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]
x
Filed by a party other than the registrant [_]
o
Check the appropriate box:
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x Preliminary Proxy Statement.
[_]
o Confidential, for use of the Commission only (as permitted by Rule14a-6(e)(2)).
|_|
o Definitive Proxy Statement
[_]
o Definitive additional materials.
[_]
o Soliciting material pursuant to Rule 14a-11 (c) or Rule 14a-12.
MAGNITUDE INFORMATION SYSTEMS, INC.
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(Name
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(Name of Registrant as Specified in Its Charter)
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Payment of Filing Fee (Check the appropriate box):
[X]
x No fee required.
[_]
o 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:
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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:
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| 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: |
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4. Date Filed: _________________________________________________
MAGNITUDE INFORMATION SYSTEMS, INC.
401 State
1250 Route 24
Chester,28
Suite 309
Branchburg, New Jersey 07930
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08876
NOTICE OF SPECIALACTION OF SHAREHOLDERS BY WRITTEN CONSENT
IN LIEU OF SHAREHOLDER'S MEETING OF STOCKHOLDERS
-------------------------
November __, 2005
-------------------------
NOTICE IS HEREBY GIVEN that
To the Special MeetingStockholders:
On behalf of Stockholders ("Special
Meeting")the Board of Directors and management 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., forwe urge you to consider and act upon the following proposed amendment to the Company's Certificate of Incorporation,
which the Board of Directors recommends that shareholders approve by Written Consent in lieu of a Shareholder's Meeting:
1. Increase the number of shares of Common Stock that the Company is authorized to issue from 300,000,000 to 600,000,000 shares, and.
2. To change the Company’s corporate name from Magnitude Information Systems, Inc. to KiwiAge Enterprises, Inc.”
Pursuant to the applicable provisions of the Delaware General Corporation Law and our Company's Certificate of Incorporation, as amended, the written consent of stockholders owning no less than the majority of the Company’s outstanding shares of common stock are required in order to amend the Company's Certificate of Incorporation. Your Board of Directors has fixed February 23, 2007, as the record date for purposes allof this solicitation. Therefore, only holders who owned Company common shares as more fullyof the close of business on February 23, 2007, are permitted to provide their Written Consent.
The proposal to amend our Certificate of Incorporation and procedure to exercise your rights in connection with this solicitation is described in the accompanying Consent Solicitation Statement. It is requested that your written consent, using the accompanying Consent Card, be delivered to Securities Transfer Corporation, 2591 Dallas Parkway, Suite 102 Frisco, Texas 75034, Attention: Proxy Department, on or before March 29, 2007. An addressed return envelope is enclosed for this purpose, which requires no postage if mailed in the United States.
By Order of the Board of Directors
Joerg L. Klaube,
Secretary
Branchburg, New Jersey
March __, 2007
MAGNITUDE INFORMATION SYSTEMS, INC.
1250 Route 28
Suite 309
Branchburg, New Jersey 08876
_____________________
CONSENT SOLICITATION STATEMENT
FOR
THE SOLICITATION OF WRITTEN CONSENTS
FOR THE ADOPTION OF TWO AMENDMENTS TO THE
CERTIFICATE OF INCORPORATION
Your written consent is important to us. Please vote your shares of common stock by completing the enclosed Consent Card and returning it to our transfer agent, Securities Transfer Corporation, 2591 Dallas Parkway, Suite 102, Frisco, Texas 75034, Attention: Proxy Department, in the enclosed envelope. This solicitation statement has information about proposed amendments to our Certificate of Incorporation and was prepared by our management for the Board of Directors. This solicitation statement and the accompanying Consent Card are first being mailed to you on or about March __, 2007.
GENERAL INFORMATION ABOUT VOTING WITH THE CONSENT CARD
What is the purpose of this Solicitation?
This Solicitation Statement asks stockholders to complete the attached Consent Card to act upon the matters outlined in the attached Notice of Action of Shareholders by Written Consent in Lieu of Shareholder’s Meeting and described in detail in this Solicitation Statement. They are:
| (1) | To approve an amendment to our Certificate of Incorporation to increase our authorized common shares from 300,000,000 to 600,000,000 common shares; and |
| (2) | To approve an amendment to our Certificate of Incorporation to change the Company’s corporate name from Magnitude Information Systems, Inc. to “KiwiAge Enterprises, Inc.”. |
Who can sign the Consent Cards?
You can sign the written Consent Card attached to this document and vote your shares if our records show that you owned shares of our common stock as of February 23, 2007. On that date, a total of _____________ shares of common stock were outstanding and entitled to vote by written consent in this solicitation of written consent. Each stockholder is entitled to one vote for each share of common stock held by such stockholder. The enclosed Consent Card shows the number of shares you can vote.
How do I vote my shares in this solicitation for my written consent?
Follow the instructions on the enclosed Consent Card to vote on each proposal to be considered in this solicitation statement. Sign and date the Consent Card and mail it to Securities Transfer Corporation, 2591 Dallas Parkway, Suite 102, Frisco, Texas 75034, Attention: Proxy Statement:
1. To elect four directorsDepartment, in the enclosed envelope.
Can I change my vote after I return my Consent Card?
Yes. At any time before March 29, 2007, you can change your vote either by giving us a written notice revoking your Consent Card or by signing, dating, and returning to serve untilus a new Consent Card. We will honor the 2006 Annual MeetingConsent Card with the latest date.
What do I do if my shares are held in “street name”?
If your shares are held in the name of your broker, a bank, or other nominee, that party should give you instructions for voting your shares.
What does it mean if I get more than one Consent Card?
It means you hold shares registered in more than one account. Sign and return all Consent Cards to ensure that all your shares are voted.
How are votes counted?
Only signed, dated and delivered Consent Cards will be accepted and counted on March 29, 2007, approving, withholding of consent or abstention on the two proposed Amendments to the Company’s Certificate of Incorporation. A Consent card which has been signed, dated and delivered to our transfer agent without indicating approval, withholding of consent, or abstention will constitute a consent to the Amendments.
Section 228 of the General Corporation Law of the State of Delaware states that, unless otherwise provided in the certificate of incorporation, any action that may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, and those consents are delivered to the corporation by delivery to its registered office in Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which the proceedings of meetings of stockholders are recorded. The Company's Certificate of Incorporation contains no provision or language in any way limiting the right of stockholders of the Company to take action by written consent.
Only stockholders of record as of February 23, 2007, are entitled to consent, to withhold their consent, or to revoke their consent, to the Amendments. Stockholders are entitled to one vote for each outstanding share of Common Stock held at the record date. As of the record date there were ____________issued and outstanding shares of Common Stock.
Consents, once dated, signed, and delivered to the Company, will remain effective unless and until revoked by written notice of revocation dated, signed, and delivered to the Company at the address set forth below on or before March 29, 2007.
What is the voting requirement to approve the amendments to the Certificate of Incorporation?
The Amendments will be approved if by March 29, 2007, the Company holds unrevoked written consents of stockholders approving the Amendments from a majority of the outstanding shares of Common Stock at the Record Date. Consequently, the withholding of consent, abstentions and the failure to deliver a Consent Card would all have the effect of a vote against approval of the Amendments. If a stockholder holds his shares in "street name" and fails to instruct his broker or nominee as to how to vote his shares, the broker or nominee may not, pursuant to applicable stock exchange rules, vote such shares and, accordingly, such shares will have the effect of a vote against the Amendments.
Who pays for this consent solicitation?
Magnitude does. In addition to sending you these materials, some of our directors and employees may contact you by telephone, by mail, or in person. None of our directors or employees will receive any extra compensation for any such solicitation.
What is the recommendation of the Board of Directors of Magnitude Information Systems, Inc?
The Board of Directors recommends that you for “FOR” approval of the amendments to our Certificate of Incorporation to authorize the increase in our authorized common shares and to change our corporate name.
This Consent Solicitation Statement (the "Consent Statement") is furnished to the stockholders of MAGNITUDE INFORMATION SYSTEMS, INC., a Delaware corporation (the "Company"), by the Board of Directors in connection with the solicitation by the Company of the written consent of stockholders. The stockholders are being asked to provide their successorswritten consent for the adoption of two amendments (the "Amendments") to the Certificate of Incorporation of the Company. The first Amendment seeks shareholder approval to increase the number of shares of common stock, $.0001 par value (the "Common Stock"), which the Company has authority to issue from 300,000,000 to 600,000,000 shares, and a proposed copy of this Amendment is attached to this Consent Statement as Exhibit A. The second Amendment seeks shareholder approval to change the Company’s corporate name from Magnitude Information System, Inc. to “KiwiAge Enterprises, Inc.” The text of the second Amendment is attached hereto as Exhibit B.
The Company intends to distribute this Consent Statement and the accompanying Consent Card commencing on or about March __, 2007, to the holders of record of the Common Stock as of the close of business on February 23, 2007. This date is referred to as the "record date." Written consents of stockholders representing a majority of the outstanding shares of Common Stock at the record date are electedrequired to approve the Amendment.
The principal executive offices of the Company are located at 1250 Route 28, Suite 309, Branchburg, New Jersey 08876, and qualified (Proposal
One);
2. To ratifythe telephone number of the Company is (908) 927-0004.
AMENDMENT NO. 1
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 300,000,000 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 increasingto increase the number of authorized shares of the Company's Common Stock from 300,000,000 shares to 600,000,000 shares. As of February 23, 2007, the Company has ______________________ shares of issued and outstanding Common Stock, 12,357,408 outstanding stock options, 52,273,333outstanding common stock purchase warrants, 109,858 preferred shares convertible into 2,423,865 common shares. If all the outstanding stock options, common stock purchase warrants and convertible preferred shares were exercised and/or converted by their holders an additional 67,054,606common shares would be outstanding; this would represent an approximate 30%increase in our outstanding common shares. The vast majority of these outstanding options and warrants are exercisable at prices currently above the public trading prices of our common stock. 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 200,000,000time to 300,000,000 (Proposal Two);
3. To ratifytime 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.
The Acquisition of Kiwibox Media, Inc.
The Agreement with Kiwibox
On February 19, 2007, the Company signed an Agreement and Plan of Reorganization with Kiwibox Media, Inc., a Delaware corporation (“Kiwibox”) and the three (3) Kiwibox Shareholders, pursuant to the principal terms of which, Kiwibox will merge with and into a wholly owned Delaware corporate subsidiary of the Company, Magnitude Operations, Inc. ( “Magy-Sub”), and the Kiwibox Shareholders will deliver all of their outstanding 43, 610 shares of Kiwibox to Magy-Sub in exchange for the right to receive newly issued Company common shares ( the “New Company Shares”). A copy of the Agreement and Plan of Reorganization is attached to this Consent Statement as Exhibit C. We have scheduled the closing of our transaction to take place on or about March 31, 2007.
The New Company Shares to be Issued to the Kiwibox Shareholders
The number of New Company Shares to be issued to the three Kiwibox Shareholders will correspond to a number based upon a value of $1,500,000. The number of New Company Shares to be issued shall be determined by dividing $1,500,000 by their “Market Price”. Under our Agreement with Kiwibox, “Market Price” means the average sales price of a Magnitude common share for the ten (10) successive trading days immediately preceding the Closing, as recorded by the Electronic Bulletin Board, over-the-counter market. For example, if the Market Price is $.05 per share, then Magnitude would issue 30,000,000 New Company Shares to the Kiwibox Shareholders. If the Market Price is $.025 per share, then Magnitude shall issue 60,000,000 New Company Shares to the Kiwibox Shareholders. We have agreed that even if our Market Price is higher than $.05 per share as determined in accordance with our formula, we would issue at a minimum 30,000,000 New Company Shares to the Kiwibox Shareholders. There is no ceiling or maximum amount limitation on the number of New Company Shares that may be required to issue to the Kiwibox Shareholders under our Agreement. If, therefore, the Market Price of Magnitude common shares were to drop to $.01, we would be obligated to issue 150,000,000 New Company Shares to the Kiwibox Shareholders. We will issue the New Company Shares to the three Kiwibox Shareholders in proportion to their ownership of their aggregate 43,610 Kiwibox shares outstanding at the Closing
In addition to the New Company Shares issuable above, Magnitude will issue to the Kiwibox Shareholders 43,610 Preferred Shares based upon their ownership of the 43,610 Kiwibox shares outstanding at the Closing. The 43,610 Preferred Shares shall have an aggregate conversion value of $500,000 (the “Conversion Value”), and which shall be convertible into New Company Shares, based upon the “Market Price”. The number of New Company Shares to be issued in the automatic conversion shall be determined by dividing the Conversion Value of $500,000 by the Market Price of the common shares of Magnitude. Market Price shall mean the average sales price of a Magnitude common share during the twenty (20) successive trading days immediately preceding the second anniversary of our Agreement with Kiwibox as recorded by the Electronic Bulletin Board, over-the-counter stock market. For example, if the Market Price is $.025 per share, then the Conversion Value would be 20,000,000 New Company Shares which we would issue to the Kiwibox Shareholders in proportion to their ownership of the 43,610 Preferred Shares. We have agreed that even if the Market Price is greater than $.05 per share, we would issue to the Kiwibox Shareholders no less than 10,000,000 New Company Shares under this provision of the Agreement. We agree to issue the New Company Shares under this provision to the Kiwibox Shareholders within thirty days following the second anniversary of this Agreement.
Employment Agreement for the Three Kiwibox Shareholders.
We have agreed to sign employment agreements with each of the three Kiwibox Shareholders at the Closing. These agreements cover a term of two (2) years and pay each Kiwibox Shareholder an annual base salary of $150,000. In addition, we have agreed to pay each an annual bonus if certain business goals are met. We agreed to pay each a $100,000 bonus if the Kiwi Business has received no less than an average 215,000 “Unique Visitors” during either the 10th, 11th or 12th month of the first year of the term or achieved no less than $316,000 in gross revenues within the 12 moth period following the Closing. Alternatively, we agreed to pay each a $50,000 bonus if the Kiwi Business has received at least an average 175,000 but less than an average 215,000 “Unique Visitors” during either the 10th, 11th or 12th month of the first year of the term or at least $237,000 in gross revenues but less than $316,000 within the 12 month period following the Closing. A “Unique Visitor” is a person who visits a Kiwibox website once during any 30-day period during the term. For the second year of their employment agreements, we have agreed to pay each a $100,000 bonus if the Kiwi Business has received no less than an average 550,000 Unique Visitors during either the 22nd, 23rd or 24th month of the second year of the term or attained $1,961,000 in gross revenues, or a bonus of $50,000 each if the Kiwi Business has received at least an average 415,000 but less than an average 550,000 Unique Visitors during either the 22nd, 23rd or 24th month of the second year of the term or attained at least $1,500,000 in gross revenues but less than $1,961,000. Each Kiwibox Shareholder will receive a stock option to purchase up to 7,500,000 shares of our common stock at an exercise price equal to our stock price on the day of Closing which shall vest and be exercisable by the Kiwibox Shareholders, 50% on the first anniversary date of the Closing, 25% 18 months after the Closing and 25% on the second anniversary of the Closing. Each may also earn a performance stock option to purchase up to an additional 3,000,000 shares of our common stock, 1,500,000 of which options shall vest and be exercisable by the Kiwibox Shareholders after the first anniversary date of the Closing if the Kiwi Business has received no less than an average 215,000 Unique Visitors during either the 10th, 11th or 12th month of the first year of the term or achieved $316,000 in gross revenues during the first year, and the balance, or 1,500,000 options shall vest and be exercisable by the Kiwibox Shareholders after the second anniversary date of the Closing if the Kiwi Business has received at least an average 550,000 Unique Visitors during either the 22nd, 23rd or 24th month of the second year of the term or achieved $1,961,000 in gross revenues during the second year of the agreements. The exercise prices for these stock options shall be the Market price based upon the average sales price during the 20-day trading period prior to closing.
