. Rudnik for the reasonable, ordinary and
necessary pre-approved business expenses incurred by him during the scope of his
employment. The Company maintains a term life insurance policy on Mr. Rudnik's
life in the face amount of $2,000,000, payable to his designated beneficiaries.
In the event the Company terminates his employment during the term for reasons
other than "Cause", the Company shall pay Mr. Rudnik a severance benefit equal
to six months of his then base salary. This agreement requires Mr. Rudnik to
abide by the non-competition, confidentiality and restrictive covenants for a
period of 24 months following any termination of his employment with the
Company.
During the past four years of the term of Mr. Rudnik's employment
agreement, Mr. Rudnik has offered, and the Board of Directors has accepted, to
exchange between $100,000 and $110,000 of his cash base salary for restricted
Company securities during each of these four years. These exchanges, including
the one made during the current year of 2005, has permitted the Company to save
a significant portion of its cash, $410,000 to date. The "conversion rate" used
19
during these four exchange transactions, permitting the issuance of securities
to Mr. Rudnik in lieu of part of his base salary, historically has been based
upon the then most current private placement offering terms to prospective
accredited investors. During 2002, the Company's private placement offered
accredited investors restricted common shares at the price of $.10 per share and
that price was utilized by the Board of Directors as the conversion rate in
exchange for $110,000 of Mr. Rudnik's 2002 cash base salary, resulting in the
issuance to him of 1,100,000 restricted common shares; during 2003, the
conversion rate was $.10 per share, resulting in the issuance of 1,000,000
common shares; in 2004, the applicable private placement terms to prospective
investors was $.06 for a "Unit", consisting of one (1) restricted common share
and one-half (1/2) warrant to purchase a common share at the exercise price of
$0.15, and Mr. Rudnik was issued 1,666,666 restricted common shares and warrants
to purchase 833,333 common shares at the exercise price of $0.15 per share, and;
during the current 2005 year, the conversion rate was also based upon the
Company's private placement of Units, at the price of $.10 per unit, with each
unit composed of one (1) common share and one (1) warrant, exercisable at the
price of $0.15 per share.
AMENDMENT TO EMPLOYMENT AGREEMENT
The proposed "Amendment" to Mr. Rudnik's current employment agreement
retains all of the material terms and provisions discussed above and seeks to
add two (2) new provisions: the first seeks to extend the employment term for
approximately three and one-half (3 1/2) years, from April 14, 2007, the end of
the employment term currently in effect under the employment agreement, to
December 31, 2010, and; the second seeks to continue to provide Mr. Rudnik with
the option to convert up to $100,000 of his cash base salary into Company
securities.
Conversion of up to $100,000 of Base Salary into Company Stock During
the Remaining Five Years of the Employment Term. The Amendment proposes to
permit Mr. Rudnik the option to convert up to $100,000 of his cash base salary
during each of the next five (5) years at the fixed conversion equal to $.06 per
"Unit", with each Unit consisting of one (1) restricted common share and one (1)
warrant to purchase a share of common stock at the exercise price of $.15 per
share anytime during the three year period following conversion, which
conversion rights are only exercisable by Mr. Rudnik during any of the five
years only if the Company attains the following cumulative gross revenues on or
before the expiration of each of the five applicable years:
Maximum Amount of Base Amount of Cumulative Gross Revenues Required
Calendar Year Salary Convertible During Term to Exercise Conversion Right
- ------------- ------------------ ----------------------------------------
2006 $100,000 $1,000,000
2007 $100,000 $2,000,000
2008 $100,000 $3,000,000
2009 $100,000 $4,000,000
2010 $100,000 $5,000,000
If the Company does not attain at least $1,000,000 in cumulative gross
revenues on or before December 31, 2006, Mr. Rudnik's right to convert any of
his $100,000 cash base salary earned during calendar year 2006 automatically
terminates. If, however, the Company fails to attain cumulative gross revenues
of $2,000,000 on or before December 31, 2007, terminating Mr. Rudnik's
conversion right for the calendar year of 2007, but achieves cumulative gross
revenues of $7,000,000 two months later on March 1, 2008, Mr. Rudnik's rights to
exercise his conversion of up to $100,000 of his base salary during 2008, 2009
and 2010 become fully exercisable during each of these three years. If the
20
Company attains the cumulative gross revenues for each of the five calendar
years of the new term of his employment agreement and Mr. Rudnik exercises his
conversion rights for the maximum $100,000 each year, the Company will have
issued to him an aggregate 8,333,335 restricted common shares and 8,333,335
warrants to purchase an equal number of common shares at the exercise price of
$.15 per share. This cumulative 16,666,670 Company securities represents 8.0% of
our currently outstanding common shares, on a fully diluted basis, and if
Proposal Two is approved by shareholders, increasing the number of common shares
we can issue, we will replace Mr. Rudnik's 4,486,875 surrendered options and
warrants and also replace the options and warrants surrendered by the other
directors and officers and, subject to market conditions, we issue up to an
additional 8,333,332 units to prospective investors in our private placement,
Mr. Rudnik would beneficially own 28,035,192 outstanding common shares,
representing approximately 12.7% of our projected 223,035,192 outstanding common
shares, on a fully diluted basis.
Extension of Employment Term for Additional Three and One-Half (31/2)
Years. The term of Mr. Rudnik's employment under his existing employment
agreement was for five (5) years, commencing on April 15, 2002, and terminating
five years thereafter, on April 14, 2007. The amendment seeks to extend Mr.
