SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 8 - K/A
(Amendment No. 1)
(Dated December 19, 2000)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
October 11, 2000
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(Date of Report)
Magnitude Information Systems, Inc.
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(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 33-20432-FW 75-2228828
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
401 State Route 24, Chester, New Jersey 07930
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 879-2722
Item 5. Other Events
The Company has executed and delivered a new common stock purchase
agreement, dated December 18, 2000, with Torneaux Fund, Ltd., a private equity
fund organized under the laws of the Commonwealth of the Bahamas, replacing an
earlier agreement with Torneaux executed on October 6, 2000. At the request of
the Staff of the Securities and Exchange Commission, we have entered into this
new Common Stock Purchase Agreement which excludes the provision giving the
purchaser, Torneaux, discretion to increase the amount of the Company's common
shares it could purchase during a pricing period based on the trading volume of
the Company's common stock. In connection with the new agreement, the Company
has submitted an application to withdraw its previously filed registration
statement and intends to file a new Registration Statement pursuant to the terms
and conditions of the new agreement. Except for that change, all of the other
principal terms and conditions contained in the old agreement are also found in
the new agreement, including the Company's obligation to register the 2,045,448
Company common shares under the Securities Act of 1933, as amended, for resale
by Torneaux. The Company intends to file the new registration statement by
December 22, 2000, registering these shares.
Item 7. Financial Statements and Exhibits.
(c) EXHIBITS.
4.25 Common Stock Purchase Agreement, Dated December 18, 2000, by and
between the Company and Torneaux Fund, Ltd.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Amendment No. 1 to its report on Form 8-K,
filed with the Commission on October 11, 2000, to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: December 18, 2000 MAGNITUDE INFORMATION
SYSTEMS, INC.
By:/s/ Joerg Klaube
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Joerg Klaube
Chief Financial Officer
Exhibit 4.25
COMMON STOCK PURCHASE AGREEMENT
Dated as of December 18, 2000
by and between
MAGNITUDE INFORMATION SYSTEMS, INC.
and
TORNEAUX FUND LTD.
TABLE OF CONTENTS
Page
ARTICLE IDefinitions 1
Section 1.1 Definitions.....................................................................................1
ARTICLE II Purchase and Sale of Common Stock......................................................................3
Section 2.1 Purchase and Sale of Stock......................................................................3
Section 2.2 The Shares......................................................................................3
Section 2.3 The Warrants....................................................................................3
Section 2.4 Closing.........................................................................................4
ARTICLE III Representations and Warranties........................................................................4
Section 3.1 Representations and Warranties of the Company...................................................4
Section 3.2 Representations, Warranties and Covenants of the Purchaser.....................................11
ARTICLE IV Covenants 13
Section 4.1 Securities.....................................................................................13
Section 4.2 Registration and Listing.......................................................................13
Section 4.3 Registration Statement.........................................................................13
Section 4.4 Compliance with Laws...........................................................................14
Section 4.5 Keeping of Records and Books of Account........................................................14
Section 4.6 Reporting Requirements.........................................................................14
Section 4.7 Other Agreements...............................................................................14
Section 4.8 Non-public Information.........................................................................15
Section 4.9 No Stop Orders.................................................................................15
Section 4.10 Amendments to the Registration Statement.......................................................15
Section 4.11 Prospectus Delivery............................................................................16
Section 4.12 Legends........................................................................................16
ARTICLE V Conditions to Closing, Draw Downs and Warrant Exercise.................................................16
Section 5.1 Conditions Precedent to the Obligation of the Company to Close this Agreement..................16
Section 5.2 Conditions Precedent to the Obligation of the Purchaser to Close this Agreement................17
Section 5.3 Conditions Precedent to the Obligation of the Purchaser to Accept a Draw Down or
Exercise the Warrants and Purchase the Shares..................................................17
ARTICLE VI Draw Down Terms.......................................................................................19
Section 6.1 Draw Down Terms................................................................................19
ARTICLE VIILegends 21
Section 7.1 Legend.........................................................................................21
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Section 7.2 No Other Legend or Stock Transfer Restrictions.................................................22
Section 7.3 Purchaser's Compliance.........................................................................22
ARTICLE VIII Termination.........................................................................................22
Section 8.1 Termination by Mutual Consent..................................................................22
Section 8.2 Other Termination..............................................................................22
Section 8.3 Effect of Termination..........................................................................23
ARTICLE IX Indemnification.......................................................................................23
Section 9.1 General Indemnity..............................................................................23
Section 9.2 Indemnification Procedures.....................................................................24
ARTICLE X Miscellaneous..........................................................................................26
Section 10.1 Fees and Expenses..............................................................................26
Section 10.2 Specific Enforcement, Consent to Jurisdiction..................................................26
Section 10.3 Entire Agreement; Amendment....................................................................26
Section 10.4 Notices........................................................................................27
Section 10.5 Waivers........................................................................................28
Section 10.6 Headings.......................................................................................28
Section 10.7 Successors and Assigns.........................................................................28
Section 10.8 Governing Law..................................................................................28
Section 10.9 Survival.......................................................................................28
Section 10.10 Counterparts...................................................................................28
Section 10.11 Publicity......................................................................................28
Section 10.12 Severability...................................................................................28
Section 10.13 Further Assurances.............................................................................29
Section 10.14 Confidentiality................................................................................29
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COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
December 18, 2000 by and between Magnitude Information Systems, Inc., a Delaware
corporation (the "Company") and Torneaux Fund Ltd., a company organized under
the laws of the Commonwealth of The Bahamas (the "Purchaser").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Purchaser,
from time to time as provided herein, and the Purchaser shall purchase, up to
2,045,448 shares of the Company's common stock, par value $0.0001 per share (the
"Common Stock"); and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) and ("Section 4(2)") and Regulation D ("Regulation D") of the
United States Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the purchases of Common Stock to be made hereunder
from time to time.
The parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions.
(a) "Alternate Market" shall mean the Nasdaq National Market, the Nasdaq Small
Cap Market, the American Stock Exchange, or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the Common
Stock.
(b) "Commission" shall have the meaning assigned to such term in Section 3.1(f)
hereof.
(c) "Commission Documents" shall have the meaning assigned to such term
in Section 3.1(f) hereof.
(d) "Commission Filings" means the Company's Form 10-KSB for the fiscal year
ended December 31, 1999, its Form 10-QSB for the fiscal quarter ended March 31,
2000 and December 31, 1999, its Form 8-Ks dated May 18, 2000, and all other
filings made by the Company after the date hereof pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
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(e) "Draw Down" shall have the meaning assigned to such term in Section 6.1(a)
hereof.
(f) "Draw Down Amount" means the actual amount of a Draw Down, with a minimum
amount of $100,000.00 and a maximum amount of $350,000.00.
(g) "Draw Down Discount Percentage" means 88% if the Threshold Price is
equal to or greater than $1.00; provided, however, that for every $0.50
increase of the Threshold Price above $1.00, to a maximum Threshold Price
of $3.50, such draw down discount percentage shall increase by 0.50%,
incrementally, to a maximum of 90.5%.
(h) "Draw Down Exercise Date" shall have the meaning assigned to such
term in Section 5.3 hereof.
(i) "Draw Down Notice" shall have the meaning assigned to such term in
Section 6.1(i) hereof.
(j) "Draw Down Pricing Period" shall mean a period of twenty (20) consecutive
trading days on the over the counter bulletin board ("OTC BB") or an Alternate
Market starting with the first trading day specified in Draw Down Notice (or
such other period of consecutive trading days as mutually agreed upon by the
Company and the Purchaser).
(k) "Material Adverse Effect" shall mean any effect on the business,
results of operations, prospects, properties, assets or financial condition of
the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of
the Company to enter into and perform any of its obligations under this
Agreement in any material respect.
(l) "Material Change in Ownership" shall mean that, as of any particular
measurement date, the officers and directors of the Company shall beneficially
own in the aggregate less than 2% of the outstanding Common Stock of the
Company, except that for purposes of making any such calculation, Common Stock
issued to the Purchaser pursuant to this Agreement shall not be included in such
calculation.
(m) "Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement, as supplemented from time to time
pursuant to Rule 424(b) of the Securities Act.
(n) "Registration Statement" shall mean the registration statement on Form SB-2,
to be filed with the Securities and Exchange Commission for the registration for
resale of the Shares, as such Registration Statement may be amended from time to
time.
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(o)"Settlement Date" shall have the meaning assigned to such term in Section
6.1(d) hereof.
(p) "Shares" shall mean the shares of Common Stock of the Company that
may be purchased hereunder pursuant to a Draw Down and/or upon exercise of the
Warrants (as defined Section 2.3).
(q) "Threshold Price" is the lowest price at which the Company will set in the
Draw Down Notice in order to sell Shares during each Draw Down Pricing Period,
which Threshold Price may be set in increments of at least $.01.
(r) "VWAP" shall mean the daily volume weighted average price (based on a
trading day from 9:30 a.m. to 4:00 p.m., eastern time) of the Company's Common
Stock on the OTC BB (or any successor thereto) or an Alternate Market as
reported by Bloomberg Financial LP using the AQR function.
ARTICLE II
Purchase and Sale of Common Stock
Section 2.1 Purchase and Sale of Stock. Subject to the terms
and conditions of this Agreement, the Company shall issue and sell to the
Purchaser and the Purchaser shall purchase from the Company (i) up to
2,045,448 shares of Common Stock, based on Draw Downs in accordance with
Section 6.1, and (ii) the Warrants in accordance with Section 2.3 hereof.