Pursuant to the terms of their employment agreements, and including their performance stock options, the Kiwibox Shareholders will have the opportunity to receive stock options to purchase up to an aggregate 31,500,000 Magnitude common shares, each receiving the 7,500,000 stock options grant and the opportunity to receive up to the additional 3,000,000 performance stock options each.
Conditions to Closing the Agreement with Kiwibox
Our Agreement with Kiwibox contains the normal and customary representations, warranties, covenants and conditions. The Closing is subject, however, to the satisfaction of certain principal conditions by March 31, 2007, the scheduled Closing date, which are:
(1) Kiwibox shall have delivered to Magnitude audited financial statements for its two fiscal years ended December 31, 2006 and 2005;
(2) The Company’s shareholders must approve the Amendment to our Certificate of Incorporation, increasing our authorized common shares from 300,000,000 to 600,000,000 shares;
(3) Magnitude has committed to invest the Employmentamount of $3,500,000 into the Kiwibox business over the 18-month period following the Closing, and must, therefore, have these funds available on or before the Closing;
If any of the conditions to closing are not satisfied on or before March 31, 2007, the scheduled closing date, either the Company or Kiwibox may terminate the Agreement, in which case there shall be no liability or claims against any party.
The general purpose and effect of Steven D. Rudnik, President and Chief Executive Officer (Proposal Three);
4. To consider and act upon a proposalthis amendment 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.Certificate of Incorporation is to authorize 300,000,000 additional shares of Common Stock. The Board of Directors has fixedapproved this amendment to provide additional common shares to accommodate the closerequirements of business on October 21, 2005,our Kiwibox Agreement. At the present time, your Board of Directors has no current plans to utilize the newly authorized shares for any other purpose than required by our agreement with Kiwibox and 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 proxyprovided in the envelope enclosed for that purpose (to which no postage need be affixed
if mailed inemployment agreements with 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 ofKiwibox Shareholders.
Although the Board of Directors
/s/ Joerg H. Klaube
---------------------------------
Joerg H. Klaube, Secretary and
Chief Financial Officer
Chester, New Jersey
November __, 2005
2
MAGNITUDE INFORMATION SYSTEMS, INC.
401 State Route 24
Chester, New Jersey 07930
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PROXY STATEMENT
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SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 7, 2005
--------------------------
This Proxy Statement and the accompanying formhas no other current plan, arrangement or proposal to issue any additional shares of proxy is furnished to
stockholders of Magnitude Information Systems, Inc. ("Company") in connection
with the solicitation of proxies, in the accompanying form, byCommon Stock, you should know, however, that if the Board of Directors deems it to be in the best interests 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, arestockholders 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 139,106,672issue additional shares of Common Stock in the Company's
only classfuture from available authorized shares, the Board of voting securities outstanding. Each stockholderDirectors generally will not seek further authorization by vote of the Stockholders, unless such authorization is otherwise required by law or regulations.
No Shareholder Approval Required to Enter into and Consummate the Acquisition of Kiwibox
Because we have structured the acquisition of Kiwibox Media, Inc. through a merger with our subsidiary, the shareholders of the Company will be entitledare not required to one vote for eachapprove the acquisition under the Delaware General Corporation Law. We structured the acquisition by using a our wholly owned subsidiary, Magnitude Operations, Inc (“Magy-Sub”) to merge with Kiwibox, as opposed to having the Company directly merge with Kiwibox, principally to have the best chance to close the Kiwibox acquisition as quickly as possible, on or before March 31, 2007.
OUR OUTSTANDING PREFERRED STOCK
Our Outstanding Series A, Series C and Series D Preferred Stock
We have an authorized 3,000,000 shares of Preferred Stock, $0.01 par value per share of Commonwhich 109,857 shares have been designated as Cumulative Preferred Stock, registered in his
name on the record date. The presence, in person or by proxy,par value $0.0001 per share, of a majoritywhich 1 share was outstanding as of allJanuary 30, 2007 300,000 shares have been designated as Series A Senior Convertible Preferred Stock (the "Series A Stock"), $0.001 par value per share of which 29,300 were issued and outstanding as of January 30, 2007 350,000 shares have been designated as Series B Senior Convertible Preferred Stock (the "Series B Stock"), par value $0.001 per share, of which no shares were outstanding as of January 30, 2007, 120,000 shares have been designated as Series C Senior Convertible Preferred Stock (the "Series C Stock") par value $0.001 per share of which no shares were outstanding as of January 30, 2007; 500,000 shares have been designated as Series D Senior Convertible Preferred Stock (the "Series D Stock"), $.001par value per share of which 63,890 shares were issued and outstanding as of January 30, 2007 and; 500,000 shares have been designated as Series E Senior Convertible Preferred Stock (the "Series E Stock"), $.001 par value per share of which 16,667 shares were issued and outstanding as of January 30, 2007.
As of the Record Date, February 23, 2007, we have outstanding, _____________common shares. 12,357,408 outstanding stock options, 52,273,333outstanding common stock purchase warrants, 109,858 preferred shares convertible into 2,423,865 common shares. If all the outstanding stock options, common stock purchase warrants and convertible preferred shares were exercised and/or converted by their holders an additional 67,054,606common shares would be outstanding, totaling a potential ________________ outstanding common shares
The increase in the authorized number of shares of Common Stock constitutescould 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 quorum at the
Special Meeting. Proxies relating to "street name" shares that are returned toperson seeking control of the Company, but marked by brokers as "not voted" will be treated as shares
present for purposes of determining the presence ofthereby deterring or rendering more difficult 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 withheldmerger, tender offer, proxy contest or an extraordinary corporate transaction opposed by the broker ("broker non-votes"). Company.
The
election
of directors requires a plurality vote of those shares voted atAmendment to increase 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, anyauthorized 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
SHARElegal 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.
AMENDMENT NO. 2
PURPOSE AND APPROVAL OF AMENDMENT TO THE COMPANY'S
ARTICLES OF INCORPORATION TO CHANGE THE COMPANY’S CORPORATE NAME TO “KIWIBOX ENTERPRISES, INC.”
As a result of the Company's scheduled acquisitions and change in strategic initiatives, and because of the industry shift from developing and marketing ergonomic software to___________________________________________, the Company believes that its new selected corporate name, KiwiAge Enterprises, Inc., will more accurately reflect the business of the Company and will generate wider name recognition in the media website development and financial communities. The Company will competes exclusively in the website social networking and media marketplace. With the surge in social networking websites, the Company's Board of Directors and management made the strategic decision to refocus the organization on this fast-growing marketplace once the opportunity presented itself to acquire the website and assets of Kiwibox.
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.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, certain information as of October 21, 2005
(on which date 139,106,672 sharesJanuary 30, 2007, the record and beneficial ownership of common stock of the Company's Common Stock were
outstanding), with respect to (i) those persons or groupsCompany by each executive officer and director, all executive officers and directors as a group, and each person known to the Company to own beneficially, ownor of record, five percent or 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 Addressoutstanding shares 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 - -
the Company:
| Title | Name and Address of | Amount and Nature of | Percent |
of Class )* | Beneficial Owner | Beneficial Ownership (1) | of Class |
Common Stock | | | |
| Steven L. Gray | 5,614,096 (2) | 2.5% |
| | Joerg H. Klaube | 1,400,000 | 0.6 % |
| | Joseph J. Tomasek | 2,847,166 (3) | 1.1% |
| | Edward L. Marney | 0 | |
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%
| All Directors and Executive Officers | 9,861,262 | 4.3% |
| as a Group (4 persons) | | |
| | | | |
| | Michael G. Martin | 13,000,000 (4) | 5.7% |
| | 12 Tillman Ct, Bridgewater, NJ 08807 | | |
| | 33 Group LLC | 12,500,000 | 5.7 % |
| | 3589 NW 61 Circle, Boca Raton, FL 33496 | | |
| | Azzurri Group, LLC | 12,500,000 | 5.7% |
| | 3589 NW 61 Circle, Boca Raton, FL 33496 | | |
| | Steven D. Rudnik | 24,273,388 (5) | 10.4% |
)* The Company also has issued and outstanding as of
October 21, 2005, 305,666November 15, 2006, 109,857 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 ____________________________
| (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 November 15, 2006. 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 stock options for 500,000 shares. |
| (3) | Includes warrants for 333,333 shares. |
| (4) | Includes stock options for 750,000 shares. |
| (5) | Includes stock options for 2,903,542 shares and warrants for 4,708,333 shares. |
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
employeesexecutive officers of the Company are as follows:
Name | Positions | Term Served (Expires)
- -------- --------------- ---------------------------------
Steven D. Rudnik |
| | |
| Edward L. Marney | Director (Chairman Feb. 11, 2000 (2004)
of the Board)
| May 5, 2006 |
| President, Chief Executive Jan. 8, 1999 (March 2, 2004)
| |
| Officer
Mark Chroscielewski Sr. Vice President Jan.2, 2003
Business Development
| |
| | |
| Joerg H. Klaube Sr. | Director | December 2, 2005 |
| 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)
| August 30, 2006 |
| Chairman of the Board | |
| | |
| Joseph J. Tomasek | Director | Feb. 11, 1999 (2004)
(2006) |
5
ThereAll Directors of the Company hold office until the next annual meeting of the shareholders and until successors have ben elected and qualified. Executive Officers of the Company are no family relationships amongappointed by the Company's OfficersBoard of Directors at meetings of the Company 's Directors and Directors.
Steven D. Rudnik,hold office until they resign or are removed from office.
Edward L. Marney, Age 4649 - ChairmanDirector, President and Chief Executive Officer,
President.Officer. Mr. Rudnik personally developed manyMarney joined Magnitude, Inc. in May 2006 and was appointed a director in August 2006. From 2003 to 2006, Mr. Marney was Managing Director of the copyrighted software
products offered by Magnitude Information Systems. Mr. Rudnik co-founded Rolina
Corporation in 1996.Triad Partners, LLC, a privately held investment company. Prior to 1996,that from 2001-2003 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. RudnikMarney 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 CompanyIntelligence at Medical Manager/WebMD Corporation. Mr. Marney founded TouchPoint Software Corporation in January 2003 Mark Chroscielewski manages our
strategic alliances1994 and develops new marketing strategies to present our
products to both the productivity and ergonomic segments of the corporate
marketplace.served as its CEO & President until its acquisition by WebMD Corporation in 2001. Prior to joining our Company,that Mr. Chroscielewski wasMarney served in various marketing and sales roles at Medical Information Technology and Burroughs Corporation. He graduated with a B.S. from the principalWhittemore School of a consulting firm, specializing inBusiness and Economics at the developmentUniversity 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
New Hampshire.
Joerg H. Klaube, Age 6465 - Director and 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,
Joseph J. Tomasek, Age 4659 - Senior Vice President Information Systems.Director. Mr. Jagels joined MagnitudeTomasek was appointed a director in February 1998. Mr. Jagels2000. He has 20 years of software
development experience in such diverse disciplines as clinical laboratory
6
analysis, stock market modeling, artificial intelligence, and retail business
applications. Mr. Jagels also has experiencebeen engaged in the software industry, including
software management, project development, systems analysis,private practice of corporate and training. Priorsecurities 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 software career,work with the Company, Mr. Jagels had five years experienceTomasek represents several other clients in biomedical
engineering and management.
the area of corporate law.
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
Family Relationships
There are no family relationships between any of 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.
directors or executive officers.
EXECUTIVE COMPENSATION
2006 SUMMARY COMPENSATION TABLE
The following table sets forth allthe cash compensation and executive capacities for the fiscal years ended December 31, 2004, December 31, 2003,2006 and December 31, 2002,2005, for the chief executive officer and for each executive officer whose aggregate cash remuneration exceeded $100,000, for all executive officers as a group, and for certain other most highly compensated employees:
(1)
- -----------------------------------------------------------------------------------------------------------------------------------
Other Restricted Securities All
Name and Annual Stock Underlying Other
Principal Position | Year | Salary ($) | Bonus ($) Compensation($) | Stock Awards ($) Options | Option Awards ($) Compens. | Non-Equity Incentive Plan Compensation ($)
------------------ ---- ---------- --------- --------------- ---------- ----------- -----------
(1) (2) (3) (4) (5)
| Non-Qualified Deferred Compensation Earnings ($) | All Other Compen sation ($) | Total ($) | Total ($) |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | | (j) |
Edward L. Marney Chief Executive Officer, President | 2006 | 86,538 | | | | | | 5,950 | 92,488 | - -----------------------------------------------------------------------------------------------------------------------------------
- |
Steven D. Rudnik 2004 133,333(6) 13,364 36,000 - 3,250 Former Chief Executive Officer, 2003 133,333(7) President | 2006 2005 | 64,788 33,333 | - 15,262 27,000 | 577,105 124.306 | | - 3,250
President 2002 133,333(8) | - 12,560 42,000 - 3,250
- ---------------------------------------------------------------------------------------------------------------------------------
| 45,000 | 686,893 | |
Mark Chroscielewski 2004 125,000 - 6,000 - - 8,400 Former Sr. Vice President 2003 125,000 - 6,000 - - 8,400
Business Development 2002 | 2006 2005 | 82,185 125,000 | - | | | - | - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
| 12,900 | 82,185 137,900 | 8,900 |
Joerg H. Klaube 2004 125,000 - 11,404 36,000 - 1,710
Sr. Vice President, 2003 125,000 CFO | 2006 2005 | 61,376 117,308 | - 11,404 67,000 | | | - | - | 2,626 12,203 | 129,511 | 64,002 1,710
CFO 2002 125,000 - 9,087 42,000 - 1,710
- ---------------------------------------------------------------------------------------------------------------------------------
|
Steven W. Jagels 2004 108,333 - 9,000 - - 1,940 Former Sr. Vice President 2003 108,333 - 11,083 - - 1,940
Information Systems 2002 | 2006 2005 | 61,875 108,333 | - 9,000 | | | - | - -
- ---------------------------------------------------------------------------------------------------------------------------------
| 61,875 13,556 | 121,889 | 1,940 1,940 |
Joseph J. Tomasek, Esq., Director and General Legal Counsel Legal Fees: | 2006 2005 | | | | | | | 96,121 131,140 | 131,140 | 96,121 |
Steven Gray Director | 2006 | 30,000 | | | | | | 87,167 | 117,167 | |
All executive officers As a group (4(2 persons) 2004 491,666 | 2006 2005 | 147,914 117,308 | - 39,768 72,000 | | | - 15,300
| - ---------------------------------------------------------------------------------------------------------------------------------
| 8,576 12,203 | 156,490 12,203 | |
7
- -----------------------
(1) The value
Explanation: No current Company officer or employee has an employment agreement with the Company. All 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 suchthe officers and directors listed in the above Summary Compensation Table are discussed in the following paragraphs, under the individual officer’s or director’s name.