Rudnik's employment term, from April 14, 2007 to December 31, 2010, an
additional three and one-half years.
THE BOARD OF DIRECTORS HAS ADOPTED RESOLUTIONS THAT SET FORTH THE AMENDMENT TO
MR. RUDNIK'S EMPLOYMENT AGREEMENT AND THE SUBMITTAL OF THE AMENDMENT TO THE
STOCKHOLDERS FOR APPROVAL. THE BOARD RECOMMENDS APPROVAL OF THE AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER BY THE
STOCKHOLDERS.
PROPOSAL FOUR
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Rosenberg Rich Baker Berman & Company, the
independent registered public accounting firm, to audit the financial statements
of the Company for the fiscal year ending December 31, 2005. The Board proposes
that the Stockholders ratify this appointment. Rosenberg Rich Baker Berman &
Company audited the Company's financial statements for the fiscal years ended
December 31, 2004 and restated those results which can be found in the copy of
the Company's Annual Report on Form 10-KSB, as amended, for the fiscal year
ended December 31, 2004, enclosed and delivered to Stockholders with this proxy
statement. The Company expects that representatives of Rosenberg Rich Baker
Berman & Company will be present at the Special Meeting, with the opportunity to
make a statement if they so desire, and will be available to respond to
appropriate questions.
Independent Auditors' Fees
- --------------------------
For the fiscal year ended December 31, 2004, the aggregate fees billed for
professional services rendered by Rosenberg Rich Baker Berman & Company for the
audit of the Company's financial statements and the reviews of its financial
statements included in the Company's quarterly reports totaled approximately
$40,307.
21
Tax Fees
- --------
For the fiscal year ended December 31, 2004, we paid Rosenberg Rich Baker
Berman & Company a total of $5,961 for tax compliance, tax advice and tax
planning to our auditors.
All Other Fees
- --------------
For the fiscal year ended December 31, 2004, there were no other fees
billed by Rosenberg Rich Baker Berman & Company, the Company's independent
auditors.
The affirmative vote of a majority of the shares at the Special Meeting is
required to ratify the appointment of the independent public accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF THE
APPOINTMENT OF ROSENBERG RICH BAKER BERMAN & COMPANY INDEPENDENT REGISTERED
PUBLIC ACCOUNTANTS, AND PROXY SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR
THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
WHERE YOU CAN FIND MORE INFORMATION
-----------------------------------
We are a public company and file Special, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any document we file at the SEC's public
reference room at 100 F Street, N.E., Washington, D.C. 20005. You can request
copies of these documents by writing to the SEC and paying a fee for the copying
cost. Please call the SEC at 1-800-SEC-0330 for more information about the
operation of the public reference room. Our SEC filings are also available to
the public at the SEC's web site at http://www.sec.gov. In addition, you can
read and copy our SEC filings at the office of the National Association of
Securities Dealers, Inc. at 1735 K Street, Washington, D.C. 20006.
You should rely only on the information contained or incorporated by
reference in this Proxy Statement. We have not authorized anyone else to provide
you with information that is different from what is contained or incorporated in
this Proxy Statement. This document is dated November __, 2005. You should not
assume that the information in this Proxy Statement is accurate as of any later
date, and the mailing of this Proxy Statement to stockholders shall not create
any implication to the contrary.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
-----------------------------------------------
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. We incorporate
by reference the documents listed below:
* Our Annual Report on Form 10-KSB for the fiscal year ended December 31,
2004, as amended, a copy of which accompanies this Proxy Statement.
22
SOLICITATION OF PROXIES
-----------------------
The solicitation of proxies in the enclosed form is made on behalf of the
company and the cost of this solicitation is being paid by the Company. In
addition to the use of the mails, proxies may be solicited personally or by
telephone or telephone using the services of directors, officers and regular
employees of the Company at nominal cost. Banks, brokerage firms and other
custodians, nominees and fiduciaries will be reimbursed by the Company for
expenses incurred in sending proxy material to beneficial owners of the
Company's stock.
OTHER MATTERS
-------------
The Board of Directors knows of no matter which will be presented for
consideration at the Special Meeting other than the matters referred to in this
Proxy Statement. Should any other matter properly come before the Special
Meeting, it is the intention of the persons named in the accompanying proxy to
vote such proxy in accordance with their best judgment.
STOCKHOLDER PROPOSALS FOR THE 2006 ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors has fixed December 15, 2006 as the date for our 2006
Annual Meeting of Shareholders. To be considered for inclusion in our proxy
statement relating to the 2006 Annual Meeting of Stockholders, stockholder
proposals must be received no later than August 15, 2006. Proposals not received
during that time frame will not be voted on at the Annual Meeting. If a proposal
is received during that time frame, the proxies that management solicits for the
meeting may still exercise discretionary voting authority on the proposal under
circumstances consistent with the proxy rules of the Securities and Exchange
Commission. All stockholder proposals should be marked for the attention of the
Secretary, Magnitude Information Systems, Inc., 401 State Route 24, Chester, New
Jersey 07930.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, YOU ARE URGED TO FILL
OUT, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE.
By order of the Board of Directors
Joerg H. Klaube, Secretary
Chester, New Jersey
November __, 2005
23
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE of INCORPORATION
OF
MAGNITUDE INFORMATION SYSTEMS, INC.