In no event shall the amount of Common Stock required to be purchased by the
Purchaser be less than $100,000 or exceed $350,000 per Draw Down during any
Draw Down Pricing Period.
Section 2.2 The Shares. The Company has authorized
and has reserved and covenants to continue to reserve, subject to Section
4.4(b) hereof, free of preemptive rights and other similar contractual rights
of stockholders, 2,045,448 shares of its Common Stock to cover the Shares to
be issued in connection with all Draw Downs and the shares of Common Stock
issuable pursuant to the exercise of Warrants.
Section 2.3 The Warrants. At each Settlement Date, the Company
shall issue to the Purchaser a warrant (the "Warrant"), to purchase up to 50% of
the number of shares of Common Stock purchased for each Settlement Period (such
percentage, as may be adjusted below, the "Warrant Coverage"), each Warrant
being exercisable for a period of three (3) years commencing on date of issuance
of such Warrant. Each Warrant shall be exercisable at the exercise price of 115%
of the price per Share paid by the Purchaser during such Settlement Period. The
Warrant Coverage shall be adjusted as follows:
(1) If the Threshold Price is equal to or less than $1.00, the Warrant Coverage
shall be 50%;
(2) If the Threshold Price exceeds $1.00, up to and including $2.00, the
Warrant Coverage shall be 40%; and
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3) If the Threshold Price exceeds $2.00, the Warrant Coverage shall be 30%.
No Warrant shall be exercisable if the shares of Common Stock issuable
upon any exercise of such Warrant, when aggregated with all other shares of
Common Stock then owned by the Purchaser, would result in the Purchaser owning
more than 9.99% of all of such Common Stock as would be outstanding on such date
of exercise, as determined in accordance with Section 16 of the Exchange Act and
the regulations promulgated thereunder.
Section 2.4 Closing. In consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions
of this Agreement, the Company agrees to issue and sell to the Purchaser and the
Purchaser agrees to purchase from the Company, that number of the Shares to be
issued in connection with each Draw Down. The closing of the execution and
delivery of this Agreement (the "Closing") shall take place at the offices of
Parker Chapin LLP, The Chrysler Building, 405 Lexington Avenue, New York, NY
10174 at 5:00 p.m. Eastern Time on (i) December 22,2000, or (ii) such other time
and place or on such date as the Purchaser and the Company may agree upon (the
"Closing Date"). Each party shall deliver all documents, instruments and
writings required to be delivered by such party pursuant to this Agreement at or
prior to the Closing.
ARTICLE III
Representations and Warranties
Section 3.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware and has the requisite corporate power to own, lease and operate its
properties and assets and to conduct its business as it is now being conducted.
As of the date hereof, the Company does not have any subsidiaries (as defined in
Section 3.1(g)) except as set forth in the Company's most recent Form 10-SKB,
including the accompanying financial statements (the "Form 10-KSB"), or in the
Company's most recent Form 10-QSB (the "Form 10-QSB"), or on Schedule 3.1(g)
attached hereto. The Company and each such subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary except for any jurisdiction in which the failure to be
so qualified will not have a Material Adverse Effect.
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement and to issue and
sell the Shares in accordance with the terms hereof. The execution, delivery and
performance of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action, and, except as contemplated by Section 3.1(e). This
Agreement has been duly executed and delivered by the Company. This Agreement
constitutes, or when executed and delivered shall constitute, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of creditor's rights and remedies or by other
equitable principles of general application.
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(c) Capitalization. The authorized capital stock of the Company and the
shares thereof issued and outstanding as of October 6, 2000 are set forth on
Schedule 3.1(c) attached hereto. All of the outstanding shares of the Company's
Common Stock have been duly and validly authorized, and are fully paid and
non-assessable. Except as set forth in this Agreement or on Schedule 3.1(c)
attached hereto, as of October 6, 2000, no shares of Common Stock are entitled
to preemptive rights or registration rights and there are no outstanding
options, warrants, scrip, rights to subscribe to, call or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company. Furthermore, except as set forth on
Schedule 3.1(c) attached hereto and except as set forth in this Agreement, as of
the date hereof, there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except as set forth on
Schedule 3.1(c) attached hereto and except for customary transfer restrictions
contained in agreements entered into by the Company in order to sell restricted
securities, as of the date hereof, the Company is not a party to any agreement
granting registration rights to any person with respect to any of its equity or
debt securities. The Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of the Company. The offer and sale of all capital stock, convertible securities,
rights, warrants, or options of the Company issued prior to the Closing complied
with all applicable federal and state securities laws, and no stockholder has a
right of rescission or damages with respect thereto which would have a Material
Adverse Effect. The Company has furnished or made available to the Purchaser
true and correct copies of the Company's Certificate of Incorporation as in
effect on the date hereof (the "Certificate"), and the Company's Bylaws as in
effect on the date hereof (the "Bylaws").
(d) Issuance of Shares. The sale and issuance of the Shares in accordance
with the terms and on the basis of the representations and warranties set forth
in this Agreement will be exempt from the registration requirements of the
Securities Act. The Shares have been duly authorized by all necessary corporate
action and, when paid for or issued in accordance with the terms hereof, the
Shares shall be validly issued and outstanding, fully paid and non-assessable,
and the Purchaser shall be entitled to all rights accorded to a holder of Common
Stock.
(e) No Conflicts. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated therein do not (i) violate any provision of the Company's
Certificate or Bylaws, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party, (iii) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or
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by which any of its respective properties or assets are bound, or (iv) result in
a violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its subsidiaries are bound or
affected, except, in all cases, for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect. The Company is
not required under federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement, or issue and sell the Shares in
accordance with the terms hereof (other than any filings which may be required
to be made by the Company with the Commission, or Nasdaq subsequent to the
Closing, and, any registration statement which may be filed pursuant hereto);
provided that, for purpose of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchaser herein.
(f) Commission Documents, Financial Statements. The Company has timely
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the Securities and Exchange Commission (the "Commission")
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the
foregoing including filings incorporated by reference therein being referred to
herein as the "Commission Documents"). The Company has delivered or made
available to the Purchaser true and complete copies of the Commission Documents
filed with the Commission since September 15, 2000 and prior to the Closing
Date. The Company has not provided to the Purchaser any information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed, other than with
respect to the transactions contemplated by this Agreement. The Form 10-KSB for
the year ended December 31, 1999 complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such document, and, as of its date, such Form 10-KSB
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the
Commission Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
Such financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects the financial
position of the Company and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
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(g) Subsidiaries. The Commission Documents or Schedule 3.1(g) attached
hereto set forth each subsidiary of the Company as of the date hereof, showing
the jurisdiction of its incorporation or organization and showing the percentage
of each person's ownership of the outstanding stock or other interests of such
subsidiary. For the purposes of this Agreement, "subsidiary" shall mean any
corporation or other entity of which at least a majority of the securities or
other ownership interest having ordinary voting power (absolutely or
contingently) for the election of directors or other persons performing similar
functions are at the time owned directly or indirectly by the Company and/or any
of its other subsidiaries. Except as set forth in the Commission Documents or
the Commission Filings, none of such subsidiaries is a "significant subsidiary"
as defined in Regulation S-X.
(h) No Material Adverse Change. Since June 30, 2000, the Company has not
experienced or suffered any Material Adverse Effect, except continued losses
from operations.
(i) No Undisclosed Liabilities. Neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) that would be required to be disclosed on a balance sheet of the
Company or any subsidiary (including the notes thereto) in conformity with GAAP
and are not disclosed in the Commission Documents or Commission Filings, other
than those incurred in the ordinary course of the Company's or its subsidiaries'
respective businesses since June 30, 2000 and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect.
(j) No Undisclosed Events or Circumstances. No event or circumstance has
occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed and which, individually or in the aggregate, do not or would not have
a Material Adverse Effect.
(k) Indebtedness. Except as set forth on Schedule 3.1(k), the Commission
Documents or the Commission Filings set forth as of June 30, 2000 all
outstanding secured and unsecured Indebtedness of the Company or any subsidiary,
or for which the Company or any subsidiary has commitments. For the purposes of
this Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed money
or amounts owed in excess of $100,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties, endorsements
and other contingent obligations in respect of Indebtedness of others, whether
or not the same are or should be reflected in the Company's balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business; and (c) the present value of any lease payments in excess of $100,000
due under leases required to be capitalized in accordance with GAAP. Neither the
Company nor any subsidiary is in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has good and
marketable title to all of its real and personal property reflected in the
Commission Documents, free of any mortgages, pledges, charges, liens, security
interests or other encumbrances. All leases of the Company and each of its
subsidiaries are valid and subsisting and in full force and effect in all
material respects.
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(m) Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any subsidiary which questions the validity of this Agreement or the
transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. Except as set forth in the Commission Documents or the
Commission Filings, there is no action, suit, claim, investigation or proceeding
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any subsidiary or any of their respective properties or assets and
which, if adversely determined, is reasonably likely to result in a Material
Adverse Effect.