Edward L. Marney; 2006. Ed Marney joined the Company in May, 2006, becoming first our Chief Executive Officer, then our President and a director. We paid Mr. Marney a cash salary of $86,538 and reimbursed $5,950 of healthcare payments to allhim during 2006.
Steven D. Rudnik; 2006 and 2005. We paid our former CEO and President, Steven D. Rudnik, a cash salary of $64,788 during fiscal year 2006. On August 8, 2006, Mr. Rudnik terminated his employment agreement with us in exchange for 6,000,000 restricted common shares and aggregate cash payments of $60,000. The aggregate amount of compensation of $577,105 included in the “Stock Awards” column above, includes these 6,000,000 restricted common shares which we valued at $.04 per share, the average public market price of the Company’s common stock on the date of this settlement agreement, August 8, 2006. On December 15, 2006, the Company negotiated a second agreement with Mr. Rudnik, pursuant to which the Company exchanged (i) 6,250,000 common shares, which we valued at $.03 per share, the average public market price of the Company’s common stock on the date of the exchange agreement, December 15, 2006, (ii) 3,125,000 common stock purchase warrants, exercisable over the 3-year period commencing January 18, 2007 and exercisable at an exercise price of $.05 per common share, which we valued at $83,750 (iii) 1,583,333 common stock purchase warrants, exercisable over the 3-year period commencing January 18, 2007 and exercisable at an exercise price of $.10 per common share, which we valued at $23,592 and (iv) 2,903,542 common stock options, exercisable over the 3-year period commencing January 18, 2007 at the stock option exercise price of $.10 per common share, which we valued at $42,263, for a Company promissory note in the approximate principal amount of $100,000, approximately $10,000 of accrued interest thereunder and a $15,000 debt.
In addition, the amount of “All Other Compensation” represents cash payments of $45,000 made by the Company in connection with the August 8, 2006 settlement agreement and $3,250 paid by the Company for Mr. Rudnik’s life insurance.
During fiscal year 2005, the Company agreed to convert $100,000 of Mr. Rudnik’s cash salary into 1,000,000 restricted common shares and 1,000,000 common stock purchase warrants, exercisable over the 3-year period, commencing on June 8, 2005, and exercisable at the exercise price of $0.15 per common share. In addition, this amount includes Company payments of $21,056 for car payments and $3,250 representing payments made for Mr. Rudnik’s life insurance.
Mark Chroscielewski; 2006 and 2005: During fiscal year 2006, the Company paid this former executive officers$82,185 in Salary. During 2005, we paid Mr. Chroscielewski a cash salary of $125,000 and in the column “All Other Compensation” above for 2005, we made car payments on his behalf in the aggregate amount of $4,000 and insurance premium payments of $8,900.
Joerg H. Klaube 2006 and 2005. We paid our Chief Financial Officer a cash salary of $ 61,376 during 2006 and in the column “All Other Compensation” in the above table for 2006,life insurance premium payments on this executive’s behalf in the amount of $2,626. During fiscal year 2005, the Company paid Mr. Klaube cash salary of $117,308 and as indicated in the column “All Other Compensation” in the above table for 2005, we made life insurance premium payments on this executive’s behalf in the amount of $2,626 and car payments in the amount of $9,577.
Steven Jagels 2006 and 2005: We paid this former executive a group.
(2) Consistscash salary of automobile expenses allowances$61,875 during 2006. During fiscal year 2005, the Company paid Mr. Jagels a salary of $108,333 and vacation pay-out.
(3) as indicated in the column “All Other Compensation” in the above table for 2005, we made life insurance premium payments on this executive’s behalf in the amount of $1,940 and car payments in the amount of $11,616.
Joseph J. Tomasek 2006 and 2005: During 2004,fiscal years 2006 and 2005, the Company paid $ 96,121 and $ 131,140, respectively, to Mr. Tomasek for his legal services rendered to the Company.
Steven Gray 2006. During fiscal year 2006, we issued an aggregate 1,550,000 restricted common shares and 500,000 common stock purchase warrants to Mr. Gray for services rendered to the Company. During 2006, Mr. Gray assisted the Company in its change of management, providing day-to-day assistance in operations, customer relations including, interviewing potentialcandidates for management positions and coordinating the various audit schedule and management review projects. As set forth in the column “All Other Compensation” in the above table for 2006, we valued the 1,550,000 restricted common shares based upon their average public market trading price as of the dates we issued these shares to Mr. Gray, totaling $73,000 and thw 500,000 warrants at $14,450, based upon a formula called the Black Sholes Model.
Stock Options and Stock Option Plans:
No stock options or other grants were made to any eligible participants, including employees during fiscal years 2006 and 2005 pursuant to the Company’s 1997 Stock Option Plan or the Company’s 2000 Stock IncentivePlan.
1997 Stock Option Plan:
The Company’s 1997 Stock Option Plan (the “1997 Plan”), as filed with Information Statement pursuant to Section 14(c) with the Commission on July 1, 1997, and with Registration Statement on Form S-8 with the Commission on September 8, 1997, is hereby incorporated by reference.
As adopted, the 1997 Plan permits the grant of stock options to employees, directors and key consultants of the Company. It provides for the issuance of incentive stock options within the meaning of Section 422 of the Internal Revenue Code and non-qualified stock options. The 1997 Plan provides for options covering up to an aggregate 1,000,000 shares of Common Stock. The 1997 Plan was approved by the Company’s stockholders. There are no available shares of common stock under the 1997 Plan.
The 1997 Plan is administered by the Board of Directors. Each option is evidenced by a written agreement in a form approved by the Board of Directors. No options granted under the 1997 Plan are transferable by the optionee other than by will or by the laws of descent and distribution, and each option is exercisable, during the lifetime of the optionee, only by the optionee.
| Under the 1997 Plan, the exercise price of an incentive stock option must be at least equal to 100% of the fair market value of the Common Stock on the date of grant (110% of the fair market value in the case of options granted to employees who hold more than ten percent of the voting power of the Company’s capital stock on the date of grant). The exercise price of a non-qualified stock option must be not less than 85% of the fair market value of the Common Stock on the date of grant. For both incentive stock options and non-qualified stock options, the exercise price must not be less than the par value of a share of the Common Stock on the date of grant. The term of any stock option is not to exceed ten years (five years in the case of an incentive stock option granted to a ten percent holder). The Board of Directors has the discretion to determine the vesting schedule and the period required for full exercisability of stock options; however, in no event can the Board of Directors shorten such period to less than six months. Upon exercise of any option granted under the 1997 Plan, the exercise price may be paid in cash, and/or such other form of payment as may be permitted under the applicable option agreement, including, without limitation, previously owned shares of Common Stock. |
2000 Stock Incentive Plan
The 2000 Incentive Stock Plan (the “2000 Plan”) permits the grant of stock options, stock appreciation rights and stock grants to employees, directors and key consultants of the Company. It provides for the issuance of incentive stock options within the meaning of Section 422 of the Internal Revenue Code as well as non-qualified stock options. It also provides for the grant of stock appreciation rights, either alone or in tandem with other grants, and restricted stock grants. The 2000 Plan provides for grants covering up to an aggregate 5,000,000 shares of Common Stock. The 2000 Plan was approved by the Company’s stockholders. There are no available shares of common stock under the 2000 Plan. The 2000 Plan, as with the 1997 Plan, is administered by the Board of Directors. Each award or grant is evidenced by a written agreement in a form approved by the Board of Directors. No awards granted under the2000 Plan are transferable by the recipient other than by will or by the laws of descent and distribution, and each option is exercisable, during the lifetime of the recipient, only by the recipient.
Under the 2000 Plan, the exercise price of an incentive stock option must be at least equal to 100% of the fair market value of the Common Stock on the date of grant (110% of the fair market value in the case of options granted to employees who hold more than ten percent of the voting power of the Company’s capital stock on the date of grant). The exercise price of a non-qualified stock option may be fixed by the Board of Directors. For incentive stock options, the exercise price must not be less than the 100% of the fair market value of the Common Stock on the date of grant. The term of any stock option is not to exceed ten years (five years in the case of an incentive stock option granted to a ten percent holder). The Board of Directors has the discretion to determine the vesting schedule for any awards or grants issued as well as and the period required for full exercisability of stock options; however, in no event can the Board of Directors shorten such period to less than six months. Upon exercise of any option granted under the 2000 Plan, the exercise price may be paid in cash, and/or such other form of payment as may be permitted under the applicable award agreement, including, without limitation, previously owned shares of Common Stock. Outstanding Equity Awards At Fiscal Year-End Table |
Name and Principal Position Name | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Equity Incentive Plan Awards: Number of Underlying Unexercised Unearned Options | Option Exercise Price | Option Expira-tion Date | Number of Shares or Units of Stock That Have Not Vested) | Market Value of Shares or Units of Stock That Have not Vested | Equity Incentive Awards Shares, Units Or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market Or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | Total ($) (j) |
Edward L. Marney Chief Executive Officer, President | | | | | | | | - | - | |
Steven D. Rudnik Former Chief Executive Officer, President | 2,903,542 | | - | $0.10 | 1/6/10 | - | - | | | |
Mark Chroscielewski Former Sr. Vice President Business Development | | | - | | | - | - | 8,400 | | |
Joerg H. Klaube Sr. Vice President, CFO | | | - | | | - | - | 1,710 | | |
Steven W. Jagels Former Sr. Vice President Information Systems | 250,000 | | - | $0.1325 | 2/18/07 | - | - | 1,940 | | |
| Joseph J. Tomasek, Esq., Director and General Legal Counsel | | | | | | | | | | |
Steven Gray Director | 500,000 | | | $0.15 | 1/01/09 | | | | | |
All executive officers As a group (2 persons) | 500,000 | | - | | | - | - | | | |
Compensation of Directors:
The Company has not paid nor does it owe any compensation to any of its Directors for their service as directors and members of the Board of Directors approved stock awardsduring the past two fiscal years of 300,000
restricted shares2006 and 2005.
CORPORATE GOVERNANCE AND CODE OF ETHICS
The Company has always been committed to Rudnik andgood corporate governance. In furtherance 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.
Duringthis commitment, during 2002 the Board of Directors approved stock awards of 300,000
restricted shares each to Rudnik and Klaube. These shares are listed inexpanded the table above at the market price for unrestricted stock quoted at the timeduties of the award. The numberCompany’s Audit Committee by increasing the Committee's duties specifically to include responsibility and valueoversight of corporate governance matters and adherence to the Company’s Code of Ethics. A copy of the aggregate restricted stock
holdings atCorporate Code of Ethics and Conduct had been included as an exhibit to the endCompany’s report on Form 10-KSB for the year ended December 31, 2002.
Our Board of fiscal year 2003 (using market pricesDirectors has determined that none of unrestricted stock atits current members, Edward L. Marney, Joerg H. Klaube, Joseph J. Tomasek and Steven Gray, are independent in accordance under applicable securities laws. It is the endintention, however, 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, approvedto identify and appoint independent directors in 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 current fiscal year.
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.
Committees
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.2002. The Audit Committee
didis currently comprised of one director, Steven. Gray, who is a financial expert with knowledge of financial statements, generally accepted accounting principles and accounting procedures and disclosure rules. Mr. Gray is 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“independent” as defined 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)Section10A-3(b)(1)(iv)(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, yourAct. Our Board of Directors intends to utilize an aggregate
18,037,232appoint additional independent members to this Audit Committee.
COMPENSATION AND NOMINATING COMMITTEES
Our board of directors intends to appoint such persons and form such committees as are required to meet the new common sharescorporate governance requirements imposed by the national securities exchanges. Therefore, we intend that a majority of our directors will eventually be independent directors. Additionally, our board of directors is expected to be authorizedappoint a nominating committee and a compensation committee, and to underlieadopt charters relative to each such committee. Until further determination by the 4,507,709
stock options, 2,281,916 common stock purchase warrants andBoard, 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 thefull Board of Directors has no other current plan,
arrangementwill undertake the duties of the compensation committee and nominating committee.
THE CONSENT PROCEDURE
Only stockholders of record as of March __, 2007, are entitled to consent, to withhold their consent, or proposal to issue any additionalrevoke their consent, to the Amendment. Stockholders are entitled to one vote for each outstanding share of Common Stock held at the record date. As of the record date there were 227,235,472issued and outstanding shares of Common Stock. However,
you should know that
Consents, once dated, signed, and delivered to the Company, will remain effective unless and until revoked by written notice of revocation dated, signed, and delivered to the Company at the address set forth below on or before March __, 2007.
The Amendments will be approved if
by March __, 2007, the
BoardCompany holds unrevoked written consents of
Directors deems it to be instockholders approving the
best
interestsAmendment from a majority of the
Company and the stockholders to issue additionaloutstanding shares of Common Stock
at the Record Date. Consequently, the withholding of consent, abstentions and the failure to deliver a Consent Card would all have the effect of a vote against approval of the Amendments. If a stockholder holds his shares in
the future from authorized"street name" and fails to instruct his broker or nominee as to how to vote his shares, the
Board of Directors
generally willbroker or nominee may 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 rightpursuant 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 thenapplicable 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 arules, 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 commonsuch 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, withaccordingly, 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 nothe effect of a vote against the Amendments.
Stockholders are requested to indicate approval of the Amendments by signing and dating the Consent Card, checking each box on the
legal rightsConsent Card which corresponds to the approval of each of the
holders ofAmendments, and delivering 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 amendmentConsent Card to the Company's current employment agreementtransfer agent at the address set forth below. Withholding of consent to the Amendments, or abstention with Steven D. Rudnik, our President and
Chief Executive Officer, subjectrespect to the approval of the Company's shareholders.
A copyAmendments, may be indicated by signing and dating the Consent Card, checking the box which corresponds to withholding 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 capacitiesconsent 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 atAmendments or abstention with respect to 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 expirationapproval 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
IfAmendments, respectively, and delivering the Consent Card to the Company's transfer agent at the address set forth below.