MAGNITUDE INFORMATION SYSTEMS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That by majority vote of the Corporation's Board of Directors
at a duly organized meeting held on September , 2005, pursuant to
Section 141 of the General Corporation law of the State of Delaware
(the "DGCL"), and pursuant to the written consents of shareholders
owning a majority of the Corporation's issued and outstanding common
shares on September 26, 2005, pursuant to Section 228 of the DGCL,
the following resolution was duly adopted:
RESOLVED, that the Board of Directors and the shareholders of the
Corporation hereby declare it advisable and in the best interests of
the Corporation that Article IV of the Corporation's Certificate of
Incorporation, filed with the Secretary of State, State of Delaware
on April 19, 1988, as amended (the "Certificate of Incorporation")
be amended to read as follows:
FOURTH: The aggregate number of shares of all classes of stock which
the Corporation is authorized to issue is 303,000,000 shares,
consisting of 300,000,000 shares of Common Stock, par value $.0001
per share, and 3,000,000 shares of Preferred Stock, par value $.001
per share.
SECOND: That the above stated amendment was approved by the Board of
Directors of the Corporation by majority vote pursuant to Section
141 of the DGCL and by written consents of the shareholders of the
Corporation owning a majority of the Corporation's issued and
outstanding common shares on September 26, 2005 pursuant to Section
228 of the DGCL.
THIRD: That the above stated amendment was duly adopted in accordance with
the provisions of Section 242 of the DGCL.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to
be signed by Steven D. Rudnik, President, an Authorized Officer, this ____ day
of ______, A.D. 2005.
MAGNITUDE INFORMATION SYSTEMS, INC.
By: ______________________________________
Steven D, Rudnik, President
24
EXHIBIT B
Employment Agreement
EMPLOYMENT AGREEMENT dated as of April 15, 2002 (the "Agreement")
between Magnitude Information Systems, Inc. (the "Company") and Steven D.
Rudnik, presently residing at 8 Knollwood Terrace, Chester, NJ 07930 (the
"Executive").
WHEREAS, Executive has represented to the Company that he has certain
valuable expertise and know-how in the area of early-stage software companies;
and
WHEREAS, based upon such valuable expertise and know-how the Company
wishes to employ the services of Executive; and
WHEREAS, the parties desire to enter into this Agreement in order to
insure Executive's employment by the Company, in such capacities and with such
duties as hereinafter set forth and to insure the Company that it will have the
benefit of his continued services for at least the Term of Employment herein
described;
NOW THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT AND DUTIES
1.1. General. The Company hereby employs Executive, and Executive
agrees to serve as Chairman, Chief Executive Officer and President of the
Company upon the terms and conditions herein contained. Executive agrees to
serve the Company faithfully and to the best of his ability under the direction
of the board of directors of the Company (the "Board"). Nothing contained herein
shall restrict Executive from acting as a director of or owning shares in other
companies not in competition with the Company, provided that such services and
ownership interests do not materially interfere with Executive's performance of
his duties hereunder. Executive shall report directly to the Board and shall
provide such reports as may be requested by the Board.
1.2. Exclusive Services. For so long as Executive is employed by the
Company, he shall devote his full-time working hours to his duties hereunder.
Executive shall not, directly or indirectly, render services to any other person
or organization for which he receives compensation without the prior written
approval of the Board or otherwise engage in activities which would interfere
with his faithful performance of his duties hereunder.
1.3. Term of Employment. Executive's employment under this Agreement
shall commence on the date hereof (the "Effective Date") and shall terminate
five (5) years after the Effective Date (the "Initial Term"), unless terminated
earlier due to death of Executive or Termination for Cause pursuant to this
Agreement; subject, however, to automatic renewals for additional two year terms
(the "Renewal Term(s)") except where the Company provides written notice of
non-renewal no later than six months prior to the expiration of the Initial Term
or any Renewal Term. The period commencing on the Effective Date and ending on
the fifth anniversary of the Effective Date, or such later date to which the
term of Executive's employment shall have been extended, or such earlier date as
may result from Termination for Cause or resignation, is hereinafter referred to
as the "Employment Term".
1.4 Representation. Executive hereby confirms that he is in good
health and has the mental and physical abilities to carry out and perform all of
the services required under the terms of this Agreement.
25
2. COMPENSATION
2.1. Base Salary. From the Effective Date, the Company shall pay
Executive a base salary ("Base Salary") at a rate of $133,333 per annum, payable
in accordance with the Company's payroll practices, as such practices may exist
from time to time. The Base Salary may be increased by up to an aggregate
$66,667 per annum during the Employment Term as follows: commencing at $-0- upon
April 1, 2002, upon the attainment during the Employment Term of each of the
below cumulative gross sales revenue amounts, determined in accordance with
generally accepted accounting principles consistently applied, and as set forth
below, the Base Salary shall be increased $11,111 annually, up to the maximum
$200,000 per annum:
Gross Sales Revenues Base Salary Increase (per annum)
-------------------- --------------------------------
$750,000 $11,111
$1,000,000 $11,111
$1,250,000 $11,111
$1,500,000 $11,111
$1,750,000 $11,111
$2,000,000 $11,111
Each of the above increases in the Base Salary shall be effective and added to
Executive's Base Salary for the next pay period following the Company's
attainment of each of the respective cumulative gross sales revenue amounts.