(n) Compliance with Law. The business of the Company and the subsidiaries
has been and is presently being conducted in accordance with all applicable
federal, state and local governmental laws, rules, regulations and ordinances,
except as set forth in the Commission Documents or the Commission Filings or
such that do not cause a Material Adverse Effect. The Company and each of its
subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it, except for such
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, the failure to possess which, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(o) Certain Fees. No brokers, finders or financial advisory fees or
commissions will be payable by the Company or any subsidiary with respect to the
transactions contemplated by this Agreement.
(p) Disclosure. Neither this Agreement or the Schedules hereto nor any
other documents, certificates or instruments furnished to the Purchaser by or on
behalf of the Company or any subsidiary in connection with the transactions
contemplated by this Agreement contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made
herein or therein, in the light of the circumstances under which they were made
herein or therein, not misleading.
(q) Operation of Business. The Company or one of the subsidiaries owns or
possesses all patents, trademarks, domain names (whether or not registered) and
any patentable improvements or copyrightable derivative works thereof, websites
and intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations as set forth in the Commission Documents
or the Commission Filings and all rights with respect to the foregoing, which
are necessary for the conduct of its business as now conducted without any
conflict with the rights of others, except to the extent set forth in the
Commission Documents or that a Material Adverse Effect could not reasonably be
expected to result from such conflict.
(r) Environmental Compliance. The Company and each of its subsidiaries have
obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under any Environmental
Laws. "Environmental Laws" shall mean all applicable laws relating to the
protection of the environment including, without limitation, all requirements
pertaining to reporting, licensing, permitting, controlling, investigating or
remediating emissions, discharges, releases or threatened releases of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
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materials or wastes, whether solid, liquid or gaseous in nature, into the air,
surface water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
hazardous substances, chemical substances, pollutants, contaminants or toxic
substances, material or wastes, whether solid, liquid or gaseous in nature.
Except for such instances as would not individually or in the aggregate have a
Material Adverse Effect, there are no past or present events, conditions,
circumstances, incidents, actions or omissions relating to or in any way
affecting the Company or its subsidiaries that violate or could violate any
Environmental Law after the Closing or that could give rise to any environmental
liability, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study or investigation (i) under any Environmental Law, or
(ii) based on or related to the manufacture, processing, distribution, use,
treatment, storage (including without limitation underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or
threatened release of any hazardous substance.
(s) Material Agreements. Neither the Company nor any subsidiary is a party
to any written or oral contract, instrument, agreement, commitment, obligation,
plan or arrangement, a copy of which would be required to be filed with the
Commission as an exhibit to a Commission Filing (collectively, "Material
Agreements") if the Company or any subsidiary were registering securities under
the Securities Act immediately prior to the effectiveness of this Agreement. The
Company and each of its subsidiaries has in all material respects performed all
the obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, are not in default under any
Material Agreement now in effect.
(t) Transactions with Affiliates. Except as set forth in the Commission
Documents or the Commission Filings, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions exceeding $100,000 between (a) the Company, any
subsidiary or any of their respective customers (excluding agreements related to
the purchase or lease of the Company's products) or suppliers on the one hand,
and (b) on the other hand, any officer, employee, consultant or director of the
Company, or any of its subsidiaries, or any person who would be covered by Item
404(a) of Regulation S-K or any corporation or other entity controlled by such
officer, employee, consultant, director or person.
(u) Securities Act of 1933. The Company has complied in all material
respects with all applicable federal and state securities laws in connection
with the offer, issuance and sale of the Shares hereunder. The Company has not
distributed and, prior to the completion of the sale of the Shares to the
Purchaser, will not distribute any offering material in connection with the
offer and sale of the Shares other than the Registration Statement, the
Prospectus or other materials, if any, permitted by the Securities Act.
(v) No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers or sales of any
security or solicited any offers to buy any security, other than pursuant to
this Agreement, under circumstances that would require registration of the
Common Stock under the Securities Act. Neither the Company nor any of its
affiliates nor any person acting on its behalf has conducted or will conduct any
general solicitation (as that term is defined in Rule 502(c) of Regulation D) or
general advertising with respect to any of the Shares, the Warrants or any of
the shares of Common Stock issuable pursuant to exercise of the Warrants.
-9-
(w) Employees. As of the date hereof, neither the Company nor any
subsidiary has any collective bargaining arrangements or agreements covering any
of its employees, except as set forth in the Commission Documents or the
Commission Filings. Each of the Company and its subsidiaries requires its
officers, employees and certain consultants to enter into agreements regarding
proprietary information, noncompetition, nonsolicitation, confidentiality, or
other similar agreements containing restrictive covenants. As of the date
hereof, no officer, consultant or key employee of the Company or any subsidiary
whose termination, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect, has terminated or, to the knowledge
of the Company, has any present intention of terminating his or her employment
or engagement with the Company or any subsidiary.
(x) Use of Proceeds. The proceeds from the sale of the Shares will be used
by the Company and its subsidiaries for the purposes set forth in the Prospectus
under "Use of Proceeds." (y) Public Utility Holding Company Act and Investment
Company Act Status. The Company is not a "holding company" or a "public utility
company" as such terms are defined in the Public Utility Holding Company Act of
1935, as amended. The Company is not, and as a result of and immediately upon
Closing will not be, an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
(z) ERISA. No liability to the Pension Benefit Guaranty Corporation has
been incurred with respect to any Plan by the Company or any of its subsidiaries
which is or would have a Material Adverse Effect. The execution and delivery of
this Agreement and the issue and sale of the Shares will not involve any
transaction which is subject to the prohibitions of Section 406 of ERISA or in
connection with which a tax could be imposed pursuant to Section 4975 of the
Internal Revenue Code of 1986, as amended, provided that, if any of the
Purchaser, or any person or entity that owns a beneficial interest in any of the
Purchaser, is an "employee pension benefit plan" (within the meaning of Section
3(2) of ERISA) with respect to which the Company is a "party in interest"
(within the meaning of Section 3(14) of ERISA), the requirements of Sections
407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this Section
3.1(y), the term "Plan" shall mean an "employee pension benefit plan" (as
defined in Section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any
subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.
(aa) Acknowledgment Regarding Purchaser's Purchase of Shares. The Company
acknowledges and agrees that the Purchaser is acting solely in the capacity of
arm's length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser is
not acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereunder and any advice given by the Purchaser or any of its representatives or
agents in connection with this Agreement and the transactions contemplated
hereunder is merely incidental to the Purchaser's purchase of the Shares.
-10-
Section 3.2 Representations, Warranties and Covenants of the
Purchaser. The Purchaser hereby makes the following representations,
warranties and covenants to the Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a limited
liability company duly organized, validly existing and in good standing under
the laws of the Commonwealth of The Bahamas.
(b) Authorization and Power. The Purchaser has the requisite corporate
power and authority to enter into and perform this Agreement and to purchase the
Shares in accordance with the terms hereof. The execution, delivery and
performance of this Agreement by Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Purchaser, its
Board of Directors or stockholders is required. This Agreement has been duly
executed and delivered by the Purchaser. This Agreement constitutes a valid and
binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership, or similar laws relating to, or affecting
generally the enforcement of creditor's rights and remedies or by other
equitable principles of general application.
(c) No Conflicts. The execution, delivery and performance of this Agreement
and the consummation by the Purchaser of the transactions contemplated hereby
and thereby or relating hereto do not and will not (i) result in a violation of
such Purchaser's charter documents or bylaws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any material agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Purchaser is a party, (iii) create or impose any lien,
charge or encumbrance on any property of the Purchaser under any agreement or
any commitment to which the Purchaser is party or by which the Purchaser is on
or by which any of its respective properties or assets are bound or (iv) result
in a violation of any law, rule or regulation, or any order, judgment or decree
of any court or governmental agency applicable to the Purchaser or its
properties, except for such conflicts, defaults and violations as would not,
individually or in the aggregate, prohibit or otherwise interfere with the
ability of the Purchaser to enter into and perform its obligations under this
Agreement in any material respect. The Purchaser is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement or to purchase the Shares in accordance
with the terms hereof, provided that for purposes of the representation made in
this sentence, the Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
-11-
(d) Information. The Purchaser and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Shares which
have been requested by the Purchaser. The Purchaser and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. The
Purchaser has sought such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect to its
acquisition of the Shares. Purchaser understands that it (and not the Company)
shall be responsible for its own tax liabilities that may arise as a result of
this investment or the transactions contemplated by this Agreement.
(e) Acquisition for Investment. The Purchaser is purchasing the Shares
solely for its own account for the purpose of investment and not with a view to
or for sale in connection with a distribution. The Purchaser has no present
intention to sell the Shares, nor a present arrangement (whether or not legally
binding) to effect any distribution of the Shares to or through any person or
entity; provided, however, that by making the representations herein, the
Purchaser does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
(f) Sophisticated Investor. The Purchaser is a sophisticated investor (as
described in Rule 506(b) (2) (ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and the Purchaser has such experience
in business and financial matters that it is capable of evaluating the merits
and risks of an investment in Common Stock. The Purchaser acknowledges that an
investment in the Common Stock is speculative and involves a high degree of
risk.