A CONSENT CARD WHICH HAS BEEN SIGNED, DATED AND DELIVERED TO THE COMPANY'S TRANSFER AGENT WITHOUT INDICATING APPROVAL, WITHHOLDING OF CONSENT, OR ABSTENTION WILL CONSTITUTE A CONSENT TO THE AMENDMENT.
Consent Cards may be delivered to the following address:
Securities Transfer Corporation
2591 Dallas Parkway,
Suite 102
Frisco, Texas 75034
Attention: Proxy Department
Consent Cards should be delivered to the Company's transfer agent as soon as possible. An addressed return envelope is enclosed for this purpose, which requires no postage if mailed in the United States. Consent Cards and revocations of consents will be deemed to have been received by the Company doesupon actual delivery at the above address.
ABSENCE OF APPRAISAL RIGHTS
Stockholders who abstain from consenting with respect to the Amendment, who withhold consent to the Amendment, or who do not attain at least $1,000,000 in cumulative gross
revenues on or before December 31, 2006, Mr. Rudnik'sdeliver a Consent Card do not have the right to convertan appraisal of their shares of Common Stock or any similar dissenters' rights under applicable law.
EXPENSE OF CONSENT SOLICITATION
The Company will bear the entire cost of
his $100,000 cash base salary earned during calendar year 2006 automatically
terminates. If, however, the
Company failssolicitation, including the preparation, assembly, printing and mailing of this Consent Statement and any additional material furnished to
attain cumulative gross revenues
of $2,000,000 on or before December 31, 2007, terminating Mr. Rudnik's
conversion rightstockholders. Brokerage firms and other custodians, nominees, and fiduciaries will be requested to forward the soliciting material to their principals and to obtain authorization for the
calendar yearexecution 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.consents. The Company expects that representatives of Rosenberg Rich Baker
Berman &may, upon request, reimburse brokerage firms, and other custodians, nominees, and fiduciaries for their reasonable expenses in forwarding solicitation materials to their principals.
ADDITIONAL INFORMATION
The 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 quarterlyfiles 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. YouCopies of these documents may read and copy any document we filebe obtained at the SEC's public reference room at 100 F Street, N.E.,in 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. OurThe Company's SEC filings are also available to
the public atfrom commercial document retrieval services or on 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,Stockholders may also request a copy of which accompanies this Proxy Statement.
22
SOLICITATION OF PROXIES
-----------------------
The solicitation of proxiesthe Company's financial reports filed with the SEC by contacting the Company's Secretary 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 personallywriting at 1250 Route 28, Suite 309, Branchburg, New Jersey 08876 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.
calling (908) 927-0004.
By orderOrder of the Board of Directors
Joerg H. Klaube, Secretary
Chester,
February , 2007
Branchburg, New Jersey
November __, 2005
23
EXHIBIT A
CERTIFICATE
IMPORTANT
PLEASE COMPLETE, SIGN AND DATE
YOUR WRITTEN CONSENT AND PROMPTLY
RETURN IT IN THE ENCLOSED ENVELOPE
WRITTEN CONSENT OF AMENDMENT
THE STOCKHOLDERS
OF
CERTIFICATE of INCORPORATION
OF
MAGNITUDE INFORMATION SYSTEMS, INC.
This consent is solicited by the Board of Directors. When properly executed, this consent will be voted as designated by the undersigned on the reverse side. If this consent is signed, dated, and delivered to Magnitude Information Systems, Inc. with no designation by the undersigned, this consent will constitute the stockholder's consent to and approval of the amendments.
[X] PLEASE MARK AS IN THIS SAMPLE.
Amendment No. 1 to increase the authorized Common Stock of the Company from 300,000,000 shares to 600,000,000 shares.
MARK ONLY ONE OF THE FOLLOWING THREE BOXES:
| o FOR | o WITHHOLD | o ABSTAIN |
Amendment No. 2 to change the corporate name of the Company to “KiwiAge Enterprises, Inc.”.
MARK ONLY ONE OF THE FOLLOWING THREE BOXES:
| o FOR | o WITHHOLD | o ABSTAIN |
(Please sign and date below)
Dated:____________________,
| ___________________________ Signature of Stockholder(s)
___________________________ Signature of Stockholder(s)
Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. |
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:
| FIRST: | That by majority vote of the Corporation's Board of Directors at a duly organized meeting held on March __, 2007 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'sissued and outstanding common shares on March __ 2007, 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.
| FOURTH: | The aggregate number of shares of all classes of stock which the Corporation is authorized to issue is 603,000,000 shares, consisting of 600,000,000 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 March __, 2007 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,Edward L. Marney, President, an Authorized Officer, this ____ day of ______,March, A.D. 2005.
2007.
| MAGNITUDE INFORMATION SYSTEMS, INC.
By: ______________________________________ Edward L. Marney, President |
EXHIBIT B
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE of INCORPORATION
OF
MAGNITUDE INFORMATION SYSTEMS, INC.
By: ______________________________________
Steven D, Rudnik,
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 March __, 2007 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 March __ 2007, 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 __ 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:
________: That the corporate name of the Corporation shall be Kiwibox Enterprises, Inc.
| 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 March __, 2007 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 Edward L. Marney, President,
24
an Authorized Officer, this ____ day of March, A.D. 2007.
| MAGNITUDE INFORMATION SYSTEMS, INC.
By: ______________________________________ Edward L. Marney, President |
EXHIBIT B
Employment Agreement
EMPLOYMENT C
AGREEMENT AND PLAN OF REORGANIZATION 1.6
This AGREEMENT AND PLAN OF REORGANIZATION dated as of April 15, 200219 February, 2007 (the "Agreement"“Agreement”), between Magnitude Information Systems, Inc. (the "Company"Inc., a Delaware corporation (“Magnitude”), Kiwibox Media, Inc. , a Delaware corporation (“Kiwibox”) and Steven D.
Rudnik, presently residingMagnitude Operations, Inc., a wholly-owned Subsidiary of Magnitude (in organization) (“Subsidiary”) and the shareholders of Kiwibox, Lin Dai, Ivan Tumanov, and Michael Howard (the “Kiwibox Shareholders”) Kiwibox. Magnitude and Subsidiary may also be referred to herein as the “Constituent Corporations” or the “Parties.”
WHEREAS, the Parties acknowledge and affirm the following:
| A. | Magnitude is a corporation duly organized and existing under the laws of the State of Delaware. |
| B. | Kiwibox is a corporation duly organized and existing under the laws of the State of Delaware. |
| C. | Subsidiary is a corporation which is 100% owned by Magnitude and is duly organized and existing under the laws of the State of Delaware. |
| D. | The Delaware General Corporation Law (the “DGCL”) permits the merger of two domestic business corporations of the State of Delaware with and into each other. |
| | |
| E. | Magnitude and Kiwibox and their respective Boards of Directors declare it advisable and to the advantage, welfare, and best interests of said corporations and their respective stockholders to merge Subsidiary with and into Kiwibox pursuant to the provisions of the DGCL upon the terms and conditions hereinafter set forth. |
| F. | The respective Boards of Directors of Magnitude and Kiwibox have approved this Agreement; and the shareholders of Kiwibox have approved the merger. |
| G. | For federal income tax purposes, it is intended that the merger qualify as a tax free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “IRC”). |
ARTICLE 1
THE MERGER
1.1Merger.
In accordance with the provisions of this Agreement and applicable provisions of the DGCL, Subsidiary shall be merged with and into Kiwibox (the “Merger”). Following the Merger, the separate existence of Subsidiary shall cease and Kiwibox shall be, and is herein sometimes referred to as, the “Surviving Corporation.” For the purposes of this Agreement, this form of transaction may also be referred to herein as a “reverse triangular merger.”
1.2Filing and Effectiveness.
The Merger shall become effective when the following actions shall have been completed:
| (a) | This Agreement and the Merger shall have been adopted and approved by the shareholders of Kiwibox in accordance with the requirements of the DGCL; |
| (b) | Magnitude shall have formed a wholly-owned subsidiary for the purposes of this Merger in accordance with the requirements of the DGCL (the “Subsidiary”); |
| | |
| (c) | All of the conditions precedent to the consummation of the Merger specified in this Agreement shall have been satisfied or duly waived, in writing, by the Party entitled to satisfaction thereof; |
| (d) | As soon as practicable following the Closing, the Parties shall execute a Certificate of Merger meeting the requirements of the DGCL and file same with the Secretary of State of the State of Delaware in substantially the form attached hereto as Exhibit A; the time the Certificate of Merger is filed with the Secretary of State of the State of Delaware is the “Effective Time”; and |
| (e) | The closing of the transactions described in this Agreement is herein called the “Closing.” The Parties agree that the Closing of the transactions identified in this Agreement shall take place at the offices of Joseph J. Tomasek, Esq., or at such other place as the Parties may mutually determine, on or before March 31, 2007. |
| (f) | The audit of the financial statements of Kiwibox for the calendar years ended December 31, 2006 and 2005 shall have been completed with all necessary data and materials delivered by Kiwibox to Magnitude. |
1.3Effect of the Merger.
Upon the Effective Time, hereinafter defined, and upon the terms and subject to the conditions of this Agreement and in accordance with the DGCL, the separate existence of Subsidiary shall cease and, Kiwibox, as the Surviving Corporation,: (i) shall continue to possess all of the assets, rights, powers and property of Kiwibox and Subsidiary as constituted immediately prior to the Effective Time, and all debts, liabilities and duties of Kiwibox and Subsidiary shall become the debts, liabilities and duties of the Surviving Corporation, all as more fully provided under the applicable provisions of the DGCL.
ARTICLE 2
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1Certificate of Incorporation: Kiwibox.
Attached hereto as Exhibit B and made a part hereof is a copy of the Certificate of Incorporation of Kiwibox as in effect in the State of Delaware immediately prior to the Closing; and at the Effective Time said Certificate of Incorporation shall continue in full force and effect as the Certificate of Incorporation of the Surviving Corporation until duly amended in accordance with the provisions thereof and applicable law.
2.2 Subsidiary.
Attached hereto as Exhibit C and made a part hereof is a copy of the Articles of Incorporation of Subsidiary as in effect immediately prior to the Closing.
2.3Bylaws.
Attached hereto as Exhibit D and made a part hereof is a copy of the Bylaws of Kiwibox as in effect immediately prior to the Closing; and at the Effective Time said Bylaws shall continue in full force and effect as the Bylaws of the Surviving Corporation until duly amended in accordance with the provisions thereof and applicable law.
2.4Directors and Officers.
The directors and officers of Kiwibox immediately prior to the Closing shall be the directors and officers of the Surviving Corporation until their successors shall have been duly elected and qualified or until as otherwise provided by law, the Certificate of Incorporation of the Surviving Corporation or the Bylaws of the Surviving Corporation.
2.5Employment Agreements
All Parties shall each execute the employment agreements between Magnitude and each of the three Kiwibox Shareholders, the form of which is attached hereto as Exhibit E .
ARTICLE 3
TERMS OF MERGER, PAYMENT, EXCHANGE OF STOCK AND INVESTMENT COMMITMENTS
3.1Magnitude Payment.
In addition to the Magnitude shares being issued in the exchange and as partial consideration therefor, Magnitude shall pay an aggregate cash payment of $300,000 to the Kiwibox Shareholders, in proportion to their respective stock ownership positions in Kiwibox at the Closing.
3.2Conversion of Kiwibox Shares.
| (a) | Conversion of Subsidiary Common Stock. At the Effective Time, each outstanding share of the common stock no par value per share, of Subsidiary shall, by virtue of the Merger and without any action on the part of Magnitude, Subsidiary or Kiwibox, be converted into one fully paid and non-assessable share of common stock of the Surviving Corporation. |
| | |
| (b) | Each share of the common stock, $.01 par value per share, of Kiwibox (“Kiwibox Common Stock”) issued and outstanding prior to the Effective Time shall by virtue of the Merger and without any action on the part of Magnitude, Subsidiary, Kiwibox or any holder thereof, be converted into and be exchangeable for the right to receive newly issued , fully paid and non-assessable voting common shares, par value $.0001 per share, of Magnitude ("Magnitude Shares"), based upon an exchange ratio (“Exchange Ratio”) determined in accordance with the provisions below. |
| | |
| (c) | Amount of Magnitude Shares o be Exchanged: Upon the Closing, Magnitude shall issue and exchange for the Kiwibox Common Stock with the Kiwibox Shareholders an amount of Magnitude common shares valued at $1,500,000. The number of Magnitude common shares to be issued shall be determined by dividing $1,500,000 by their “Market Price”. Market Price shall mean the average sales price of a Magnitude common share for the ten (10) successive trading days immediately preceding the Closing, as recorded by the Electronic Bulletin Board, over-the-counter market. For example, if the Market Price is $.05 per share, then Magnitude shall issue 30,000,000 common shares, in exchange for the Kiwibox Common Stock with the Kiwibox Shareholders; if the Market Price is $.025 per share, then Magnitude shall issue 60,000,000 shares to the Kiwibox Shareholders, in exchange for their Kiwibox Common Stock Notwithstanding anything to the contrary implied or set forth herein and for all purposes under this Section 3.2, the Market Price shall never exceed $.05 per share, so that the amount of Magnitude common shares payable hereunder shall never be less than 30,000,000 common shares. |
| | |
| | Exchange Ratio: shall be determined by dividing the amount of the Magnitude Shares determined in accordance with Article 3.2 (c) above by the shares of outstanding Kiwibox Common Stock. |
| | |
| | At the Effective Time, each share of the Kiwibox Common Stock held by the Kiwibox immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of Merger Sub or the Company, be canceled, retired and cease to exist and no payment shall be made with respect thereto. |
| | |
| | No Further Ownership Rights in Kiwibox Common Stock. All Magnitude Shares issued and exchanged in accordance with the terms of this Article 3 shall be deemed to have been issued in full satisfaction of all rights pertaining to the Kiwibox Common Stock. |
| | |
| | Appraisal Rights: This executed Agreement shall constitute each of the Kiwibox Stockholders’ acknowledgment to decline any appraisal rights under section 262 of DGCL. |
| | |
| | By executing this Agreement, each Kiwibox Stockholder acknowledges receipt of written notice of appraisal rights and a copy of Section 262 of DGCL at least 20 days prior to the date of executing this Agreement. |
3.3 Magnitude Preferred
| | At the Closing, Magnitude shall issue an aggregate 43,610 shares of its Series G Preferred Stock to the Kiwibox Shareholders in proportion to their respective stock ownership positions in Kiwibox at the Closing which shares shall be subject to the automatic conversion At the Closing, |
3.4Status of Magnitude Preferred and Common Shares.
| (a) | The Magnitude Series G Preferred Stock and Common Shares to be issued to the Kiwibox Shareholders in the reorganizationwill not be registered under the Securities Act of 1933, as amended (the "1933 Act") and may not be sold, transferred or otherwise disposed of except in compliance with the 1933 Act or pursuant to an exemption from the registration provisions thereof and the Securities Exchange Act of 1934, as amended (the "1934 Act"). |
| (b) | Each Certificate representing the Magnitude Preferred Shares and the Common Shares shall bear the following or substantially similar legend: "The Shares represented by this Certificate have not been registered under the Securities Act of 1933, as amended. These Shares have been acquired for investment purposes and not with a view to distribution or resale, and may not be sold, assigned, pledged, hypothecated or otherwise transferred without an effective Registration Statement for such Shares under the Securities Act of 1933, as amended, or an opinion of counsel to the effect that registration is not required under such Act." |
3.5Magnitude Investment and Commitment.