2.2. Stock Grants. From time to time and commencing at $-0- upon April
1, 2002, the Company shall issue to Executive the following stock grants
corresponding to the Company's attainment during the Employment Term of certain
cumulative gross sales revenue amounts, determined in accordance with generally
accepted accounting principles consistently applied, as follows:
Gross Sales Revenues Stock Grant Amounts
-------------------- -------------------
$750,000 20,833
$1,000,000 20,833
$1,250,000 20,833
$1,500,000 20,833
$1,750,000 20,833
$2,000,000 20,833
$2,500,000 25,000
$3,000,000 25,000
$3,500,000 25,000
$4,000,000 25,000
Each of the above stock grants shall fully vest and be delivered to Executive as
soon as practicable following the Company's attainment of the specified
cumulative Gross Sales Revenue amounts.
2.3 Stock Options. The Company hereby grants to Executive the following options
to purchase, subject to the Company's attainment of the cumulative gross sales
revenue amounts set forth below, commencing at $-0- upon April 1, 2002, and
determined in accordance with generally accepted accounting principles
consistently applied, the Company shall issue to Executive from time to time
Stock Options to purchase up to an aggregate 545,833 of the common shares of the
Company (the "Stock Option(s)"), exercisable at any time during the seven (7)
year period following the date of their grant and whose exercise price shall be
equal to the higher of $0.10 per share or that amount represented by the average
trading price of the Company's common shares during the 20 successive trading
26
day period immediately preceding the applicable date upon which any of the
following Stock Options shall fully vest or, in the case of a stock grant or
commission payable in the form of Company stock, on the date fully vested or on
the date earned, as reported in the Electronic Bulletin Board, over-the-counter
market or on any successor stock exchange (the "Market Price"), the designated
amounts of which shall fully vest from time to time upon the Company's
attainment of each cumulative level of gross sales revenue amounts in accordance
with the following schedule:
Gross Sales Revenues Amount of Fully Vested Stock Option
- -------------------- ------------------------------------
$750,000 24,306
$1,000,000 24,306
$1,250,000 24,306
$1,500,000 24,306
$1,750,000 24,306
$2,000,000 24,306
$2,500,000 100,000
$3,000,000 100,000
$3,500,000 100,000
$4,000,000 100,000
3. EMPLOYMENT BENEFITS
3.1. General Benefits. Executive shall receive the following benefits
during the Employment Term: (a) Executive will be eligible to participate in
benefit programs of the Company consistent with those benefit programs provided
to other senior managers of the Company excluding any key employee stock option
plans outside of this Agreement; and
(b) a fully paid medical/hospitalization policy for Executive and
his family.
3.2. Vacation. Executive shall be entitled to four weeks paid
vacation during the year 2002 and four weeks each year thereafter in accordance
with Company policies and procedures. Executive may only carry up to an
aggregate of five (5) vacation days from one calendar year to the next in
accordance with current Company policy.
3.3. Automobile Allowance. Executive will receive a $900 car
allowance per month and be responsible for mileage and all other car expense.
3.4. Reimbursement of Expenses. The Company will reimburse Executive
for reasonable, ordinary and necessary pre-approved business expenses incurred
by him in the fulfillment of his duties hereunder upon presentation by Executive
of an itemized account of such expenditures, in accordance with Company
practices consistently applied.
3.5. Severance. Provided Executive's termination is not based upon
"Cause" as defined in Section 4.2 below, the Company shall pay to Executive a
severance benefit equal to six (6) months of Executive's then Base Salary, in
the event such termination occurs during the remaining time of the Employment
Term, or in case of non-renewal of the Employment Term..
3.6 Life Insurance. The Company shall purchase and maintain during
the Employment Term a term life insurance policy, insuring the life of
Executive, providing a death benefit in the amount of $2,000,000 and which
proceeds shall be payable in such event to Executives designated beneficiaries.
27
4. TERMINATION OF EMPLOYMENT
4.1. Termination for Cause; Resignation.
4.1.1. General. If, prior to the expiration of the Employment Term,
Executive's employment is terminated by the Company for Cause, the only
compensation to which Executive shall be entitled is his Base Salary as then in
effect through and including the date of termination and his accrued unused
vacation and his earned cash commissions, if applicable, unless such termination
is for a Disloyalty Termination Event (as described in Section 4.2 below), in
which case the only payment to which Executive shall be entitled is his Base
Salary as then in effect through and including the date of termination and
accrued unused vacation. If Executive resigns from his employment hereunder, the
only payment to which Executive shall be entitled is his Base Salary as then in
effect through and including the date of resignation, accrued unused vacation
and severance as defined in section 3.5 above.
4.1.2. Date of Termination/Resignation. The date of termination for
a Felony Termination Event or Substance Abuse (as defined in Section 4.2 below)
shall be the date of the written Notice of Termination provided for in Section
4.1.3. The date of termination or cessation of employment for a Conduct,
Performance or Disloyalty Termination Event shall be the date thirty (30) days
after the Event is finally determined through applicable Company procedures
governing the conduct of employees. In the event termination for Conduct,
Performance or Disloyalty is disputed, the Company may, at its option, suspend
Executive with fifty percent (50%) of Executive's then current pay until such
dispute is resolved in accordance with this Agreement. The date of resignation
shall be the date specified in the written notice of resignation from Executive
to the Company, or if no date is specified by Executive therein, three (3)
business days after receipt by the Company of written notice of resignation from
Executive. In no event shall resignation date specified by Executive in any
written notice of resignation be more than thirty (30) days from the date of
such notice.