(g) Ten Percent Limitation. On each Settlement Date, the number of Shares
then to be purchased by the Purchaser shall not exceed the number of such shares
that, when aggregated with all other shares of Common Stock then owned by the
Purchaser beneficially or deemed beneficially owned by the Purchaser, would
result in the Purchaser owning more than 9.9% of all of such Common Stock as
would be outstanding on such Settlement Date, as determined in accordance with
Section 16 of the Exchange Act and the regulations promulgated thereunder. For
purposes of this Section 3.2(g), in the event that the amount of Common Stock
outstanding as determined in accordance with Section 16 of the Exchange Act and
the regulations promulgated thereunder is greater on a Settlement Date than on
the date upon which the Draw Down Notice associated with such Settlement Date is
given, the amount of Common Stock outstanding on such Settlement Date shall
govern for purposes of determining whether the Purchaser, when aggregating all
purchases of Common Stock made pursuant to this Agreement would own more than
9.9% of the Common Stock following such Settlement Date.
(h) General. The Purchaser understands that the Shares are being offered
and sold in reliance on a transactional exemption from the registration
requirement of federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the applicability of such exemptions and the suitability of the
Purchaser to acquire the Shares.
-12-
ARTICLE IV
Covenants
The Company covenants with the Purchaser as follows, which covenants
are for the benefit of the Purchaser and its permitted assignees (as defined
herein).
Section 4.1 Securities. The Company shall notify the Commission and the
OTC Bulletin Board or an Alternate Market, if applicable, in accordance with
their rules and regulations, of the transactions contemplated by this Agreement,
and shall take all other necessary actions and proceedings as may be required
and permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Shares to the Purchaser and the resale of the Shares by the
Purchaser.
Section 4.2 Registration and Listing. The Company will take all
action necessary to cause its Common Stock to be registered under Sections 12(b)
or 12(g) of the Exchange Act, will comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein. The Company will take all action
necessary to continue the listing or trading of its Common Stock and the listing
of the Shares purchased by Purchaser hereunder on the OTC BB or an Alternate
Market, if applicable, and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the OTC BB
or an Alternate Market.
Section 4.3 Registration Statement.
(a) On or before December 22, 2000 (the "Filing Date"), the Company shall
cause to be filed with the Commission a Registration Statement on Form SB-2 (or
any other comparable form) to register for resale the Shares (pursuant to a Draw
Down or the exercise of any Warrant) to be purchased by the Purchaser pursuant
to this Agreement. The Company shall use its reasonable best efforts to take all
steps necessary to cause the Registration Statement to be declared effective by
April 22, 2001, but in no event later than 120 days after the Filing Date.
(b) Before the Purchaser shall be obligated to accept any Draw Down request
from the Company, the Company shall have caused a sufficient number of shares of
Common Stock to be registered to cover the Shares to be issued in connection
with such Draw Down request (including any Warrants to be exercised in
connection therewith).
(c) The Company shall file a prospectus supplement to its then current
Registration Statement on the first business day immediately following the end
of each Settlement Period, and will deliver a prospectus and a prospectus
supplement to the Purchaser on the corresponding Settlement Date.
-13-
Section 4.4 Compliance with Laws. The Company shall comply, and cause each
subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could reasonably be expected to have a Material Adverse
Effect.
Section 4.5 Keeping of Records and Books of Account. The Company shall keep
and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 4.6 Reporting Requirements. Upon written request, the Company shall
furnish the following to the Purchaser so long as such Purchaser shall be
obligated hereunder to purchase Shares:
(a) Quarterly Reports filed with the Commission on Form 10-QSB as soon as
available, and in any event within 45 days after the end of each of the first
three fiscal quarters of the Company; and
(b) Annual Reports filed with the Commission on Form 10-KSB as soon as
available, and in any event within 90 days after the end of each fiscal year of
the Company.
Section 4.7 Other Agreements.
(a) An Other Financing. The Company may enter into any other financing
agreement, the primary purpose of which would be to obtain equity financing for
the Company, during the Investment Period (an "Other Financing"), including a
financing involving (i) the issuance of Common Stock or securities convertible,
exercisable or exchangeable into Common Stock at a fixed or variable future
market price or at a fixed or variable price determined at a discount to the
current market price or the then current market price of the Common Stock, (ii)
a mechanism for the repricing or reset of the purchase price of the Common Stock
to below the then current market price, or (iii) the issuance of Common Stock
with warrants which have an exercise price such that together with the price of
the Common Stock would result in the issuance of shares of Common Stock at a
discount to the then current market price of the Common Stock (each of clauses
(i), (ii) and (iii) shall constitute a "Discounted Financing"); provided,
however, that notice of any such transaction is provided to the Purchaser in
accordance with the provisions of this Agreement and the Warrant.
(b) An Other Financing During a Draw Down Pricing Period. If the Company
enters into an Other Financing during a Draw Down Pricing Period, the Purchaser
shall have the option (the "Draw Down Pricing Period Purchase Option"), which
option shall be exercised within five (5) calendar days of the date the
Purchaser has received notice of such Other Financing, to (i) purchase the Draw
Down Amount of shares of Common Stock on the terms at which the Company issued
shares of Common Stock in the Other Financing during such Draw Down Pricing
Period, (ii) purchase the Draw Down Amount of shares of Common Stock at the
applicable Draw Down Discount Percentage times the VWAP for such Draw Down
Pricing Period, or (iii) elect not to purchase any Shares during such Draw Down
Pricing Period. The Purchaser shall notify the Company of its election on the
business day preceding the Settlement Date.
- -14-
(c) An Other Financing Not During A Draw Down Pricing Period. If the
Company enters into an Other Financing during the Investment Period but not
during a Draw Down Pricing Period, the Purchaser shall have the option (the
Non-Draw Down Pricing Period Purchase Option"), which option shall be exercised
within five (5) calendar days of the date the Purchaser has received notice of
such Other Financing, to (i) purchase up to the same number of shares of Common
Stock issued or to be issued in the Other Financing at the price and on such
terms of the Other Financing, or (ii) elect not to purchase any shares of Common
Stock to be issued in the Other Financing.
(d) Exercise of the Purchase Option. Regardless of whether an Other
Financing occurs during a Draw Down Pricing Period, if the Purchaser does not
exercise its Draw Down Pricing Period Purchase Option or Non-Draw Down Pricing
Period Purchase Option, as the case may be, in writing before 5 p.m., Eastern
Time, on such fifth (5th) calendar day following the Purchaser's receipt of
notice of the applicable Other Financing, the Company shall have the right to
close such Other Financing on the scheduled closing date with a third party;
provided that all of the financial terms and conditions of such closing are the
same as those provided to the Purchaser.
Section 4.8 Non-Public Information. Neither the Company nor any of its
directors, officers or agents shall disclose any material non-public information
about the Company to the Purchaser.
Section 4.9 No Stop Orders. The Company will advise the Purchaser promptly
and, if requested by the Purchaser, will confirm such advice in writing: (i) of
its receipt of notice of any request by the Commission for amendment of or a
supplement to the Registration Statement, any Prospectus or for additional
information; (ii) of its receipt of notice of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or of
the suspension of qualification of the Shares for offering or sale in any
jurisdiction or the initiation of any proceeding for such purpose; and (iii) of
its becoming aware of the happening of any event, which makes any statement of a
material fact made in the Registration Statement or the Prospectus (as then
amended or supplemented) untrue or which requires the making of any additions to
or changes in the Registration Statement or the Prospectus (as then amended or
supplemented) in order to state a material fact required by the Securities Act
or the regulations thereunder to be stated therein or necessary in order to make
the statements therein not misleading, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented) to comply with the
Securities Act or any other law. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement, the
Company will make commercially reasonable efforts to obtain the withdrawal of
such order at the earliest possible time.
Section 4.10 Amendments to the Registration Statement. The Company will not
(i) file any amendment to the Registration Statement or make any amendment or
supplement to the Prospectus of which the Purchaser shall not previously have
been advised or to which the Purchaser shall reasonably object after being so
advised or (ii) so long as, in the reasonable opinion of counsel for the
Purchaser, a Prospectus is required to be delivered in connection with sales by
any Purchaser or dealer, file any information, documents or reports pursuant to
the Exchange Act without delivering a copy of such information, documents or
reports to the Purchaser promptly following such filing.
-15-
Section 4.11 Prospectus Delivery. Prior to any Settlement Date, the Company
will deliver to the Purchaser, without charge, in such quantities as reasonably
requested by the Purchaser, copies of each form of Prospectus. As soon after the
Registration Statement has been declared effective by the Commission and
thereafter from time to time for such period as in the opinion of counsel for
the Purchaser a prospectus is required by the Securities Act to be delivered in
connection with sales by the Purchaser, the Company will expeditiously deliver
to the Purchaser, without charge, as many copies of the Prospectus (and of any
amendment or supplement thereto) as the Purchaser may reasonably request. The
Company consents to the use of the Prospectus (and of any amendment or
supplement thereto) in accordance with the provisions of the Securities Act and
with the securities or Blue Sky laws of the jurisdictions in which the Shares
may be sold by the Purchaser, in connection with the offering and sale of the
Shares and for such period of time thereafter as the Prospectus is required by
the Securities Act to be delivered in connection with sales of the Shares. If
during such period of time any event shall occur that in the judgment of the
Company or in the opinion of counsel for the Purchaser is required to be set
forth in the Prospectus (as then amended or supplemented) or should be set forth
therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the Prospectus to comply with the Securities Act or any
other law, the Company will forthwith prepare and, subject to the provisions of
Section 4.10 above, file with the Commission an appropriate supplement or
amendment thereto, and will expeditiously furnish to the Purchaser a reasonable
number of copies thereof. The Company shall file a prospectus supplement to its
current Registration Statement on the first business day immediately following
the end of each Settlement Period, and the Company shall deliver to the
Purchaser an appropriate Prospectus and prospectus supplement on each Settlement
Date.