Magnitude shall invest no less than $3.5 million in accordance with the Kiwibox Business Plan and Budget attached hereto as Exhibit G. Such funds shall be maintained in a separate bank account and Magnitude shall be keep them free from the claims of creditors, secured or unsecured, and which claims arise out of transactions, past or present, that are not associated with the Kiwibox Business Plan.
3.6 Kiwibox Legal Fees
Magnitude agrees to pay the legal fees of Barton, Barton & Plotnik, LLP, counsel for Kiwibox, at or before the Closing, provided that such counsel provide to Magnitude current weekly statements, on Friday of each week prior to the Closing, and provided further that the the maximum amount Magnitude shall pay under this Article 3.6 is $42,500 which shall be paid by bank or certified check or wire transferred in accordance with such instructions by such counsel. Notwithstanding anything set forth herein to the contrary, Magnitude shall not be responsible for the aforesaid payment of legal fees if this Agreement is terminated by Magnitude and Kiwibox pursuant to Article 10 (a) or by Magnitude pursuant to Article 10 (b) or by Kiwibox and/or the Kiwibox Shareholders for any reason other than pursuant to Article 10(c).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF KIWIBOX AND THE KIWIBOX SHAREHOLDERS
Kiwibox and the Kiwibox Shareholders represent and warrant to Magnitude that the statements contained in this Article 4 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing as though made then and as though the Closing were substituted for the date of this Agreement throughout this Article 4, with respect to itself.
4.1Organization of Kiwibox.
Kiwibox is duly organized, validly existing, and in good standing under the laws of Delaware.
4.2Authorization of Transaction.
| (a) | Kiwibox has full corporate power and authority to execute and deliver this Agreement and to perform his obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Kiwibox, enforceable in accordance with its terms and conditions. Except as expressly contemplated hereby, Kiwibox need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. |
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| (b) | The Kiwibox Shareholders, individually represent and warrant to Magnitude that: this Agreement constitutes the legal, valid and binding obligation of each of the Kiwibox Shareholders and is enforceable against each of them in accordance with the terms hereof; each of them own their respective Kiwibox Common Shares free and clear of any and all liens, claims, pledges, restrictions, obligations, security interests and encumbrances of any kind; Attached hereto as Exhibit H is an accurate and complete list of the Kiwibox Common Shares owned by each Kiwibox Shareholder; none of the Kiwibox Shareholders have issued any calls, puts, options and/or any other rights in favor of any third party whatsoever with respect to their Kiwibox Common Shares, and; none of their respective Kiwibox Common Shares are subject to any voting agreements, voting trusts, stockholder agreements and/or any other agreements, obligations or understandings. |
4.3Non-contravention.
Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Kiwibox is subject or any provision of its charter or bylaws; or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Kiwibox is a party or by which it is bound or to which any of its assets is subject, except for such notices or consents which have been given or obtained by Kiwibox on or prior to the Closing.
4.4Capitalization.
The authorized capital stock of Kiwibox consists of 100,000,000 shares of Common Stock, $.01 par value per share. As of the date of this Agreement, there are 43,610 shares of Common Stock issued and outstanding. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Kiwibox to issue, sell, or otherwise cause to become outstanding any of its capital stock. There is no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to Kiwibox’s Common Stock. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of Kiwibox.
4.5Investment.
The Kiwibox Shareholders are not acquiring the Preferred Shares and the Common Shares of Magnitude with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act of 1933. Kiwibox and the Kiwibox Shareholders have had access to all information concerning Magnitude and its operations which it required to make its investment decision.
4.6Brokers' Fees.
Other than their obligation (i) to transfer to Southridge Investment Group, LLC (“Southridge”), two and one-half (2.5%) percent of the Magnitude Common Stock transferable to the Kiwibox Shareholders pursuant to Article 3.2 and (ii) the obligation of each of the Kiwibox Shareholders to make arrangements with Southridge to pay $7,000 each, or as may be otherwise expressly set forth in this Agreement, Kiwibox has incurred no obligation to pay any commission, finder’s fee or other charge in connection with the transactions contemplated in this Agreement for which Magnitude could become liable or obligated. Kiwibox and the Kiwibox Shareholders, jointly and severally, will indemnify and hold Magnitude, and the Subsidiary, their respective officers, directors, employees, accountants and lawyers harmless from and against any and all liabilities and claims of any nature whatsoever arising out of or in connection with any commission, fee or charge so far as any arises by reason of services alleged to have been rendered to, or at the instance of, Kiwibox and/or the Kiwibox Shareholders. This indemnification shall survive the Closing and shall be included in the terms of indemnification set forth in Article 4.7 of this Agreement.
4.7Events Subsequent to Year End.
Since the most recent calendar-fiscal year end of Kiwibox there has not been any material adverse change in the business, financial condition, operations, results of operations, or future prospects of Kiwibox taken as a whole. Kiwibox and the Kiwibox Shareholders, jointly and severally, shall indemnify, defend and hold Magnitude and Subsidiary, their successors and assigns, harmless from and against any order, action, cost, claim, damage, disbursement, expense, liability, loss, deficiency, obligation, penalty, fine, assessment or settlement of any kid or nature, whether foreseeable or unforeseeable, including, but not limited to, any and all attorney’s fees, costs, and other expenses, directly or indirectly, as a result of, or upon or arising from (i) any inaccuracy or breach or non-performance of any of the representations, warranties, covenants or agreements made by Kiwibox or the Kiwibox Shareholders in or pursuant to this Agreement, (ii) any order, action, cost, claim, damage, liability or lien arising out of Kiwibox’s or Kiwibox Shareholder’s conduct before or after the Closing, (iii) any third party claims against Kiwibox or the Kiwibox Shareholders, before or after the Closing that arise from Kiwibox’s or Kiwibox Shareholder’s conduct, or (iv) any loss or liability the proximate cause of which is determined to be the result of Kiwibox’s or Kiwibox Shareholder’s negligence or failure to comply with their respective obligations under this Agreement. Magnitude and/or Subsidiary, as the case may be, their successors and assigns, shall notify Kiwibox and/or the Kiwibox Shareholders of any claim for indemnification with reasonable promptness, and Kiwibox’s or Kiwibox’s legal representatives or Kiwibox Shareholder’s or their legal representatives shall have, at their election, the right to compromise or defend any such matter involving such asserted liability of Kiwibox and/or the Kiwibox Shareholders through counsel of their own choosing, at the expense of Kiwibox and the Kiwibox Shareholders. Kiwibox and the Kiwibox Shareholders shall notify Magnitude and the Subsidiary, or their successors or assigns, in writing promptly of their intention to compromise or defend any claim and Magnitude and/or the Subsidiary, or their successors or assigns, shall cooperate with Kiwibox and the Kiwibox Shareholders, their respective counsel in compromising or defending any such claim, in accordance with Article 8 Knollwood Terrace, Chester, NJ 07930hereof. The terms of this Article 4.7 shall survive Closing.
4.8Undisclosed Liabilities.
Kiwibox has no material liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or un-accrued, whether liquidated or un-liquidated, and whether due or to become due, including any liability for taxes), except for (i) liabilities set forth on the Kiwibox Financial Statements; and (ii) liabilities which have arisen after the date of the Kiwibox Financial Statements in the ordinary course of business. As used herein, “Kiwibox Financial Statements” consist of the financial statements of Kiwibox previously delivered to Magnitude in the form attached hereto as Exhibit I.
4.9Legal Compliance.
Kiwibox has complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against Kiwibox alleging any failure so to comply, except where the failure to comply would not have a material adverse effect on the business, financial condition, operations, results of operations, or future prospects of Kiwibox.
4.10Tax Matters.
| (a) | Kiwibox has filed all income tax returns that it has been required to file. All such income tax returns were correct and complete in all material respects. All income taxes owed by Kiwibox (whether or not shown on any income tax return) have been paid. Kiwibox is not currently the beneficiary of any extension of time within which to file any income tax return. |
| (b) | There is no material dispute or claim concerning any income tax liability of Kiwibox either (i) claimed or raised by any authority in writing; or (ii) as to which Kiwibox has knowledge based upon personal contact with any agent of such authority. |
4.11Contracts.
The Kiwibox Financial Statements disclose all material contracts of Kiwibox. Each contract or legal obligation of Kiwibox which is to be assumed by Kiwibox in connection with the Merger is listed on Exhibit J hereto. To the extent requested, true and correct copies of such contracts have been delivered to Kiwibox for due diligence purposes.
4.12Environmental, Health and Safety Matters.
Kiwibox and its predecessors and affiliates have complied and are in compliance, in each case in all material respects, with all Environmental, Health, and Safety Requirements. As used herein “Environmental, Health & Safety Requirements” means any Environmental, Health & Safety law or regulation including air and water quality laws and regulations and other similar requirements.
4.13Disclosure.
The representations and warranties contained in this Article 4 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Article 4 not misleading.
4.14Financial Statements.
The Kiwibox Financial Statements are true and correct in all material respects, have been prepared on a consistent basis, and fairly represent the business, financial condition, assets and liabilities of Kiwibox.
4.15Litigation.
There is no claim, suit, action, proceeding or investigation pending or, to the knowledge of Kiwibox, pending against Kiwibox or any of its subsidiaries or assets which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on Kiwibox.
4.16 Materials Required for Audit.
To the best of its knowledge, Kiwibox has maintained its records, data and materials related to the financial accounting of the business, and have all such data and materials immediately available, such that an audit may be completed per regulatory requirements.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF MAGNITUDE
Magnitude represents and warrants to Kiwibox and to the Kiwibox Shareholders that the statements contained in this Article 5 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing (as though made then and as though the Closing were substituted for the date of this Agreement throughout this Article 5).
5.1Organization of Magnitude
Magnitude is a corporation duly organized, validly existing, and in good standing under the laws of Delaware Magnitude has two subsidiaries, Magnitude, Inc., and the Subsidiary.
5.2Authorization of Transaction.
Magnitude has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder, and no approval of Magnitude’s shareholders is required under the DGCL to consummate the Merger and other transactions contemplated in this Agreement. This Agreement constitutes the valid and legally binding obligation of Magnitude, enforceable in accordance with its terms and conditions. Except as expressly contemplated hereby, Magnitude need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement.
5.3Non-contravention.
Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Magnitude is subject or any provision of its charter or bylaws; or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Magnitude is a party or by which it is bound or to which any of its assets is subject, except for such notices or consents which have been given or obtained by Magnitude on or prior to the Closing.
5.4Capitalization.
The authorized capital stock of Magnitude consists of 300,000,000 shares of Common Stock, $.001 par value per share, and 10,000,000 shares of Preferred Stock. As of the date of this Agreement, there were 227,379,014 shares of Common Stock and 109,857 shares of Preferred Stock, convertible into 2,423,865 common shares, are issued and outstanding. There are 12,357,408 outstanding options, and 52,273,333 outstanding warrants, and no other outstanding purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Magnitude to issue, sell, or otherwise cause to become outstanding any of its capital stock except as may be set forth in one or more of the material agreements identified in Exhibit L hereto. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to Magnitude’s Common Stock. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of Magnitude.
5.5 Mandatory Conversion of Magnitude Preferred Stock
Upon the Closing, Magnitude shall issue 43,610 Shares of its Series G Preferred Stock (the "Executive"“Preferred Stock”) to the Kiwibox Shareholders on the basis of one Common Share of the Surviving Corporation for each Kiwibox Common Share owned of record at the Effective Time. All 43,610 Shares of the Preferred Stock shall be non-transferable and shall be subject to automatic conversion upon the second anniversary of this Agreement in accordance to the terms set forth below. The Kiwibox Shareholders shall not dispose of or encumber the Preferred Shares. For all purposes under this Agreement, the 43,610 Preferred Shares shall have an aggregate conversion value of $500,000 (the “Conversion Value”), convertible into shares of the common stock of Magnitude, based upon “Market Price”. The number of Magnitude common shares to be issued in the automatic conversion shall be determined by dividing the Conversion Value of $500,000 by the Market Price of the common shares of Magnitude. Market Price shall mean the average sales price of a Magnitude common share during the twenty (20) successive trading days immediately preceding the second anniversary of this Agreement as recorded by the Electronic Bulletin Board, over-the-counter stock market maintained by the NASD or such other stock market where the common shares of Magnitude are then traded. For example, if the Market Price is $.025 per share, then the Conversion Value would be 20,000,000 Magnitude common shares which Magnitude would issue to the Kiwibox Shareholders in proportion to their ownership of the 43,610 Preferred Shares. For all purposes under this Section 6.5, the amount of shares representing the Conversion Value shall not be less than 10,000,000 common shares notwithstanding the fact that the Market Price is above $.05 per share. The Magnitude common shares issuable based upon the Conversion Value shall be issued by Magnitude to the Kiwibox Shareholders within thirty days following the second anniversary of this Agreement, in proportion to their ownership of the 43,610 Preferred Shares.
The certificate or certificates representing the 43,610 shares of Preferred Stock issued to the Kiwibox Shareholders pursuant to this Section 5.5 shall be held in escrow by counsel for Magnitude pending their automatic conversion as set forth above.
5.6Brokers' Fees.
Other than its obligation (i) to issue to Southridge Investment Group, LLC (“Southridge”), newly issued common shares in an amount equal to two and one-half (2.5%) percent of the Magnitude Common Stock transferable to the Kiwibox Shareholders pursuant to Article 3.2; (ii) to pay Southridge an investment banking fee of $15,000 on behalk of Kiwibox and the Kiwibox Shareholders, and; (iii) to execute an investment banking agreement between Magnitude and Southridge at the Closing, or as may be otherwise expressely set forth in this Agreement, Magnitude has incurred no obligation to pay any commission, finder’s fee or other charge in connection with the transactions contemplated in this Agreement for which Magnitude could become liable or obligated. Magnitude will indemnify and hold Kiwibox, and the Kiwibox Shareholders, their respective officers, directors, employees, accountants and lawyers harmless from and against any and all liabilities and claims of any nature whatsoever arising out of or in connection with any commission, fee or charge so far as any arises by reason of services alleged to have been rendered to, or at the instance of, Magnitude or Subsidiary, including any liability or claim arising from the Parties’ dealings with Southridge, as described herein. This indemnification shall survive the Closing and shall be included in the terms of indemnification set forth in Article 5.7 of this Agreement.