4.1.3. Notice of Termination for Felony Termination Event. Unless
first terminated by a written notice of the Board, termination of Executive's
employment for a Felony Termination Event (as defined in Section 4.2 below)
shall be effected by delivery of a written notice of termination from the
Company to Executive, which notice shall specify the event or events set forth
in Section 4.2 giving rise to such termination (the "Notice of Termination").
4.1.4. Arbitration. All disputes involving termination of
Executive's employment for a Conduct, Performance or Disloyalty Termination
Event shall be resolved by binding arbitration administered by the American
Arbitration Association (the "AAA") in accordance with the terms of this
Agreement, and the Commercial Arbitration Rules of the AAA. In the event of any
inconsistency between such rules and this Agreement, this Agreement shall
control. The arbitration process shall commence when Executive has received
written notice by the Company that Executive is being dismissed for any of the
above referenced reasons. Either party may then notify the AAA who shall then
supply the parties with a list of three potential arbitrators. Each party shall
then have four (4) business days from the date of receipt to object to one of
the potential arbitrators. The remaining potential arbitrator (and if more than
one is remaining, then one shall be selected by lot) shall serve as the single
arbitrator. Each party shall then have sixty (60) days to conduct discovery
pursuant to the terms and provisions of the New Jersey Rules of Civil Procedure.
Upon conclusion of the sixty (60) day period or such earlier time as the parties
may agree the parties shall participate in an arbitration proceeding in
accordance with the AAA's then current policies and procedures. The arbitration
proceedings shall be conducted in New Jersey at the offices of AAA or such other
place in New York as the parties shall mutually agree. The arbitrator shall be
empowered to impose sanctions and take such other actions as the arbitrator
deems necessary to the same extent a judge could do pursuant to the New Jersey
Rules of Civil Procedure and applicable law. Judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction. Each party shall
be responsible for their own expenses incurred in conjunction with any
arbitration proceeding or action.
28
4.2 Cause. Termination for "Cause" shall mean termination of
Executive's employment because Executive (a) has engaged in fraudulent or
criminal conduct in connection with the performance of his duties hereunder
which conduct materially and adversely affects the Company (a "Conduct
Termination Event"), (b) admits to or has been convicted of a crime punishable
by imprisonment for more than one year (a "Felony Termination Event"), (c) has
failed to perform (following a written warning specifying such deficiency and a
reasonable opportunity to cure) the normal and customary duties required of his
position of employment (a "Performance Termination Event"), (d) has been
disloyal to the Company by assisting competitors of the Company or their
associates to the disadvantage of the Company by a breach of Section 6 or by
otherwise actively assisting competitors to the disadvantage of the Company (a
"Disloyalty Termination Event"), or (e) has failed to cure after a notice of a
reasonable directive issued by the Board pertaining to conduct detrimental to
the Company and/or its business, a breach of this Agreement and shall include
but not be limited to alcohol and substance abuse, harassment and other such
actions which jeopardize the Company and or its business.
5. PERMANENT DISABILITY
In the event Executive shall fail, because of Illness, physical or
mental disability or other incapacity, for a period of three (3) consecutive
months, or for shorter periods aggregating four (4) months during any
twelve-month period, to render the services provided for by this Agreement, then
the Company may, by written notice to Executive after the last day of the three
(3) consecutive months of disability or the day on which the shorter periods of
disability equal an aggregate of four months, reduce Executive's compensation
hereunder for "Permanent Disability" as follows:
First Four Months No Reduction
Following 12 months Fifty percent (50%)
(or if less, the of compensation
balance of the
Employment Term)
Executive will use his reasonable best efforts to cooperate with any physician
practicing in the State of New Jersey selected by the Company to determine
whether or not Permanent Disability exists. To the extent a dispute should arise
with respect to whether or not Permanent Disability exists, Executive and the
Company shall each be entitled to select their own physician practicing in the
State of New Jersey having appropriate and acknowledged levels of expertise in
the area of the claimed disability, and the joint determination of such
physicians made in writing to the Company and Executive shall be final and
conclusive for all purposes of this Agreement; provided that if such physicians
cannot agree, the matter will be referred to arbitration in the manner set forth
in Section 4.1.4. Any payments provided for in this Section 5 shall be reduced
to the extent that such payments, together with any disability payments received
by Executive under any disability plan, program or arrangements, exceed
Executive's Base Salary. Except (i) as to the obligation to continue to pay
Executive's medical insurance premiums for a period of 18 months following
delivery of the written notice of "Permanent Disability" to Executive or (ii) as
otherwise provided herein, upon final determination of permanent disability, the
Company shall have no further obligation to Executive under this Agreement.
29
6. NON-COMPETITION/NON-SOLICITATION AND CONFIDENTIALITY
6.1. Non-competition/Non-solicitation. Executive 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/affiliates within the various states in which the Company or
its subsidiaries/affiliates conduct business; (b) solicit or endeavor to entice
away from the Company or any of its subsidiaries/affiliates any person who is,
or was during the then most recent 24-month period, employed by or a
subcontractor of the Company or any of its subsidiaries/affiliates; (c) solicit
or endeavor to entice away from the Company or any of its
subsidiaries/affiliates 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/affiliates for a competing product; or (d) perform any services
in competition with the Company or its subsidiaries/affiliates for or on behalf
of any such customer, client or prospect. For purposes of this paragraph, the
term "prospect" shall be mean those potential customers and/or contacts of the
Company and/or its subsidiaries/affiliates on the date of termination of this
Agreement, as determined and included in a then existing sales prospect report
maintained by the Company's sales management . The obligations of this Section
6.1 shall apply for 24 months after termination of employment of, or resignation
by Executive as well as after the end of the Term of Employment and during
employment and shall be extended by a period of time equal to any period during
which Executive shall be in breach of such obligations.