Section 4.12 Legends. The certificates evidencing the Shares and the shares
of Common Stock issuable upon exercise of the Warrants shall be free of legends,
except as provided for in Article VII.
ARTICLE V
Conditions to Closing and Draw Downs
Section 5.1 Conditions Precedent to the Obligation of the Company to Close
this Agreement. The obligation hereunder of the Company to enter into this
Agreement is subject to the satisfaction or waiver, at or before the Closing, of
each of the conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) No Injunction. No statute, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
-16-
(d) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
Section 5.2 Conditions Precedent to the Obligation of the Purchaser to
Close this Agreement. The obligation hereunder of the Purchaser to enter this
Agreement is subject to the satisfaction or waiver, at or before the Closing, of
each of the conditions set forth below. These conditions are for the Purchaser's
sole benefit and may be waived by the Purchaser at any time in its sole
discretion.
(a) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(b) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(c) Opinion of Counsel, etc. At the Closing, the Purchaser shall have
received an opinion of counsel to the Company, dated the date of Closing, in the
form of Exhibit A hereto, and such other certificates and documents as the
Purchaser or its counsel shall reasonably require incident to the Closing.
Section 5.3 Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction or waiver, at or before the date of each Draw Down
request (the "Draw Down Exercise Date"), of each of the conditions set forth
below. The conditions are for the Purchaser's sole benefit and may be waived by
the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Draw Down Exercise Date
as though made at that time except for representations and warranties that speak
as of a particular date.
-17-
(b) Effective Registration Statement. The Registration Statement
registering the Shares shall have been declared effective by the Commission
prior to the initial Draw Down Exercise Date, and such Registration Statement
shall remain effective on each Settlement Date, and shall be amended or
supplemented, as required, to disclose the sale of the Shares at least one (1)
trading day prior to each Settlement Date, and the Company shall have delivered
to the Purchaser an appropriate Prospectus on each Settlement Date.
(c) No Suspension. Trading in the Company's Common Stock shall not have
been suspended by the Commission or the OTC BB or an Alternate Market (except
for any suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to each Draw Down request), and, at
any time prior to such request, trading in securities generally as reported on
the OTC BB or an Alternate Market shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades are
reported by the American Stock Exchange, or on the New York Stock Exchange, nor
shall a banking moratorium have been declared either by the United States or New
York State authorities, nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity or crisis
of such magnitude in its effect on, or any material adverse change in any
financial market which, in each case, in the judgment of the Purchaser, makes it
impracticable or inadvisable to purchase the Shares. The Common Stock shall not
have been delisted from the OTC Bulletin Board or an Alternate Market.
(d) Performance by the Company. The Company shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing. The Company shall have issued
transfer agent instructions to its transfer agent, and an original copy of the
transfer agent instructions shall have been signed by the transfer agent as
acknowledged and agreed.
(e) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(f) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(g) Material Adverse Effect. No Material Adverse Effect shall have
occurred.
(h) No Knowledge. The Company shall have no knowledge of any event more
likely than not to have the effect of causing the Registration Statement to be
suspended or otherwise ineffective (which event is more likely than not to occur
within the 25 trading days following the trading day on which the Draw Down
Notice is deemed delivered.)
(i) Other. On each Settlement Date, the Purchaser shall have received a
certificate in substantially the form and substance of Exhibit B hereto,
executed by an executive officer of the Company to the effect that all the
conditions to such Settlement Date shall have been satisfied as at the date of
each such certificate.
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ARTICLE VI
Draw Down Terms
Section 6.1 Draw Down Terms. Subject to the satisfaction of the conditions
set forth in this Agreement, the parties agree as follows:
(a) The Company, may, in its sole discretion, issue a Draw Down Notice with
respect to a draw down (a "Draw Down") of $100,000 if the Threshold Price is
equal to $1.00, and an additional $50,000 for every $0.50 increase of the
Threshold Price above $1.00 up to $3.50 for a maximum Draw Down Amount of
$350,000, and which Draw Down the Purchaser will be obligated to accept. Prior
to issuing any Draw Down Notice, the Company shall have Shares representing at
least the Draw Down Amount registered under the Registration Statement.
(b) The number of Shares to be issued in connection with each Draw Down
shall be equal to the sum of the quotients (for each trading day of the Draw
Down Pricing Period for which the VWAP equals or exceeds the Threshold Price) of
(x) 1/20th (or such other fraction based upon the agreed upon Draw Down Pricing
Period) of the Draw Down Amount divided by (y) (A) the applicable Draw Down
Discount Percentage multiplied by (B) the VWAP for such day.
(c) Only one Draw Down shall be allowed in each Draw Down Pricing Period.
Each Draw Down Pricing Period shall consist of two (2) periods of ten (10)
consecutive trading days (each, a "Settlement Period").
(d) The number of Shares purchased by the Purchaser with respect to each
Draw Down shall be determined on a daily basis during each Draw Down Pricing
Period and settled on the second business day following the end of each
Settlement Period (the "Settlement Date").
(e) There shall be a minimum of five (5) trading days (or such other number
of trading days mutually agreed upon by the Purchaser and the Company) between
Draw Downs.
(f) There shall be a maximum of twelve (12) Draw Downs during the term of
this Agreement.
(g) Each Draw Down will expire on the last trading day of each Draw Down
Pricing Period.
-19-
(h) For each trading day during the Draw Down Pricing Period that the VWAP
is at or above the Threshold Price, 1/20th (or such other fraction based upon
the agreed upon Draw Down Pricing Period) of the Draw Down Amount shall be
allocated to purchase Shares at a price equal to the product of (x) the Draw
Down Discount Percentage multiplied by (y) the VWAP for such day. If the VWAP on
a given trading day is less than the Threshold Price, then the amount of the
Draw Down for the relevant Draw Down Pricing Period shall be reduced by 1/20th
(or such other fraction, based upon the agreed upon Draw Down Pricing Period).
At no time shall the Threshold Price be set below $1.00 unless agreed upon by
both parties. If trading in the Company's Common Stock is suspended for any
reason for more than three (3) hours in any trading day, the price of the Common
Stock shall be deemed to be below the Threshold Price for that trading day and
the Draw Down Amount for the relevant Draw Down Pricing Period will be reduced
by 1/20th.
(i) The Company must inform the Purchaser via facsimile transmission as to
the Draw Down Amount the Company wishes to exercise before commencement of
trading on the first trading day of the Draw Down Pricing Period (the "Draw Down
Notice"), substantially in the form attached hereto as Exhibit C. In addition to
the Draw Down Amount, the Company shall set the Threshold Price and shall
designate the first trading day of the Draw Down Pricing Period with each Draw
Down Notice.
(j) On each Settlement Date, the Company shall deliver the Shares purchased
by the Purchaser during the Settlement Period to the Purchaser or its designees
via the Purchaser's prime broker account through its Deposit Withdrawal Agent
Commission system (DWAC), and upon receipt of the Shares, the Purchaser shall
cause payment therefor to be made to the Company's designated account by wire
transfer of immediately available funds provided that the Shares are received by
the Purchaser no later than 1:00 p.m., eastern time, or next day available funds
if the Shares are received thereafter.
(k) If on the Settlement Date, the Company fails to deliver the Shares to
be purchased by the Purchaser, and such failure continues for ten (10) trading
days, the Company shall pay, in cash or restricted shares of Common Stock
(subject to the Company's compliance with applicable securities laws), at the
option of the Purchaser, as liquidated damages and not as a penalty, to the
Purchaser an amount equal to two percent (2%) of the Draw Down Amount for the
initial thirty (30) days and each additional thirty (30) day period thereafter
until such failure has been cured, which shall be pro rated for such periods
less than thirty (30) days (the "Periodic Amount"). Cash payments to be made
pursuant to this Section 6.1(k) shall be due and payable immediately upon demand
in immediately available cash funds. Certificates evidencing the restricted
shares of Common Stock shall be delivered immediately upon demand. The parties
agree that the Periodic Amount represents a reasonable estimate on the part of
the parties, as of the date of this Agreement, of the amount of damages that may
be incurred by the Purchaser if the Company fails to deliver the Shares on the
Settlement Date. If the Purchaser elects to receive shares of Common Stock
instead of cash, the Purchaser shall have the right to demand registration once
within twelve (12) months of the date of issuance of such shares of Common Stock
and piggyback registration rights if the Company files a separate registration
statement.
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(l) Escrow. Prior to issuing a Draw Down Notice, the Company shall place in
escrow, with an entity designated by the Purchaser (the "Escrow Agent"), such
number of shares of Common Stock as will equal the maximum number of Shares
which the Purchaser could purchase during the Draw Down Pricing Period. The
shares of Common Stock subject to such escrow shall be released by the Escrow
Agent to the Purchaser only in the event the Company fails to deliver the Shares
on the relevant Settlement Date. The Purchaser's obligation to purchase the
Shares on the Settlement Date shall be contingent upon the fulfillment of the
Company of the escrow requirements contained in this Section 6.1(m). The
Purchaser may, at its sole discretion, waive the escrow requirements contained
in this Section 6.1(m) at any time prior to the relevant Settlement Date.