5.7Events Subsequent to Year End.
Since the most recent calendar-fiscal year end of Magnitude, there has not been any material adverse change in the business, financial condition, operations, results of operations, or future prospects of Magnitude taken as a whole. Magnitude shall indemnify, defend and hold Kiwibox, Kiwibox Shareholders, their successors and assigns, harmless from and against any order, action, cost, claim, damage, disbursement, expense, liability, loss, deficiency, obligation, penalty, fine, assessment or settlement of any kid or nature, whether foreseeable or unforeseeable, including, but not limited to, any and all attorney’s fees, costs, and other expenses, directly or indirectly, as a result of, or upon or arising from (i) any inaccuracy or breach or non-performance of any of the representations, warranties, covenants or agreements made by Magnitude or Subsidiary in or pursuant to this Agreement, (ii) any order, action, cost, claim, damage, liability or lien arising out of Magnitude’s conduct before or after the Closing, (iii) any third party claims against Magnitude, Subsidiary before or after the Closing that arise from Magnitude’s conduct, or (iv) any loss or liability the proximate cause of which is determined to be the result of Magnitude’s negligence or failure to comply with its obligations under this Agreement. Kiwibox and Kiwibox’s Shareholders, their successors and assigns, shall notify Magnitude of any claim for indemnification with reasonable promptness, and Magnitude or Magnitude’s legal representatives shall have, at their election, the right to compromise or defend any such matter involving such asserted liability of Magnitude through counsel of their own choosing, at the expense of Magnitude. Magnitude shall notify Kiwibox, Kiwibox’s Shareholders, or their successors or assigns, in writing promptly of their intention to compromise or defend any claim and Kiwibox, Kiwibox’s Shareholders, or their successors or assigns, shall cooperate with Magnitude and Magnitude’s counsel in compromising or defending any such claim, in accordance with Article 8 hereof. The terms of this Article 5.7 shall survive Closing.
5.8Undisclosed Liabilities.
Magnitude has no material liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or un-accrued, whether liquidated or un-liquidated, and whether due or to become due, including any liability for taxes), except for (i) liabilities set forth on the Magnitude Financial Statements; and (ii) liabilities which have arisen after the date of the Magnitude Financial Statements in the ordinary course of business. As used herein, “Magnitude Financial Statements” consist of the financial statements of Magnitude previously delivered to Kiwibox in the form attached hereto as Exhibit K.
5.9Legal Compliance.
Magnitude has complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against Magnitude alleging any failure so to comply, except where the failure to comply would not have a material adverse effect on the business, financial condition, operations, results of operations, or future prospects of Magnitude.
5.10Tax Matters.
| (a) | Magnitude has filed all income tax returns that it has been required to file. All such income tax returns were correct and complete in all material respects. All income taxes owed by Magnitude (whether or not shown on any income tax return) have been paid. Magnitude is not currently the beneficiary of any extension of time within which to file any income tax return. |
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| (b) | There is no material dispute or claim concerning any income tax liability of Magnitude either (i) claimed or raised by any authority in writing; or (ii) as to which Magnitude has knowledge based upon personal contact with any agent of such authority. |
5.11Contracts.
The Magnitude Financial Statements disclose all material contracts of Magnitude. Each contract or legal obligation of Magnitude to which Magnitude shall remain subject after the Merger is listed on Exhibit L hereto. To the extent requested, true and correct copies of such contracts have been delivered to Kiwibox for due diligence purposes.
5.12Environmental, Health and Safety Matters.
Magnitude and its predecessors and affiliates have complied and are in compliance, in each case in all material respects, with all Environmental, Health, and Safety Requirements. As used herein “Environmental, Health & Safety Requirements” means any Environmental, Health & Safety law or regulation including air and water quality laws and regulations and other similar requirements.
5.13Disclosure.
The representations and warranties contained in this Article 5 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Article 5 not misleading.
5.14Financial Statements.
The Magnitude Financial Statements are true and correct in all material respects, have been prepared on a consistent basis, and fairly represent the business, financial condition, assets and liabilities of Magnitude.
5.15Litigation.
There is no claim, suit, action, proceeding or investigation pending or, to the knowledge of Magnitude, pending against Magnitude or any of its subsidiaries or assets which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on Magnitude.
5.16Materials Required for Audit.
To the best of its knowledge, Magnitude has maintained its records, data and materials related to the financial accounting of the business, and has all such data and materials immediately available, such that an audit may be completed per regulatory requirements.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SUBSIDIARY
Magnitude represents and warrants to Kiwibox that Subsidiary has been formed solely for the purpose of this Merger and that no contract, liabilities or other obligations exist in Subsidiary.
6.1Organization of Subsidiary.
Subsidiary is a corporation duly organized, validly existing, and in good standing under the laws of Delaware and 100% owned by Magnitude.
6.2Authorization of Transaction.
Magnitude has full corporate power and authority to execute and deliver Subsidiary with regard to this Agreement and to perform its obligations hereunder, including shareholder approval as may be required by the DGCL.
6.3Non-contravention.
Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Magnitude or Subsidiary is subject or any provision of its charter or bylaws; or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Magnitude or Subsidiary is a party or by which it is bound or to which any of its assets is subject, except for such notices or consents which have been given or obtained by Kiwibox on or prior to the Closing.
6.4Capitalization.
The authorized capital stock of Subsidiary consists of two hundred (200) shares of Common Stock, $.01 par value per share, and no shares of Preferred Stock. As of the date of the Closing, there shall be 160 shares issued and outstanding and owned by Magnitude. There are not now nor shall there be any outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Subsidiary to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to Subsidiary’s Common Stock. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of Subsidiary.
ARTICLE 7
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing:
7.1General.
Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Article 9 below).
7.2Notices and Consents.
Each of the Parties will give any notices to, make any filings with, and use its reasonable best efforts to obtain any and all authorizations, consents, and approvals of governments and governmental agencies in connection with the transactions contemplated hereby.
7.3Operation of Business.
Kiwibox, Magnitude, including Subsidiary, will not engage in any practice, take any action, or enter into any transaction outside the ordinary course of business, including, but not limited to declaration of dividends or distributions, redemptions, splits, recapitalizations, or similar events respecting its capital stock prior to Closing except, however, Magnitude shall prepare and file all documents necessary to increase its authorized common shares and enter into employment and consulting agreements pursuant to which it may issue its securities.
7.4Full Access For Due Diligence.
The Parties shall permit their respective representatives to have full access at all reasonable times, and in a manner so as not to interfere with their respective normal business operations, to all premises, properties, personnel, books, records (including tax records), contracts, and documents. The Parties shall treat and hold as such any Confidential Information they receive from Kiwibox, will not use any of the Confidential Information except in connection with this Agreement, and, if this Agreement is terminated for any reason whatsoever, will return to Kiwibox all tangible embodiments (and all copies) of the Confidential Information which are in their possession.
7.5No Shop Promises.
Each of Magnitude, Kiwibox and the Kiwibox Shareholders have promised to each other that they shall utilize their respective best efforts to undertake any and all measures and deliver any and all documents necessary to consummate the transactions contemplated in this Agreement. The Parties make the following covenants to each other:
(a) Except in the case that it terminates this Agreement pursuant to Article 10(c) or in the event of an automatic termination pursuant to Article 10(d), the Kiwibox Shareholders shall not solicit or seek to acquire any assets or stock of any third party, nor shall they accept any offer to purchase or exchange any assets or securities of Kiwibox from the date of this Agreement to the Closing or through the date they terminate this Agreement pursuant to the Articles set forth in this Article 10(a).
(b) Except in the case that it terminates this Agreement pursuant to Article 10(b) or in the event of an automatic termination pursuant to Article 10(d), Magnitude shall not solicit or seek to acquire any assets or stock of any third party from the date of this Agreement to the Closing or through the date it terminates this Agreement pursuant to the Articles set forth in this Article 10(b).
ARTICLE 8
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the Closing.
8.1General.
In case at any time after the Closing any further action is necessary to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party. Kiwibox acknowledges and agrees that from and after the Closing, Magnitude will be entitled to possession of all documents, books, records (including tax records), agreements, and financial data of any sort relating to Kiwibox.
8.2No Material Acquisition.
During the two year period following the Closing, neither Magnitude nor Subsidiary shall (i) undertake a material acquisition nor (ii) sell all or any material portion of the business of Kiwibox without the prior written consent of no less than two of the three Kiwibox Shareholders.
8.3Litigation Support.
In the event and for so long as Magnitude or Kiwibox actively are contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement; or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving Kiwibox, then Kiwibox and its affiliates will cooperate with Magnitude or Kiwibox in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party.
ARTICLE 9
CONDITIONS TO OBLIGATION TO CLOSE
9.1Assumption of Kiwibox Liabilities by Magnitude. Magnitude shall pay foronly such liabilities as defined in Exhibit M hereto.
9.2Conditions to Obligation of Magnitude and Subsidiary.
The obligations of Magnitude and Subsidiary to consummate the transactions to be performed by them in connection with the Closing are subject to satisfaction of the following conditions:
| (a) | the representations and warranties set forth in Article 4 above shall be true and correct in all material respects at and as of the Closing Date; |
| (b) | Kiwibox shall have performed and complied with all of its covenants hereunder in all material respects through the Closing, including Article 4 hereby; |
| | |
| (c) | no action, suit, or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement; (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation; or (iii) affect materially and adversely the right of Kiwibox to own its assets and to operate its businesses (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); |
| (d) | Kiwibox shall have delivered to Magnitude a certificate to the effect that each of the conditions specified above in paragraphs 9.2 (a) through (c) is satisfied in all respects; |
| (e) | all actions to be taken by Kiwibox in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Magnitude. |
| (f) | Kiwibox shall have delivered to Magnitude its audited financial statements for the fiscal years ended December 31, 2006 and 2005. |
| | |
| (g) | Kiwibox and/or the Kiwibox Shareholders shall pay the fees and transfer the Magnitude Common Shares to Southridge in satisfaction of their commitment set forth in Article 4.6. |
9.3 Conditions to Obligation of Kiwibox and the Kiwibox Shareholders.
The obligation of Kiwibox and the Kiwibox Shareholders to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions:
| (a) | the representationsand warranties set forth in Articles 5 and 6 above shall be true and correct in all material respects at and as of the Closing Date; |
| (b) | Magnitude shall have performed and complied with all of their covenants hereunder in all material respects through the Closing; |
| | |
| (c) | no action, suit, or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement; or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); |
| (d) | Magnitude shall have delivered to Kiwibox a certificate to the effect that each of the conditions specified above in paragraphs 9.3 (a) through (c) is satisfied in all respects; |
| (e) | all actions to be taken by Magnitude in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Kiwibox. |
| | |
| (f) | Magnitude shall have provided documentary evidence that it has the sum of $3.5 million in a bank account in satisfaction of its commitment set forth in Article 3.5, including the commitment to show that such amount is not subject to any claims of creditors of Magnitude or any of its affiliates. |
| (g) | The representations, warranties and covenants of the parties contained in Articles 4, 5, 6, 7 and 8 of this Agreement shall survive the Closing hereunder. |
| | |
| (h) | Magnitude shall have paid the legal fees incurred by Kiwibox and the Kiwibox Shareholders in satisfaction of its commitment set forth in Article 3.6. |
| | |
| (i) | Magnitude shall pay the fees and issue the Magnitude Common Shares to Southridge in satisfaction of its commitment set forth in Article 5.6. |
ARTICLE 10
TERMINATION
This Agreement may be terminated:
(a) by the mutual written consent of Magnitude and Kiwibox;
(b) by Magnitude, in the event that any of the conditions to obligation to close enumerated in Section 9.2 have not been satisfied or waived by Magnitude in writing at or prior to the Closing;
(c) by Kiwibox and the Kiwibox Shareholders, in the event that any of the conditions to obligation to close enumerated in Section 9.3 have not been satisfied or waived by Kiwibox and the Kiwibox Shareholders, in writing, at or prior to the Closing;
(d) automatically, in the event that the Closing has not occurred on or before March 31, 2007 unless extended by mutual agreement of the parties.
In the event of the termination of this Agreement in accordance with the provisions of this Article 10: this Agreement shall forthwith become null and void and there shall be no liability or obligation on the part of Magnitude, Kiwibox or the Kiwibox Shareholders or their respective officers and directors, and; the parties shall cooperate to rescind any corporate filings made with the Secretary of State, State of Delaware, if filed.
ARTICLE 11
MISCELLANEOUS
11.1Further Assurances
From time to time, as and when required by Magnitude, Kiwibox and/or the Kiwibox Shareholders shall execute and deliver on behalf of Kiwibox such deeds and other instruments, and shall take or cause to be taken by it such further and other actions, as shall be appropriate or necessary in order to vest or perfect in or conform of record the title to and possession of all the property, interests, assets, rights, privileges, immunities, powers, franchises and authority of Kiwibox and to otherwise carry out the purposes of this Agreement. The officers and directors of Kiwibox are fully authorized in the name and on behalf of Kiwibox to take any and all such action and to execute and deliver any and all such deeds and other instruments.
11.2Agreement
Executed copies of this Agreement will be on file at the principal place of business of Magnitude at 1250 Route 28, Suite 309, Branchburg, New Jersey 08876, and copies thereof will be furnished to any stockholder of a Constituent Corporation, upon request at such shareholder’s cost. Magnitude shall be responsible for all post-closing filings with any and all state and federal agencies.
11.3No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.
11.4Entire Agreement.
This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, Letter of Intent, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof.
11.5Succession and Assignment.
This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the other Parties.
11.6Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.
11.7Headings.
The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.
11.8Notices.
All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below:
| If to Magnitude: | Magnitude Information Systems, Inc. 1250 Route 28 Suite 309 |
| | Branchburg, New Jersey 08876 With a copy to: Joseph J. Tomasek, Esq. 77 North Bridge Street Somerville, New Jersey 08876 |
| | |
| To Kiwibox: | Kiwi Media, Inc. |
| | 330 West 38th Street |
| | Suite 1607 New York, NY 10018 With a copy to: Gary Adelman, Esq. Barton Barton & Plotkin, LLP 420 Lexington Avenue, 18th Floor New York, New York 10170 |
| | |
Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.
11.9Governing Law.
This Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction).
11.10Amendments and Waivers.
No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by each of the Parties. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.
11.11Severability.
Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.
11.12Expenses.
Each of the Parties will bear its own costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby, except, however, Magnitude agrees to pay Kiwibox’s legal fees and consultant fees in accordance with Articles 3.6 and 5.6, respectively. Any sales tax, filing or recording fees or similar expense shall be paid by Magnitude.
11.13Construction.
The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.
11.14Status.
Nothing contained in this Agreement shall cause a Party to be deemed an agent, employee, franchisee, joint venture, partner or legal representative of any other Party, and no Party shall purport to act in any such capacity for any other Party.
11.15Arbitration.