6.2. Confidentiality. Executive covenants and agrees with the
Company that he will not at any time, except in performance of his obligations
to the Company hereunder or with the prior written consent of the Company,
directly or indirectly, disclose any secret or confidential information that she
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 in the public domain, with respect to the
Company's, or any of its affiliates or subsidiaries, products, services,
facilities, applications and methods, trade secrets and other intellectual
property, systems, procedures, manuals, confidential reports, products 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.
6.3. Exclusive Property . Executive 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 Executive relating to the
business of the Company shall be and remain the property of the Company.
Similarly, all patents and/or inventions or new products developed by Executive,
alone or with others during the term of this Agreement shall constitute "work
product" as such term is generally used and shall remain the property of the
Company upon termination or expiration of this Agreement.
30
6.4. Injunctive Relief. Without intending to limit the remedies available
to the Company, Executive acknowledges that a breach of any of the covenants
contained in this Section 6 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 Executive from engaging in activities
prohibited by this Section 6 or such other relief as may be required
specifically to enforce any of the covenants in this Section 6 and, to the
extent it is successful on the merits, to obtain reimbursement for all its costs
and expenses reasonably incurred, including reasonable attorneys fees, in
connection with the enforcement of this Section 6. If for any reason a final
decision of any court determines that the restrictions under this Section 6 are
not reasonable or that consideration 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 Section 6 as will render such
restrictions valid and enforceable.
The parties hereto acknowledge and agree that the consideration given for
the non-competition clause contained in Section 6.1 above are the valuable and
substantial stock options set forth in Section 2.4 hereinabove.
7 MISCELLANEOUS
7.1. Notices. All notices or communications hereunder shall be in
writing, addressed as follows
To Company: Board of Directors
Magnitude Information Systems, Inc.
401 Route 24, Chester, New Jersey 07930
With copy to: Chief Financial Officer
Magnitude Information Systems, Inc.
401 Route 24, Chester, New Jersey 07930
To Executive: :Steven D. Rudnik
8 Knollwood Terrace, Chester, NJ 07930
Any such notice or communication shall be sent certified or registered mail,
return receipt requested, or by recognized overnight delivery service, addressed
as above (or to such other address as such party may designate in writing from
time to time), and the actual date of receipt, as shown by the receipt
therefore, shall determine the time at which notice was given.
7.2. Severability. If a court of competent jurisdiction determines that
any term or provision hereof is invalid or unenforceable, (a) the remaining
terms and provisions hereof shall be unimpaired and (b) such court shall have
the authority to replace such invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
7.3. Assignment. This Agreement shall inure to the benefit of the heirs
and representatives of Executive and the assigns and successors of the Company,
but neither this Agreement nor any rights hereunder shall be assignable or
otherwise subject to hypothecation by Executive.
31
7.4 Entire Agreement. This Agreement represents the entire agreement of
the parties and shall supersede any and all previous contracts, arrangements or
understandings between the Company and Executive with reference to the subject
matter hereof. This Agreement may be amended at any time by mutual written
agreement of the parties hereto.
7.5. Withholding. The Company shall be entitled to withhold, or cause
to be withheld, from payment any amount of withholding taxes required by law
with respect to payments made to Executive in connection with his employment
hereunder.
7.6. Governing Law. This Agreement shall he construed, interpreted, and
governed in accordance with the laws of New Jersey without reference to rules
relating to conflict of law.
IN WITNESS WHEREOF the Company has caused this Agreement to be duly
executed and Executive has hereunto set his hand, as of the day and year first
above written.
MAGNITUDE INFORMATION SYSTEMS, INC.
By: /s/ Joerg H. Klaube
----------------------------
32
Exhibit C
Amendment to Employment Agreement
This "Amendment" is dated as of October 17, 2005 and amends and modifies
that certain Employment Agreement, dated April 15, 2002 (the "Agreement"), by
and between Magnitude Information Systems, Inc. (the "Company") and Steven D.
Rudnik, presently residing at 2 Hilltop Road, Mendham, NJ 07945 (the
"Executive"), as follows:
A. Section 1.3., entitled "Term of Employment", shall be deleted in its
entirety and the following new Section 1.3 shall be substituted in lieu thereof:
1.3. Term of Employment. Executive's employment under this Agreement
shall commence on the date hereof (the "Effective Date") and shall
terminate on December 31, 2010 (the "Initial Term"), unless
terminated earlier due to death of Executive or Termination for
Cause pursuant to this Agreement; subject, however, to automatic
renewals for additional two year terms (the "Renewal Term(s)")
except where the Company provides written notice of non-renewal no
later than six (6) months prior to the expiration of the Initial
Term or any Renewal Term. The period commencing on the Effective
Date, or such later date to which the term of Executive's employment
shall have been extended, or such earlier date as may result from
Termination for Cause or resignation, is hereinafter referred to as
the "Employment Term".