ARTICLE VII
Legends
Section 7.1 Legend. Unless otherwise provided below, each certificate
representing the Shares and the shares of Common Stock issuable upon exercise of
the Warrants shall be stamped or otherwise imprinted with a legend substantially
in the following form (the "Legend"):
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR MAGNITUDE INFORMATION
SYSTEMS, INC. (THE "COMPANY") SHALL HAVE RECEIVED AN OPINION OF
ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THAT ACT
AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED.
As soon as practicable after the execution and delivery hereof, the
Company shall issue to the transfer agent instructions in substantially the form
of Exhibit D hereto. Such instructions shall be irrevocable by the Company from
and after the date thereof or from and after the issuance thereof. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent to issue to the Purchaser, at the Purchaser's option, via DWAC or
in the form of certificates evidencing the Shares incident to a Draw Down and
issued on a Settlement Date, free of the Legend, without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the Transfer Agent by or from
the Company or its counsel or the Purchaser; provided, that (a) the Registration
Statement shall then be effective, (b) the Purchaser confirms to the transfer
agent and the Company that it has or intends to sell such Shares to a third
party that is not an affiliate of the Purchaser or the Company and the Purchaser
agrees to redeliver the certificate representing such Shares to the transfer
agent to add the Legend in the event the Shares are not sold, and (c) if
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reasonably requested by the transfer agent or the Company, the Purchaser
confirms to the transfer agent and the Company that the Purchaser has complied
with the prospectus delivery requirement under the Securities Act. At any time
after the date the Registration Statement has been declared effective by the
Commission, upon surrender of one or more certificates evidencing Common Stock
that bear the Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those surrendered,
the transfer agent shall reissue such shares of common stock via DWAC or free of
Legend. If the transfer agent fails to deliver the Shares on the Settlement
Date, then the Company shall pay liquidated damages to the Purchaser in the
amount of 2% of the purchase price of the Shares to be delivered on such
Settlement Date.
Section 7.2 No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 7.1 has been or shall be placed on the share
certificates representing the Shares and the shares of Common Stock issuable
upon exercise of the Warrants and no instructions or "stop transfer orders," so
called, "stock transfer restrictions," or other restrictions have been or shall
be given to the Company's transfer agent with respect thereto other than as
expressly set forth in this Article VII.
Section 7.3 Purchaser's Compliance. Nothing in this Article VII shall
affect in any way the Purchaser's obligations under any agreement to comply with
all applicable securities laws upon resale of the Shares and the shares of
Common Stock issuable upon exercise of the Warrants.
ARTICLE VIII
Termination
Section 8.1 Termination by Mutual Consent. The term of this Agreement shall
be fifteen (15) months from the date on which the Commission declares the
Registration Statement effective (the "Investment Period"). This Agreement may
be terminated at any time by mutual consent of the parties.
Section 8.2 Other Termination. The Purchaser may terminate this Agreement
upon one (1) day's notice if (i) an event resulting in a Material Adverse Effect
has occurred, (ii) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of five (5) trading
days during the Investment Period, for any reason other than deferrals or
suspension during a blackout period as a result of corporate developments
subsequent to the Closing Date that would require such Registration Statement to
be amended to reflect such event in order to maintain its compliance with the
disclosure requirements of the Securities Act, (iii) the Registration Statement
is not declared effective within 120 days following the Filing Date, or (iv) the
Company shall at any time fail to comply with the requirements of Sections 4.2,
4.3 or 4.4 hereof. This Agreement shall terminate immediately upon the
occurrence of (x) a Discounted Financing other than a financing involving the
issuance of (1) Common Stock, (2) securities convertible, exercisable or
exchangeable into Common Stock or (3) Common Stock or securities convertible
into Common Stock together with warrants at a fixed future market price together
resulting in a discount not greater than 25% to the then current market price of
the Common Stock, (y) a
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Material Change in Ownership or (z) the Purchaser shall fail to comply with
Section 3.2(g); provided, however, that if a Terminating Event occurs during a
Draw Down Pricing Period, this Agreement shall terminate on the final Settlement
Date for such Draw Down Pricing Period. If this Agreement is terminated pursuant
to clause (x) of this Section 8.2, the Company nonetheless shall be obligated to
pay all of the applicable fees pursuant to Section 10.1 hereof. Section 8.3
Effect of Termination. In the event of termination by the Company or the
Purchaser, written notice thereof shall forthwith be given to the other party
and the transactions contemplated by this Agreement shall be terminated without
further action by either party. If this Agreement is terminated as provided in
Section 8.1 or 8.2 herein, this Agreement shall become void and of no further
force and effect, except as provided in Section 10.9. Nothing in this Section
8.3 shall be deemed to release the Company or the Purchaser from any liability
for any breach under this Agreement, or to impair the rights of the Company and
the Purchaser to compel specific performance by the other party of its
obligations under this Agreement.
ARTICLE IX
Indemnification
Section 9.1 General Indemnity. (a) Indemnification by the Company. The
Company will indemnify and hold harmless the Purchaser and each person, if any,
who controls the Purchaser within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act from and against any losses, claims,
damages, liabilities and expenses (including reasonable costs of defense and
investigation and all reasonable attorney's fees) to which the Purchaser and
each person, if any, who controls the Purchaser may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) arise out of or are
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained, or incorporated by reference, in the Registration Statement or
the Prospectus relating to the shares being sold to the Purchaser, or any
amendment or supplement to it, or (ii) the omission or alleged omission to state
in that Registration Statement or any document incorporated by reference in the
Registration Statement, a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
Company shall not be liable under this Section 9.1(a) to the extent that a court
of competent jurisdiction shall have determined by a final judgment that such
loss, claim, damage, liability or action resulted directly from any such acts or
failures to act, undertaken or omitted to be taken by the Purchaser or such
person through its bad faith or willful misconduct; provided, however, that the
foregoing indemnity shall not apply to any loss, claim, damage, liability or
expense to the extent, but only to the extent, arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished to
the Company by the Purchaser expressly for use in the Registration Statement,
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
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The Company will reimburse the Purchaser and each such controlling person
promptly upon demand for any legal or other costs or expenses reasonably
incurred by the Purchaser or the controlling person in investigating, defending
against, or preparing to defend against any such claim, action, suit or
proceeding, except that the Company will not be liable to the extent a claim or
action which results in a loss, claim, damage, liability or expense arises out
of, or is based upon, an untrue statement, alleged untrue statement, omission or
alleged omission, included in the Registration Statement or any Prospectus in
reliance upon, and in conformity with, written information furnished by the
Purchaser to the Company for inclusion in the Registration Statement or
Prospectus.
(b) Indemnification by the Purchaser. The Purchaser will indemnify and hold
harmless the Company, each of its directors and officers, and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act from and against any expenses
(including reasonable costs of defense and investigation and all reasonable
attorneys fees) to which the Company and any director or officer of the Company
and each person, if any, who controls the Company may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) arise out of or are
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any Prospectus or (ii) the omission or alleged omission to
state in the Registration Statement or any Prospectus a material fact required
to be stated therein or necessary to make the statements therein not misleading,
to the extent, but only to the extent, the untrue statement, alleged untrue
statement, omission or alleged omission was made in reliance upon, and in
conformity with, written information furnished by the Purchaser to the Company
for inclusion in the Registration Statement or Prospectus, and the Purchaser
will reimburse the Company and each such director, officer or controlling person
promptly upon demand for any legal or other costs or expenses reasonably
incurred by the Company or the other person in investigating, defending against,
or preparing to defend against any such claim, action, suit or proceeding.
Section 9.2 Indemnification Procedures. Promptly after a person receives
notice of a claim or the commencement of an action for which the person intends
to seek indemnification under paragraph (a) or (b) of Section 9.1, the person
will notify the indemnifying party in writing of the claim or commencement of
the action, suit or proceeding, but failure to notify the indemnifying party
will not relieve the indemnifying party from liability under paragraph (a) or
(b) of Section 9.1, except to the extent it has been materially prejudiced by
the failure to give notice. The indemnifying party will be entitled to
participate in the defense of any claim, action, suit or proceeding as to which
indemnification is being sought, and if the indemnifying party acknowledges in
writing the obligation to indemnify the party against whom the claim or action
is brought, the indemnifying party may (but will not be required to) assume the
defense against the claim, action, suit or proceeding with counsel satisfactory
to it. After an indemnifying party notifies an indemnified party that the
indemnifying party wishes to assume the defense of a claim, action, suit or
proceeding the indemnifying party will not be liable for any legal or other
expenses incurred by the indemnified party in connection with the defense
against the claim, action, suit or proceeding except that if, in the opinion of
counsel to the indemnifying party, one or more of the indemnified parties should
be separately represented in connection with a claim, action, suit or proceeding
the indemnifying party will pay the reasonable fees and expenses of one separate
counsel for the indemnified parties. Each indemnified party, as a condition to
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receiving indemnification as provided in Paragraph (a) or (b) or Section 9.1,
will cooperate in all reasonable respects with the indemnifying party in the
defense of any action or claim as to which indemnification is sought. No
indemnifying party will be liable for any settlement of any action effected
without its prior written consent. No indemnifying party will, without the prior
written consent of the indemnified party, effect any settlement of a pending or
threatened action with respect to which an indemnified party is, or is informed
that it may be, made a party and for which it would be entitled to
indemnification, unless the settlement includes an unconditional release of the
indemnified party from all liability and claims which are the subject matter of
the pending or threatened action.