Any and all disputes arising out of or relating to this Agreement shall be resolved by arbitration. All arbitration hereunder will be conducted by the American Arbitration Association (“AAA”). If the AAA is dissolved, disbanded or becomes subject to any state or federal bankruptcy or insolvency proceeding, the parties will remain subject to binding arbitration which will be conducted by a mutually agreeable arbitral forum. The parties agree that all arbitrator(s) selected will be attorneys with at least five (5) years securities and corporate reorganization experience. The arbitrator(s) will decide if any inconsistency exists between the rules of any applicable arbitral forum and the arbitration provisions contained herein. If such inconsistency exists, the arbitration provisions contained herein will control and supersede such rules. The site of all arbitration proceedings will be in the State, City and County of New York in which AAA maintains a regional office. Any arbitration award rendered shall be final, conclusive and binding upon the Parties hereto, and a judgment thereon may be entered in any court of competent jurisdiction. Notwithstanding anything set forth in this Article 11.15 to the contrary, the Parties shall have the right to seek injunctive or similar relief in any Federal or State Court in the City and State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan of Merger to be signed by their respective officers thereunto duly authorized as of the date first written above.
| ATTEST: | | MAGNITUDE INFORMATION SYSTEMS, INC. |
| | | |
| | By: | |
| Joerg H. Klaube, Secretary | | Edward L. Marney, CEO and President |
| | | |
| | | |
ATTEST: | | MAGNITUDE OPERATIONS, INC. (In Organization) By: | |
| | Edward L. Marney, CEO and President |
| | |
| Joerg H. Klaube, Secretary | | | |
| | | |
| ATTEST: | | KIWIBOX MEDIA, INC. | |
| | | |
| | By: | |
| | Lin Dai, President | |
| | | |
| | | |
| WITNESS: | | KIWIBOX SHAREHOLDERS: | |
| | | |
| | | |
| WITNESS: | | Lin Dai, Shareholder | |
| | | |
| | | |
| WITNESS: | | Ivan Tumanov, Shareholder | |
| | | |
| | | |
| WITNESS: | | Michael Howard, Shareholder | |
EXHIBIT A
CERTIFICATE OF MERGER
(TO BE PROVIDED PRIOR TO CLOSING)
EXHIBIT B
CERTIFICATE OF INCORPORATION OF KIWIBOX MEDIA INC.
EXHIBIT C
ARTICLES OF INCORPORATION OF SUBSIDIARY
EXHIBIT D
BYLAWS OF KIWIBOX MEDIA INC.
EXHIBIT E
FORM OF KIWIBOX SHAREHOLDER EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT 1.4
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated January __, 2007
By and Between:
MAGNITUDE INFORMATION SYSTEMS, INC., a Delaware corporation (the "Company" or the "Employer"),
AND
___________________________, an individual having an address at _____________________________________and one of three (3) shareholders of Kiwibox Media, Inc. ("Executive")
WHEREAS, the Company desires to hire the Executive and employ him in the position of Executive Officer; and
WHEREAS, Executive has representedagreed to serve as the Company's Executive Officer , pursuant to the Company that he has certain
valuable expertiseterms 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 hereinafterconditions 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;
herein.
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the premises and the mutual covenants, agreements, representations and agreements
hereinafter set forth,warranties contained herein, and other good and valuable consideration, the parties heretoreceipt and sufficiency of which are hereby acknowledged, Executive and the Company hereby agree as follows:
1.
ARTICLE 1
EMPLOYMENT AND DUTIES
1.1. General. The Company
1.1 Employer hereby employshires the Executive as the Executive Officer of the Company and Executive agrees to serve as Chairman, Chief Executive Officerhereby affirms and President ofaccepts such positions and employment by Employer for the CompanyTerm (as defined in Article 3 below), upon the terms and conditions herein contained.set forth herein.
1.2 The Employer shall utilize its best efforts to cause its Board of Directors to appoint one of the three Kiwibox Shareholders as a member of the Employer's Board of Directors throughout the Term.
ARTICLE 2
DUTIES
During the Term, Executive agrees toshall serve the CompanyEmployer faithfully, diligently and to the best of his ability, under the direction and supervision of the boardBoard of directorsDirectors of Employer ("Board of Directors") and shall use his best efforts to promote the Company (the "Board"). Nothing contained hereininterests and goodwill of Employer and any affiliates, successors, assigns, parent corporations, subsidiaries, and/or future purchasers of Employer. Executive shall restrict Executive from acting as a director of or owning shares in other
companies not in competition with the Company, provided thatrender such services and
ownership interests do not materially interfere with Executive's performanceduring the Term at Employer's principal place of his duties hereunder. Executive shall report directly to the Board and shall
providebusiness or at such reportsother place of business as may be requesteddetermined by the Board.
1.2. Exclusive Services. For so longBoard of Directors, as Executive is employed by the
Company, heEmployer may from time to time reasonably require of him, and shall devote all of his full-time working hoursbusiness time to his duties hereunder.the performance thereof. Executive shall not, directly or indirectly, render serviceshave those duties and powers as generally pertain to any other person
or organization foreach of the offices of which he receives compensation withoutholds, as the prior written
approvalcase may be, subject to the control of the Board or otherwise engage in activities which would interfere
with his faithful performance of his duties hereunder.
1.3. TermDirectors. Employer and Executive also agree that Employer shall utilize its best efforts to have its Board of Employment. Executive's employment underDirectors appoint one of the three Kiwibox Shareholders to be a member of the Employer's Board of Directors during the Term.
ARTICLE 3
TERM
The term of this Agreement (the "Term") shall commence on the date hereof (the "Effective Date"), and continue thereafter for a term of two (2) years, as may be extended or earlier terminated pursuant to the terms and conditions of this Agreement. The Term is renewable upon the agreement of the parties hereto.
ARTICLE 4
COMPENSATION
4.1 Salary and Equity Compensation
(a) In consideration of Executive's services to Employer, Employer shall terminate
five (5) years afterpay to Executive an annual base salary (the "Base Salary") of One Hundred Fifty Thousand Dollars ($150,000.00), payable in equal installments at the end of each regular payroll accounting period as established by Employer, or in such other installments upon which the parties hereto shall mutually agree, and in accordance with Employer's usual payroll procedures, but no less frequently than monthly.
(b) In addition to the Base Salary, Employer shall pay to Executive an annual bonus, based upon the attainment of certain business goals (the “Performance Bonus”), equal to (i) $100,000 in the event the Kiwi Business has received no less than an average 215,000 Unique Visitors during either the 10th, 11th or 12th month of the first year of the term or $316,000 in gross revenues within the 12 moth period following 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(ii) $50,000 in the
Company provides written notice of
non-renewal no laterevent the Kiwi Business has received at least an average 175,000 but less than
six months prior toan average 215,000 Unique Visitors during either the
expiration10th, 11th or 12th month of the
Initial Termfirst year of the term or
any Renewal Term. Theat least $237,000 in gross revenues but less than $316,000 within the 12 moth period
commencing onfollowing the Effective Date,
and ending onand: (x) $100,000 in the
fifthevent the Kiwi Business has received no less than an average 550,000 Unique Visitors during either the 22nd, 23rd or 24th month of the second year of the term or $1,961,000 in gross revenues within the 12 moth period following the first anniversary of the Effective Date, or
such later date to which(ii) $50,000 in the event the Kiwi Business has received at least an average 415,000 but less than an average 550,000 Unique Visitors during either the 22nd, 23rd or 24th month of the second year of 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
asat least $1,500,000 in gross revenues but less than $1,961,000 within the
"Employment Term".
1.4 Representation. Executive hereby confirms that he is in good
health and has12 moth period following the
mental and physical abilities to carry out and perform allfirst anniversary 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 timeDate.
(c) In addition 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, upand Executive’s right to earn 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 CompanyPerformance Bonus, Employer shall issue to Executive a Stock Option to purchase 7,500,000 shares of the followingEmployer's common stock, grants
correspondingat an exercise price equal to Employer's common stock fair market value as of the date of this Agreement (the "Stock Option"). The Stock Option shall vest (i.e., become exercisable) in three installments, as follows: One half of the Stock Options shall vest on the first anniversary date of the Effective Date; an additional quarter of the Stock Option shall vest on each of the 18th month and second anniversaries of the Effective Date. Executive must be continuously a full-time employee of the Company through the time he exercises part or all of the Stock Option, except, however, in the event this Agreement is terminated by the Executive for a Good Reason, as defined in Article 10.1 and 10.2 below, or by the Employer without Cause, as defined in Article 10.3 below, in which cases the Stock Option shall immediately and fully vest upon such termination provided further that the events surrounding any such termination have not been the subject of any claim, proceeding or lawsuit by either the Executive or the Company in which further case the Stock Option shall only vest upon final adjudication, determining that such termination was a valid termination by the Executive for Good Reason or by the Employer without Cause pursuant to the Company's attainment during the Employment Termapplicable above referenced articles of certain
cumulative gross sales revenue amounts, determined in accordance with generally
accepted accounting principles consistently applied, as follows:
Gross Sales Revenuesthis Agreement. The 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 aboveOption shall be deemed a non-qualified 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, subjectoption (i.e., not an ISO).
(d) In addition to the Company's attainment ofBase Salary, the cumulative gross sales
revenue amounts set forth below, commencing at $-0- upon April 1, 2002,Stock Option and determined in accordance with generally accepted accounting principles
consistently applied, the CompanyExecutive’s right to earn the Performance Bonus, Employer shall issue to Executive from time to timea second Stock OptionsOption to purchase up to an aggregate 545,833 of the common3,000,000 shares of the Employer's common stock, at an exercise price equal to the “Market Price” of the Company’s publicly traded common shares. “Market Price” means the average sales price of a Company (the "Stock Option(s)"), exercisable at any time duringCommon Share for the seven (7)
year period followingtwenty (20) trading days immediately preceding the date of their grant and whose exercise price shall be
equal to the higher of $0.10 per share or that amount representedthis Agreement as recorded 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 ofand which shall fully vest from time to timebased 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 Vestedcertain business goals (the "Performance Stock Option"). The Performance 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.shall vest (i.e., become exercisable) in two installments: 1,500,000 upon the first anniversary of the Effective Date, provided that the Kiwi Business has received no less than an average 215,000 Unique Visitors during either the 10th, 11th or 12th month of the first year of the term or $316,000 in gross revenues within the 12 month period following the first anniversary of the Effective Date, and; one half upon the second anniversary date of the Effective Date, provided that the Kiwi Business has received at least an average 550,000 Unique Visitors during either the 22nd, 23rd or 24th month of the second year of the term or $1,961,000 in gross revenues within the 12 month period following the first anniversary of the Effective Date. Executive shall receive the following benefits
during the Employment Term: (a) Executive willmust be eligible to participate in
benefit programscontinuously a full-time employee of the Company consistent with those benefit programs provided
to other senior managersthrough the time he exercises part or all of the Performance Stock Option, except, however, in the event this Agreement is terminated by the Executive for a Good Reason, as defined in Article 10.1 and 10.2 below, or by the Employer without Cause, as defined in Article 10.3 below, in which cases the Performance Stock Option shall immediately and fully vest upon such termination provided further that the events surrounding any such termination have not been the subject of any claim, proceeding or lawsuit by either the Executive or the Company excluding any key employeein which further case the Performance Stock Option shall only vest upon final adjudication, determining that such termination was a valid termination by the Executive for Good Reason or by the Employer without Cause pursuant to the applicable above referenced articles of this Agreement. The Performance Stock Option shall be deemed a non-qualified stock option plans outside(i.e., not an ISO). A "Unique Visitor" is a person who visits a Kiwibox website during any month of this Agreement;Agreement.
(e) Executive hereby acknowledges that the Stock Option, the performance Stock Option and (b) a fully paid medical/hospitalization policythe shares issuable upon the exercise thereof shall be "restricted securities" as such term is defined under Rule 144, unless and until an effective registration covering these shares takes place, promulgated under the Securities Act of 1933, as amended (the "1933 Act"); that the Executive hereby represents that he shall accept such compensation and has no present intent to distribute or transfer such securities; that such securities shall bear the appropriate restrictive legend providing that they may not be transferred except pursuant to the registration requirements of the 1933 Act or pursuant to exemptions therefrom, and; the Executive further acknowledges that he may be required to hold such securities for Executive and
his family.
3.2. Vacation.an indeterminable amount of time.
Benefits
4.2 Executive shall be entitled to participate in all medical and other executive benefit plans, including four (4) weeks paid
vacation, duringsick leave, retirement accounts and other executive benefits provided by Employer to any of the year 2002other senior officers of the Employer on terms and four weeks each year thereafter in accordance
with Company policies and procedures. Executive may only carry upconditions no less favorable than those offered to an
aggregate of five (5) vacation days from one calendar yearsuch senior officers. Such participation shall be subject to the next in
accordance with current Company policy.
3.3. Automobile Allowance. Executive will receive a $900 car
allowance per monthterms of the applicable plan documents and be responsible for mileage and all other car expense.
3.4.Employer's generally applicable policies.
4.3 Expense Reimbursement of Expenses. The Company will
Employer shall reimburse Executive for reasonable
ordinary and necessary
pre-approved business expenses incurred by him
in the fulfillmenton behalf of
his duties hereunder upon presentation by Executive
of an itemized account of such expenditures,Employer 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 materiallyduring the Term, including any and adversely affectsall travel and entertainment expenses related to 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 specifyingEmployer's business in accordance with Employer's then customary policies, provided that such deficiency and a
reasonable opportunity to cure)expenses are adequately documented. ARTICLE 5
OTHER EMPLOYMENT
During the normal and customary duties requiredTerm, Executive shall devote all of his position of employment (a "Performance Termination Event"), (d) has been
disloyalbusiness and professional time and effort, attention, knowledge, and skill to the Company by assisting competitorsmanagement, supervision and direction 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 itsEmployer's 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, reduceaffairs as 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
Companyhighest professional priority. Employer shall each be entitled to select their own physician practicingall benefits, profits or other remuneration arising from or incidental to all work, services and advice performed or provided by Executive. Nothing in this Agreement shall preclude Executive from:
(a) serving as a director or member of a committee of any organization or corporation involving no conflict of interest with the interests of Employer, provided that Executive must obtain the prior written approval of the independent members of the Board;
(b) serving as a consultant in his area of expertise (in areas other than in connection with the business of Employer), to government, industrial, and academic panels provided that only de minimis time shall be devoted thereto and Executive must obtain the prior written approval of the independent members of the Board of Employer and where it does not conflict with the interests of Employer, provided that such written consent shall not be unreasonably withheld, delayed or conditioned; and
(c) managing his personal investments or engaging in any other non-competing business; provided that such activities do not materially interfere with the regular performance of his duties and responsibilities under this Agreement.