B. A new Section 2.4, entitled "Salary Conversion Option" shall be
inserted following Section 2.3 at page three of the Agreement, as follows:
2.4. Salary Conversion Option. As undertaken by the Company
and Executive during each of the past four years of his employment,
the Company hereby grants to the Executive the option to convert up
to $100,000 of his Base Salary during each of the next five years of
the Employment Term at the fixed conversion rate equal to $.06 per
"Unit", with each Unit consisting of one (1) restricted common share
and one (1) common stock purchase warrant, which conversion right
for each such year is only exercisable by Executive if the Company
attains the following cumulative gross revenues on or before the
date of December 31st of each of the five applicable years according
to the following table:
Amount of Cumulative Gross
Revenues Required During
Maximum Amount of Base Year to Exercise
Calendar Year Salary Convertible Conversion Right
------------ ------------------ ---------------------
2006 $100,000 $1,000,000
2007 $100,000 $2,000,000
2008 $100,000 $3,000,000
2009 $100,000 $4,000,000
2010 $100,000 $5,000,000
Each of the common stock purchase warrants obtained pursuant to the
conversion rights set forth in this Section 2.4 shall be exercisable
at the exercise price of $.15 per common share anytime during the
three year period following any conversion (the "Warrant(s)"). The
conversion right set forth in this Section 2.4 automatically
terminates on December 31st of each of the five applicable years of
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the Employment Term if the required cumulative gross revenues are
not attained by the Company. For example, if the Company does not
attain at least $1,000,000 in cumulative gross revenues on or before
December 31, 2006, the Executive's right to convert up to $100,000
of his Base Salary earned during calendar year 2006 automatically
terminates. If, on the other hand, the Company fails to attain
cumulative gross revenues of $2,000,000 on or before December 31,
2007, terminating Executive's conversion right for the calendar year
of 2007, but the Company achieves cumulative gross revenues of
$7,000,000 two months later on March 1, 2008, the Executive's rights
to exercise his conversion of up to $100,000 of his Base Salary
during 2008, 2009 and 2010 become fully exercisable during each of
those three years.
C. Ratification and Confirmation of Remaining Terms and Provisions of the
Employment Agreement. The parties hereby ratify and confirm all of the terms and
provisions of the Employment Agreement not expressly modified and amended
pursuant to the provisions of this Amendment.
IN WITNESS WHEREOF the Company has caused this Amendment to be duly executed and
Executive has hereunto set his hand, as of the day and year first above written.
MAGNITUDE INFORMATION SYSTEMS, INC.
DIRECTORS:
By: /s/ Ivano Angelastri
---------------------
Ivano Angelastri
By: /s/ Steven Gray
---------------------
Steven Gray
By: /s/ Joseph J. Tomasek
---------------------
Joseph J. Tomasek
34
EXHIBIT D
Magnitude Information Systems, Inc.
Audit Committee Charter
December 16, 2002
Note: This audit committee charter considers the provisions of the
Sarbanes-Oxley Act of 2002 and the NYSE proposed new listing standards.
Organization
This charter governs the operations of the audit committee. The committee shall
review and reassess the charter at least annually and obtain the approval of the
board of directors. The committee shall be members of, and appointed by, the
board of directors and shall comprise at least two directors, where the majority
cannot be comprised of non-independent directors, i.e. members who are
independent of management and the Company. Members of the committee shall be
considered independent as long as they do not accept any consulting, advisory,
or other compensatory fee from the Company and are not an affiliated person of
the Company or its subsidiaries, and meet the independence requirements of the
stock exchange listing standards. All committee members shall be financially
literate, and at least one member shall be a "financial expert," as defined by
SEC regulations.
Purpose
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to: the integrity of
the Company's financial statements; the financial reporting process; the systems
of internal accounting and financial controls; the performance of the Company's
internal audit function and independent auditors; the independent auditor's
qualifications and independence; and the Company's compliance with ethics
policies and legal and regulatory requirements. In so doing, it is the
responsibility of the committee to maintain free and open communication between
the committee, independent auditors, the internal auditors, and management of
the Company.
In discharging its oversight role, the committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities, and personnel of the Company and the authority to engage independent
counsel and other advisers as it determines necessary to carry out its duties.
Duties and Responsibilities
The primary responsibility of the audit committee is to oversee the Company's
financial reporting process on behalf of the board and report the results of
their activities to the board. While the audit committee has the
responsibilities and powers set forth in this Charter, it is not the duty of the
audit committee to plan or conduct audits or to determine that the Company's
financial statements are complete and accurate and are in accordance with
generally accepted accounting principles. Management is responsible for the
preparation, presentation, and integrity of the Company's financial statements
and for the appropriateness of the accounting principles and reporting policies
that are used by the Company. The independent auditors are responsible for
auditing the Company's financial statements and for reviewing the Company's
unaudited interim financial statements.
35
The committee, in carrying out its responsibilities, believes its policies and
procedures should remain flexible, in order to best react to changing conditions
and circumstances. The committee should take appropriate actions to set the
overall corporate "tone" for quality financial reporting, sound business risk
practices, and ethical behavior. The following shall be the principal duties and
responsibilities of the audit committee. These are set forth as a guide with the
understanding that the committee may supplement them as appropriate.
1. The committee shall be directly responsible for the appointment and
termination, compensation, and oversight of the work of the independent
auditors, including resolution of disagreements between management and the
auditor regarding financial reporting. The committee shall pre-approve all audit
and non-audit services provided by the independent auditors and shall not engage
the independent auditors to perform the specific non-audit services proscribed
by law or regulation. The committee may delegate pre-approval authority to a
member of the audit committee. The decisions of any audit committee member to
whom pre-approval authority is delegated must be presented to the full audit
committee at its next scheduled meeting.
2. At least annually, the committee shall obtain and review a report by the
independent auditors describing:
o The firm's internal quality control procedures.
o Any material issues raised by the most recent internal quality
control review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities, within
the preceding five years, respecting one or more independent audits
carried out by the firm, and any steps taken to deal with any such
issues.
o All relationships between the independent auditor and the Company
(to assess the auditor's independence).
3. The committee shall discuss with the internal auditors and the independent
auditors the overall scope and plans for their respective audits, including the
adequacy of staffing and compensation. Also, the committee shall discuss with
management, the internal auditors, and the independent auditors the adequacy and
effectiveness of the accounting and financial controls, including the Company's
policies and procedures to assess, monitor, and manage business risk, and legal
and ethical compliance programs (e.g., Company's Code of Conduct).
4. The committee shall meet separately periodically with management, the
internal auditors, and the independent auditors to discuss issues and concerns
warranting committee attention. The committee shall provide sufficient
opportunity for the internal auditors and the independent auditors to meet
privately with the members of the committee. The committee shall review with the
independent auditor any audit problems or difficulties and management's
response.
36
5. The committee shall receive regular reports from the independent auditor on
the critical policies and practices of the Company, and all alternative
treatments of financial information within generally accepted accounting
principles that have been discussed with management.
6. The committee shall review management's assertion on its assessment of the
effectiveness of internal controls as of the end of the most recent fiscal year
and the independent auditors' report on management's assertion.
7. The committee shall review and discuss earnings press releases, as well as
financial information and earnings guidance provided to analysts and rating
agencies.
8. The committee shall review the interim financial statements and disclosures
under Management's Discussion and Analysis of Financial Condition and Results of
Operations with management and the independent auditors prior to the filing of
the Company's Quarterly Report on Form 10-Q. Also, the committee shall discuss
the results of the quarterly review and any other matters required to be
communicated to the committee by the independent auditors under generally
accepted auditing standards. The chair of the committee may represent the entire
committee for the purposes of this review.
9. The committee shall review with management and the independent auditors the
financial statements and disclosures under Management's Discussion and Analysis
of Financial Condition and Results of Operations to be included in the Company's
Annual Report on Form 10-K (or the annual report to shareholders if distributed
prior to the filing of Form 10-K), including their judgment about the quality,
not just the acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the financial
statements. Also, the committee shall discuss the results of the annual audit
and any other matters required to be communicated to the committee by the
independent auditors under generally accepted auditing standards.
10. The committee shall establish procedures for the receipt, retention, and
treatment of complaints received by the issuer regarding accounting, internal
accounting controls, or auditing matters, and the confidential, anonymous
submission by employees of the issuer of concerns regarding questionable
accounting or auditing matters.
11. The committee shall receive corporate attorneys' reports of evidence of a
material violation of securities laws or breaches of fiduciary duty.
12. The committee also prepares its report to be included in the Company's
annual proxy statement, as required by SEC regulations.
13. The committee shall perform an evaluation of its performance at least
annually to determine whether it is functioning effectively.
37
MAGNITUDE INFORMATION SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD DECEMBER 7, 2005
The undersigned, revoking any previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated November __,
2005 in connection with the Special Meeting of Stockholders to be held at 10
a.m. Eastern Standard Time on December 7, 2005 at the offices of Magnitude
Information Systems, Inc. 401 State Route 24, Chester, New Jersey 07930 and
hereby appoints Steven D. Rudnik and Joerg H. Klaube, and each of them (with
full power to act alone), the attorneys and proxies of the undersigned, with
power of substitution to each, to vote all shares of the Common Stock of
Magnitude Information Systems, Inc. registered in the name provided in this
Proxy which the undersigned is entitled to vote at the Special Meeting of
Stockholders, and at any adjournments of the Meeting, with all the powers the
undersigned would have if personally present at the Meeting. Without limiting
the general authorization given by this Proxy, the proxies are, and each of them
is, instructed to vote or act as follows on the proposals set forth in the
Proxy.
This Proxy when executed will be voted in the manner directed herein. If
no direction is made this Proxy will be voted FOR the election of the four
Directors and FOR Proposals 2 and 3.
In their discretion the proxies are authorized to vote upon such other
matters as may properly come before the Meeting or any adjournments of the
Meeting.
1. Election of two Directors
Proposal to elect Steven D. Rudnik, Steven Gray, Ivano Angelastri
and Joseph J. Tomasek as directors of the Company.
Steven D. Rudnik |_| FOR |_|WITHHOLD VOTE
Steven Gray |_| FOR |_|WITHHOLD VOTE
Ivano Angelastri |_| FOR |_|WITHHOLD VOTE
Joseph J. Tomasek |_| FOR |_|WITHHOLD VOTE
2. Proposal to amend the Company's Certificate of Incorporation to
increase the authorized common shares from 200,000,000 to 300,000,000.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Proposal to ratify and approve the amendment to the Employment
Agreement of Steven D. Rudnik, the Company's President and Chief Executive
Officer.
|_| FOR |_| AGAINST |_| ABSTAIN
4. Proposal to ratify the appointment of Rosenberg Rich Baker Berman &
Company as the Company's independent registered public accounting firm for the
fiscal year ended December 31, 2005
|_| FOR |_| AGAINST |_| ABSTAIN
|X| Please mark votes as in this example.
The Board of Directors recommends a vote FOR Proposals 1, 2 and 3.
Please sign exactly as name(s) appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
Signature: _______________ Date ________________
Signature: _______________ Date ________________
PLEASE CAST YOUR VOTE AS SOON AS POSSIBLE