ARTICLE 6
CONFIDENTIAL INFORMATION/INVENTIONS
Confidential Information
6.1 Executive shall not, in any manner, for any reasons, either directly or indirectly, divulge or communicate to any person, firm or corporation, any confidential information concerning any matters not generally known in the
State of New Jersey having appropriate and acknowledged levels of expertisewebsite industry (the "Website Industry") or otherwise made public by Employer which affects or relates to Employer's business, finances, marketing and/or operations, research, development, inventions, products, designs, plans, procedures, or other data (collectively, "Confidential Information") except in the
areaordinary course of
business or as required by applicable law. Without regard to whether any item of Confidential Information is deemed or considered confidential, material, or important, 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; providedparties hereto stipulate 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 reducedas between them, to the extent
such item is not generally known in the Website Industry, such item is important, material, and confidential and affects the successful conduct of Employer's business and goodwill, and 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
deliverybreach 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 obligationsterms 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 Employmentbe a material and during
employment and shall be extended by a period of time equal to any period during
which Executive shall be inincurable breach of such obligations.
6.2. Confidentiality. Executive covenants and agrees with the
Company that he willthis Agreement. Confidential Information shall 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 confidentialinclude: 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 anyother than because 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 anya breach of the
Company's products), business plans, prospects or opportunities.
6.3. Exclusive Property .this Agreement.
Documents
6.2 Executive confirmsfurther agrees that all confidential
information isdocuments and materials furnished to Executive by Employer and relating to Employer’s business or prospective business are and shall remain the exclusive property of the Company.Employer. Executive shall deliver all such documents and materials, and all copies thereof and extracts therefrom, to Employer upon demand therefor and in any event upon expiration or earlier termination of this Agreement.
Inventions and Intellectual Property
6.3 All business records, papersideas, inventions, and documents keptother developments or made by Executive relatingimprovements conceived or reduced to the
business of the Company shall be and remain the property of the Company.
Similarly, all patents and/or inventions or new products developedpractice by Executive, alone or with others, during the termTerm of this Agreement, whether or not during working hours, that are within the scope of the business of Employer or that relate to or result from any of Employer's work or projects or the services provided by Executive to Employer pursuant to this Agreement, shall constitute "work
product"be the exclusive property of Employer. Executive agrees to assist Employer, at Employer's expense, to obtain patents and copyrights on any such ideas, inventions, writings, and other developments, and agrees to execute all documents necessary to obtain such patents and copyrights in the name of Employer. Exhibit A attached to and incorporated by reference into this Agreement is a list of assets owned by the Kiwibox Shareholders, are not related to the business of Kiwicox Media, Inc. and which are not within the scope of this Article 6.3
Disclosure
6.4 During the Term, Executive will promptly disclose to the Board of Directors full information concerning any interest, direct or indirect, of Executive (as owner, shareholder, partner, lender or other investor, director, officer, executive, consultant or otherwise) or any member of his immediate family in any business that is reasonably known to Executive to purchase or otherwise obtain services or products from, or to sell or otherwise provide services or products to, Employer or any of their suppliers or customers.
ARTICLE 7
COVENANT NOT TO COMPETE
7.1 No Competitive Activities. Except as such term is generally usedexpressly permitted in Article 5 above, during the Term, Executive shall not engage in any activates that are competitive with the actual or prospective business of the Company, including without limitation: (a) engaging directly or indirectly in any business substantially similar to any business or activity engaged in (or proposed to be engaged in) by Employer, including and not limited to business that relates to the Website Industry; (b) engaging directly or indirectly in any business or activity competitive with any business or activity engaged in (or proposed to be engaged in) by Employer; (c) soliciting or taking away any executive, employee, agent, representative, contractor, supplier, vendor, customer, franchisee, lender or investor of Employer, or attempting to so solicit or take away; (d) interfering with any contractual or other relationship between Employer and any executive, employee, agent, representative, contractor, supplier, vendor, customer, franchisee, lender or investor; or (e) using, for the benefit of any person or entity other than Employer any Confidential Information of Employer.
7.2 The foregoing covenant prohibiting competitive activities shall survive the termination of this Agreement, and shall extend, and shall remain enforceable against Executive, for the propertyperiod of two (2) years following the Company upondate this Agreement is terminated. In addition, during the two-year period following such expiration or earlier termination, neither Executive nor Employer shall make or permit the making of any negative statement of any kind concerning Employer or their affiliates, or their directors, officers or agents or Executive.
ARTICLE 8
SURVIVAL
Except as otherwise provided, Executive agrees that the provisions of Articles 6, 7, 8 and 9 shall survive expiration
or earlier termination of this
Agreement.
30
6.4. Injunctive Relief. Without intending to limit the remedies available
to the Company, Agreement for any reasons whether voluntary or involuntary, with or without Cause, and shall remain in full force and effect thereafter.
ARTICLE 9
INJUNCTIVE RELIEF
Executive acknowledges and agrees that the covenants and obligations of Executive set forth in Articles 6 and 7 with respect to non-competition, non-solicitation, confidentiality and Employer's property relate to special, unique and extraordinary matters and that a breachviolation of any of the terms of such covenants contained in this Section 6 may result in material and obligations will cause Employer irreparable injury to the
Company or its affiliates or subsidiaries for which there is no adequate remedyremedies are not available at law,law. Therefore, Executive agrees 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 Companyif Executive breaches this Agreement than Employer shall be entitled to obtain a temporaryapply for an injunction, restraining order and/or a preliminary
or permanent injunction restraining Executive from engaging in activities
prohibited by this Section 6 or such other equitable 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 thatas limited by Section 13.3 may deem necessary or appropriate to restrain Executive from committing any term or provision hereof is invalid or unenforceable, (a)violation of the remaining
termscovenants and provisions hereof shall be unimpaired and (b) such courtobligations referred to in this Article 9. Executive shall have the authorityright to replaceappeal from such invalidinjunction or unenforceable termorder and to seek reconsideration. These injunctive remedies are cumulative and in addition to any other rights and remedies Employer may have at law or provisionin equity.
ARTICLE 10
TERMINATION
Termination by Executive
10.1 Executive may terminate this Agreement for Good Reason at any time upon 30 days' written notice to Employer, provided the Good Reason has not been cured within such period of time. In addition, Executive may terminate this agreement anytime, upon providing a 60 days' written notice.
Good Reason
10.2 In this Agreement, "Good Reason" means, without Executive's prior written consent, the occurrence of any of the following events, unless Employer shall have fully cured all grounds for such termination within thirty (30) days after Executive gives notice thereof:
(i) any reduction in his then-current Salary or benefits, other than in connection with a term or provisionpercentage pay cut that is validapplicable to all senior executives and enforceablewhich is the same percentage for all such persons or in connection with a general reduction in benefits;
(ii) any material failure to timely grant, or timely honor, the Stock Option set forth in Article 4.1;
(iii) failure to pay or provide required expenses;
(iv) Any diminution in authority or responsibility to a non-executive position;
The written notice given for Good Reason by Executive to Employer shall specify in reasonable detail the cause for termination, and that comes closestsuch termination notice shall not be effective until thirty (30) days after Employer's receipt of such notice, during which time Employer shall have the right to expressingrespond to Executive's notice and cure the intentionbreach or other event giving rise to the termination.
Termination by Employer
10.3 Employer may terminate its employment of Executive under this Agreement with or without Cause at any time by written notice to Executive. For purposes of this Agreement, the term Cause for termination by Employer shall be (a) a conviction of or plea of guilty or nolo contendere by Executive to a felony, or any crime involving fraud, securities laws violations, embezzlement or moral turpitude; (b) the refusal by Executive to perform his material duties and obligations hereunder or to follow the proper instructions of the invalidBoard of Directors; (c) Executive's willful or unenforceable termintentional misconduct in the performance of his duties and obligations; (d) conduct that is known or provision.
7.3. Assignment. that should have been known by Executive to be detrimental to the best interests of the Company, as determined by the independent members of the board; (e) if Executive or any member of his family makes any personal profit arising out of or in connection with a transaction to which Employer is a party or with which it is associated without making disclosure to and obtaining the prior written consent of the independent members of the Board; or (f) the entry by the Securities and Exchange Commission or a self-regulatory organization of a consent decree relating to a securities law violation by Executive. The written notice given hereunder by Employer to Executive shall specify that it is without Cause or if it is with Cause shall specify in reasonable detail the cause for termination. For purposes of this Agreement, "family" shall mean "immediate family" as defined in the rules of the Securities and Exchange Commission. In the case of a termination for the causes described in (a), (d) and (e) above, such termination shall be effective upon receipt of the written notice. In the case of the causes described in (b) and (c) above, such termination notice shall not be effective until thirty (30) days after Executive's receipt of such notice, during which time Executive shall have the right to respond to Employer's notice and cure (if curable) the breach or other event giving rise to the termination. In the case of termination without Cause, such termination notice shall not be effective until thirty (30) days after Executive's receipt of such notice.
Severance
10.4 Upon a termination of this Agreement with Good Reason by Executive or without cause by Employer, Employer shall pay to Executive all accrued and unpaid compensation and expense reimbursement, as of the date of such termination and the "Severance Payment." The Severance Payment shall be payable in a lump sum, subject to Employer's statutory and customary withholdings. The Severance Payment shall be paid by Employer within thirty (30) business days of the expiration of any applicable cure period. The "Severance Payment" shall equal the total amount of the Salary payable to Executive under Section 4.1 of this Agreement for a period of one (1) year.
Termination Upon Death
10.5 If Executive dies during the Term , this Agreement shall terminate, except that Executive's legal representatives shall be entitled to receive any earned but unpaid compensation or expense reimbursement due hereunder through the date of death.
Termination Upon Disability
10.6 If, during the Term , Executive suffers and continues to suffer from a "Disability" (as defined below), then Employer may terminate this Agreement by delivering to Executive ten (10) calendar days' prior written notice of termination based on such Disability, setting forth with specificity the nature of such Disability and the determination of Disability by Employer. For purposes hereof, "Disability" means "permanent and total disability" as defined in Section 22(e)(3) of the Internal Revenue Code. Upon any such termination for Disability, Executive shall be entitled to receive any earned but unpaid compensation or expense reimbursement due hereunder through the date of termination and the Severance Payment.
ARTICLE 11
PERSONNEL POLICIES, CONDITIONS, AND BENEFITS
Except as otherwise provided herein, Executive's employment shall be subject to the personnel policies and benefit plans which apply generally to Employer's Executives as the same may be interpreted, adopted, revised or deleted from time to time, during the Term of this Agreement, by Employer in its sole discretion. During the Term hereof, Executive shall be entitled to vacation during each year of the Term at the rate of four (4) weeks per year. Within 30 days after the end of each year of the Term, Employer shall elect to (a) carry over and allow Executive the right to use any accrued and unused vacation of Executive, or (ii) pay Executive for such vacation in a lump sum in accordance with its standard payroll practices. Executive shall take such vacation at a time approved in advance by the Board of Directors of Employer, which approval will not be unreasonably withheld but will take into account the staffing requirements of Employer and the need for the timely performance of Executive's responsibilities.
ARTICLE 12
BENEFICIARIES OF AGREEMENT
This Agreement shall inure to the benefit of the parties hereto, their respective heirs, successors and representativespermitted assigns.
ARTICLE 13
GENERAL PROVISIONS
No Waiver
13.1 No failure by either party to declare a default based on any breach by the other party of Executive and the assigns and successorsany provisions of the Company,
but neither this Agreement, nor any rights hereunderfailure of such party to act quickly with regard thereto, shall be assignableconsidered to be a waiver of any such breach, or otherwise subjectof any future breach.
Modification
13.2 No waiver or modification of this Agreement or of any covenant, condition, or limitation herein contained shall be valid unless in writing and duly executed by the parties to
hypothecation by Executive.
31
7.4 Entire Agreement.be charged therewith.
Submission to Jurisdiction; Consent to Service of Process.
13.3 Submission to Jurisdiction; Consent to Service of Process. This Agreement representsshall be governed in all respects, by the entire agreementlaws of the State of New York, including validity, interpretation and effect, without regard to principles of conflicts of law. The parties hereto irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the state and federal courts in the State of New Jersey or in the State of New York for any lawsuits, actions or other proceedings arising out of or related to this Agreement and agree not to commence any lawsuit, action or other proceeding except in such courts. The parties hereto further agree that service of process, summons, notice or document by mail to their addresses set forth above shall supersedebe effective service of process for any lawsuit, action or other proceeding brought against them in any such court. The parties hereto irrevocably and all previous contracts, arrangementsunconditionally waive any objection to the laying of venue of any lawsuit, action or understandingsother proceeding arising out of or related to this Agreement in such courts, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such lawsuit, action or proceeding brought in any such court has been brought in an inconvenient forum.
Entire Agreement
13.4 This Agreement embodies the whole agreement between the Company and Executive with reference toparties hereto regarding the subject matter hereof. Thishereof and there are no inducements, promises, terms, conditions, or obligations made or entered into by Employer or Executive other than contained herein.
Severability
13.5 In the event a court of competent jurisdiction determines that a term or provisions contained in this Agreement is overly broad in scope, time geographical location or otherwise, the parties hereto authorize such Court to modify and reduce any such term or provision deemed overly broad in scope, time, geographic location or otherwise so that it complies with then applicable law.
Headings
13.6 The headings contained herein are for the convenience of reference and are not to be used in interpreting this Agreement.
Independent Legal Advice
13.7 Employer and Executive each acknowledge that he or it has obtained legal advice concerning this Agreement.
No Assignment
13.8 No party may be amended atpledge or encumber its respective interests in this Agreement nor assign any time by mutualof its rights or duties under this Agreement without the prior written agreementconsent 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.
other party.
IN WITNESS WHEREOF the Company has causedparties have executed this Agreement to be duly
executed and Executive has hereunto set his hand, as of the day and year first above written.
| | |
| EMPLOYER: |
| MAGNITUDE INFORMATION SYSTEMS, INC. |
|
|
|
| By: | |
|
Edward Marney |
| Title: | President |
| EXECUTIVE: |
EXHIBIT F
CERTIFICATE OF DESIGNATION FOR SERIES G PREFERRED STOCK
(TO BE DELIVERED PRIOR TO CLOSING)
EXHIBIT G
KIWIBOX BUSINESS PLAN
EXHIBIT H
SHAREHOLDERS AND THEIR OWNERSHIP OF KIWIBOX SHARES
EXHIBIT I
KIWIBOX FINANCIAL STATEMENTS
EXHIBIT J
KIWIBOX MATERIAL CONTRACTS
EXHIBIT K
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
33
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.
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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
FINANCIAL STATEMENTS FOR THE SPECIAL MEETINGQUARTER ENDED SEPTEMBER 30, 2006 AND
FOR THE YEAR ENDED DECEMBER 31, 2005.
EXHIBIT L
MAGNITUDE MATERIAL CONTRACTS
EXHIBIT M
LIST OF STOCKHOLDERSKIWIBOX LIABILITIES 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
PAID BY MAGNITUDE