If for any reason the indemnification provided for in this Agreement is
not available to, or is not sufficient to hold harmless, an indemnified party in
respect of any loss or liability referred to in paragraph (a) or (b) of Section
9.1, each indemnifying party will, in lieu of indemnifying the indemnified
party, contribute to the amount paid or payable by the indemnified party as a
result of the loss or liability, (i) in the proportion which is appropriate to
reflect the relative benefits received by the indemnifying party on the one hand
and by the indemnified party on the other from the sale of stock which is the
subject of the claim, action, suit or proceeding which resulted in the loss or
liability or (ii) if that allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits of the
sale of stock, but also the relative fault of the indemnifying party and the
indemnified party with respect to the statements or omissions which are the
subject of the claim, action, suit or proceeding that resulted in the loss or
liability, as well as any other relevant equitable considerations.
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ARTICLE X
Miscellaneous
Section 10.1 Fees and Expenses. Except as set forth in Article IX, the
Company shall pay (i) all reasonable fees and expenses related to the
transactions contemplated by this Agreement; provided, that the Company shall
pay, at the Closing, all reasonable attorneys fees and expenses (exclusive of
disbursements and out-of-pocket expenses and reasonably itemized) incurred by
the Purchaser up to $50,000 in connection with the preparation, negotiation,
execution and delivery of this Agreement, (ii) all reasonable fees and expenses
incurred by the Purchaser in connection with any amendments, modifications or
waivers of this Agreement or incurred in connection with the enforcement of this
Agreement, including, without limitation, all reasonable attorneys fees and
expenses, and (iii) all stamp or other similar taxes and duties levied in
connection with issuance of the Shares pursuant hereto. In addition, if by the
seven (7) month anniversary of the commencement of the Investment Period the
Company has not requested Draw Down Amounts in an aggregate of $500,000, the
Company in its sole and absolute discretion shall either (x) pay to the
Purchaser a fee equal to $24,000 in cash or immediately available funds; or (y)
issue warrants to the Purchaser to purchase 24,000 shares of the Company's
Common Stock at an exercise price of 110% of the VWAP of the Common Stock on the
Closing Date.
Section 10.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchaser acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchaser (i) hereby irrevocably submits to
the jurisdiction of the United States District Court and other courts of the
United States sitting in the State of New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement and (ii)
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the Company and
the Purchaser consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section 10.2 shall affect or limit any right to serve process in any other
manner permitted by law.
Section 10.3 Entire Agreement; Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein, neither the Company nor the
Purchaser makes any representations, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought.
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Section 10.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery, by telex (with correct answer
back received), telecopy or facsimile at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to the Company: MAGNITUDE INFORMATION SYSTEMS, INC.
401 Route 24
Chester, NJ 07930
Tel. No.: (908) 879-2722
Fax No.: (908) 879-7006
Attention: Steven D. Rudnik
With copies to: Joseph J. Tomasek, Esq.
77 North Bridge Street
Somerville, NJ 08876
Tel. No.: (908) 429-0030
Fax No.: (908) 429-0040
If to the Purchaser: Torneaux Fund Ltd.
c/o Fortis Fund Services (Bahamas)
Limited
Montague Sterling Centre
East Bay Street
P.O. Box SS-6238
Nassau, Bahamas
Tel. No.: (242) 394-2700
Fax No.: (242) 394-8348
Attention: Karen Zyp
With copies to: Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Tel. No.: (212) 704-6000
Fax No.: (212) 704-6288
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days prior written notice of such changed address to
the other party hereto.
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Section 10.5 Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provisions,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 10.6 Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 10.7 Successors and Assigns. The Purchaser may not assign this
Agreement to any person without the prior written consent of the Company, which
consent will not be unreasonably withheld. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. After
Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 10.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions.
Section 10.9 Survival. The representations and warranties of the Company
and the Purchaser contained in Article III and the covenants contained in
Article IV shall survive the execution and delivery hereof and the Closing until
the termination of this Agreement, and the agreements and covenants set forth in
Article IX of this Agreement shall survive the execution and delivery hereof and
the Closing hereunder. Section 10.14 shall survive the termination of this
Agreement.
Section 10.10 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five (5) days of the execution and delivery hereof.
Section 10.11 Publicity. Except as required by applicable law, the Company
shall not issue any press release or otherwise make any public statement or
announcement with respect to this Agreement or the transactions contemplated
hereby or the existence of this Agreement without the prior consent of the
Purchaser.
Section 10.12 Severability. The provisions of this Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision or part of a provision of this Agreement, and this Agreement
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that
such provisions would be valid, legal and enforceable to the maximum extent
possible.
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Section 10.13 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instrument, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
Section 10.14 Confidentiality. Purchaser agrees to maintain the
confidentiality of all information about the Company received from any officer,
employee or agent of the Company, until such time as that confidential
information is released to the public generally other than as a result of any
disclosure by Purchaser.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
MAGNITUDE INFORMATION SYSTEMS, INC.
By: /s/ Steven D. Rudnik
Steven D. Rudnik
Chief Executive Officer
TORNEAUX FUND LTD.
By: /s/ Anthony L. M. Inder Rieden
Anthony L. M. Inder Rieden
Director
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EXHIBIT A TO THE
COMMON STOCK PURCHASE AGREEMENT
OPINION OF COUNSEL
Joseph J. Tomasek
Attorney At Law
75-77 North Bridge Street
Somerville, New Jersey 08876
December 18, 2000
Torneaux Fund Ltd.
c/o Fortis Fund Services (Bahamas) Limited
Montague Sterling Center
East Bay Street
P. O. Box SS-6238
Nassau, Bahamas
Attn: Director
Re: Opinion of Counsel
Common Stock Purchase Agreement, Dated
as of December 18, 2000, By and Between
Magnitude Information Systems, Inc. and
Torneaux Fund Ltd.
Dear Director:
I have acted as counsel to Magnitude Information Systems, Inc. (the
"Company") in connection with its execution and delivery of a certain Common
Stock Purchase Agreement, dated as of December 18, 2000 (the "Purchase
Agreement"), pursuant to the general terms of which the Company may sell and
Torneaux Fund Ltd.(the "Purchaser") may purchase up to 2,045,448 shares of the
common stock of the Company (the "Common Stock") through a combination of direct
purchases and exercise of certain Company Common Stock warrants (the "Warrants"
and the "Warrant Shares", respectively).
I have examined such corporate records, certificates and other
documents as I have considered necessary or appropriate for the purposes of this
opinion. In such examination, I have assumed the genuineness of all signatures
and the authenticity of all documents submitted to me as copies. In examining
agreements executed by parties other than the Company, I have assumed that such
parties had the power, corporate or other, to enter into and perform all
obligations thereunder and also have assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents, and the validity and binding effect thereof. As to any facts
material to the opinion expressed herein which I have not independently verified
or established, I have relied upon statements and representations of officers
and representatives of the Company and others.
Based upon such examination, I am of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware. The Company has the
requisite corporate power to own and operate its properties and assets, and to
carry on its business as presently conducted. The Company and each such
subsidiary is duly qualified to do business as a foreign corporation and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Purchase Agreement and to issue and
sell the Common Stock, the Warrants and the Common Stock issuable upon exercise
of the Warrants (the "Warrant Shares"). The execution, delivery and performance
of the Purchase Agreement by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required. The Purchase
Agreement has been duly executed and delivered and constitutes a legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms. The Common Stock is not subject to preemptive rights
under the Company's certificate of incorporation or bylaws.
3. The Common Stock and the Warrants have been duly authorized and the
Common Stock, when delivered against payment in full as provided in the Purchase
Agreement, will be validly issued, fully paid and nonassessable. The Warrant
Shares have been duly authorized and reserved for issuance, and, when delivered
upon exercise or against payment in full as provided in the Warrants, will be
validly issued, fully paid and nonassessable.
4. The execution, delivery and performance of and compliance with the terms
of the Purchase Agreement and the consummation by the Company of the
transactions contemplated thereby (i) do not violate any provision of the
Company's certificate of incorporation or bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Company is a party, (iii) create or impose a lien,
charge or encumbrance on any property of the Company under any agreement or any
commitment to which the Company is a party or by which the Company is bound or
by which any of its respective properties or assets are bound, or (iv) result in
a violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its subsidiaries are bound or
affected, except, in all cases other than violations pursuant to clause (i)
above, for such conflicts, defaults, terminations, amendments, acceleration,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect.
5. There is no action, suit, claim, investigation or proceeding pending or
threatened against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. There is no action, suit, claim,
investigation or proceeding pending or, to our knowledge, threatened, against or
involving the Company, any subsidiary or any of their respective properties or
assets and which, if adversely determined, is reasonably likely to result in a
Material Adverse Effect.
6. No consent, approval or authorization of or designation, declaration or
filing with any governmental authority on the part of the Company is required in
connection with the valid execution and delivery of the Purchase Agreement, or
the offer, sale or issuance of the Common Stock and the Warrants or the
consummation of any other transaction contemplated by the Purchase Agreement
(other than any filings which may be required to be made by the Company with the
Commission, or the OTC Bulletin Board or an Alternate Market subsequent to the
Closing, and, any registration statement which may be filed pursuant to the
Purchase Agreement).
7. The offer, issuance and sale of the Common Stock and the Warrants
pursuant to the Purchase Agreement, and the issuance of the Warrant Shares to
the Purchaser under the terms of the Purchase Agreement will be exempt from
registration under the Securities Act of 1933, as amended, pursuant to Rule 4(2)
thereunder.
8. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
This opinion may be relied upon by you exclusively and no other party
without my prior written consent and only in connection with the execution and
delivery of the Purchase Agreement.
Very truly yours,
/s/ Joseph J. Tomasek
Joseph J. Tomasek, Esq.
EXHIBIT B
COMPLIANCE CERTIFICATE
In connection with the issuance of shares of common stock of
Magnitude Information Systems, Inc. (the "Company") pursuant to the Draw Dawn
Notice, dated ___________ delivered by the Company to Torneaux Fund Ltd. (the
"Purchaser") pursuant to Article VI of the Common Stock Purchase Agreement dated
December 18, 2000, by and between the Company and the Purchaser (the
"Agreement"), the undersigned hereby certifies as follows:
1. The undersigned is the duly elected Chief Executive Officer of the
Company.
2. The representations and warranties of the Company set forth in
Section 3.1 of the Agreement are true and correct in all material respects as
though made on and as of the date hereof, except for representations and
warranties that speak as of a particular date.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Draw Down Exercise
Date and the Settlement Date related to the Draw Down Notice and has complied in
all material respects with all obligations and conditions contained in Section
5.3 of the Agreement.
The terms used herein but not defined herein shall have the
meanings specified in the Agreement.
The undersigned has executed this Certificate this _______
day of _________, 2000.
By:________________________________
Name: Steven D. Rudnik
Title: President and CEO
EXHIBIT C
TO THE COMMON STOCK PURCHASE AGREEMENT
FORM OF
DRAW DOWN NOTICE
Reference is made to the Common Stock Purchase Agreement dated as of
December 18, 2000 (the "Purchase Agreement ") between Magnitude Information
Systems, Inc., a Delaware corporation (the "Company") and Torneaux Fund Ltd.
Capitalized terms used and not otherwise defined herein shall have the meanings
given such terms in the Purchase Agreement.
In accordance with and pursuant to Section 6.1 of the Purchase
Agreement, the Company hereby issues this Draw Down Notice to exercise a Draw
Down request for the Draw Down Amount indicated below.
Draw Down Amount:
Draw Down Pricing Period start date:
Draw Down Pricing Period end date:
Settlement Date No. 1:
Settlement Date No. 2:
Threshold Price:
Minimum Threshold Price: $1.00
Dated:
--------------------------------
By:______________________________
Steven D. Rudnik, President and CEO
Address:
Facsimile No.:
Wire Instructions:__________________
Contact Name: _________
DISCLOSURE SCHEDULES
RELATING TO THE COMMON STOCK
PURCHASE AGREEMENT, DATED AS OF DECEMBER 18, 2000 BETWEEN
MAGNITUDE INFORMATION SYSTEMS, INC. AND
TORNEAUX FUND LTD.
ALL SECTION AND SUBSECTION NUMBERS AND LETTERS RELATE AND COINCIDE TO
SUCH NUMBERS AND LETTERS AS SET FORTH IN THE COMMON STOCK PURCHASE AGREEMENT
(THE "AGREEMENT"). ANY TERMS REQUIRING DEFINITION HEREIN ARE DEFINED IN THE
AGREEMENT.
ALL REPRESENTATIONS AND WARRANTIES SET FORTH IN THE AGREEMENT ARE
MODIFIED IN THEIR ENTIRETY BY THESE DISCLOSURE SCHEDULES. THE DISCLOSURES
CONTAINED IN THESE DISCLOSURE SCHEDULES SHALL BE READ IN THEIR ENTIRETY, AND ALL
THE DISCLOSURES SHALL BE READ TOGETHER.
SCHEDULE 3.1(c)
Capitalization
Authorized and Issued Stock as of October 24, 2000: Preferred Stock 3,000,000
shares authorized, $0.001 par value.
2,500 shares are designated Cumulative Preferred Stock, of which 1
share is issued and outstanding; 300,000 shares are designated Series A
Senior Convertible Preferred Stock, of which 29,300 shares are issued
and outstanding; 350,000 shares are designated Series B Senior
Convertible Preferred Stock, of which 305,592 shares are issued and
outstanding; 120,000 shares are designated Series C Senior Convertible
Preferred Stock, of which 100,000 shares are issued and outstanding.
500,000 shares are designated Series D Senior Convertible Preferred
Stock, of which 55,556 shares are issued and outstanding.
Common Stock
100,000,000 shares authorized, $0.0001 par value.
16,315,240 shares are issued and outstanding.
Common Stock Shares registered with SB-2 Filing 8/24/00 (exclusive of common
shares already issued which are included in above figure):
Common shares, to be issued under existing agreements - 150,000 shares
Common shares underlying convertible notes - 749,780 shares
Common shares underlying Series B Convertible Preferred Stock already
issued -3,055,920 shares Common shares underlying Series C Convertible
Preferred Stock already issued -1,000,000 shares Common shares
underlying stock options - 3,324,866 shares Common shares underlying
warrants - 6,189,356 shares
Other Common Stock Issuable (exclusive of those registered with SB-2 of
8/24/00 above): Common shares to be issued under existing agreements -
341,166 shares Common shares underlying stock options already issued -
1,709,000 shares Common shares underlying warrants already issued -
1,016,486 shares Common shares underlying Series A Convertible
Preferred Stock already issued - 118,298 shares Common shares
underlying Series D Convertible Preferred Stock already issued -
555,560 shares Common shares underlying Series D Convertible Preferred
Stock to be issued
under the current round of financing - 1,666,672 shares
Common shares underlying warrants to be issued under the current round
of financing - 1,666,672 shares
Common shares underlying 2000 Stock Incentive Plan (to be registered) -
5,000,000 shares Common Shares issuable under Sales Representation
Agreement with Pacific Basin Marketing Company (estimated during
"Investment Period" for services rendered, To be in the 100,000 to
250,000 share range).
SCHEDULE 3.1(g)
Subsidiaries
Name of Entity State of Incorporation Ownership
Magnitude, Inc. Delaware 99.1% owned by the Company
Magnitude Software, Inc. Delaware 100% owned by the Company
SCHEDULE 3.1.(k)
Certain Indebtedness
Promissory note for $75,000 issued on December 4, 1996, with a due date of
December 4, 1998. The payee has not been located by the Company. The
indebtedness is carried on the Company's books as a current liability.
Promissory note for $25,000 issued in June 1995, with due date of 12 months
after issuance. The payee has not been located by the Company. The
indebtedness is carried on the Company's books as a current liability.
SCHEDULE 3.1(w)
Employees
State of Incorporation
Subsidiary or Organization Ownership
EXHIBIT D
TRANSFER AGENT INSTRUCTIONS
________________, 2000
Securities Transfer Company
16910 Dallas Parkway, Suite 10
Dallas, TX 75248
Ladies & Gentlemen:
Reference is made to that certain Common Stock Purchase Agreement (the
"Agreement") between MAGNITUDE INFORMATION SYSTEMS, INC., a Delaware corporation
(the "Company"), and the buyer named therein (the "Purchaser") pursuant to which
the Company is issuing to the Purchaser shares (the "Shares") of the Company's
common stock, $0.0001 par value per share (the "Common Stock") and certain
warrants (the "Warrants") which shall be exercisable into shares of Common
Stock. The shares of Common Stock issuable upon exercise of the Warrants are
referred to herein as "Warrant Shares." The Shares and Warrant Shares are
collectively referred to herein as "Underlying Shares."
This letter shall serve as our irrevocable authorization and direction
to you (provided that you are the transfer agent for the Company with respect to
its Common Stock at such time) to issue Underlying Shares from time to time upon
notice from the Company to issue such Underlying Shares. So long as you have
previously received (x) a written confirmation from the Company's outside
counsel substantially in the form of Exhibit I attached hereto (which the
Company shall direct be delivered to you by such outside counsel upon the
effectiveness of the registration statement covering resales of Underlying
Shares) stating that a registration statement covering resales of Underlying
Shares has been declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and that Underlying Shares may be
issued (or reissued if they have been issued at a time when there was not such
an effective registration statement) or resold without any restrictive legend
(the "Notice of Effectiveness"), (y) a copy of such registration statement and
(z) an appropriate representation that the resale prospectus contained in the
registration statement has been delivered in compliance with applicable rules
and regulations, then certificates representing Underlying Shares shall not bear
any legend restricting transfer of Underlying Shares thereby and should not be
subject to any stop-transfer restriction. Provided, however, that if you have
not previously received a copy of the Notice of Effectiveness, such registration
statement and such representation, then certificates representing Underlying
Shares shall bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
and, provided, further, that the Company may, from time to time, notify you to
place stop-transfer restrictions on the certificates for Underlying Shares in
the event, but only in the event, a registration statement covering Underlying
Shares is subject to amendment for events then current.
Please be advised that the Purchaser has relied upon this instruction
letter as an inducement to enter into the Agreement and, accordingly, the
Purchaser is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ______________________.
Very truly yours,
MAGNITUDE INFORMATION SYSTEMS, INC.
By: ________________________________
Name: ________________________
Title: _______________________
ACKNOWLEDGED AND AGREED:
______[TRANSFER AGENT]_________
By: _________________________________
Name: _________________________
Title: __________________________
Tel.: ___________________________
Exhibit I
[FORM OF NOTICE OF EFFECTIVENESS OF OUTSIDE COUNSEL]
[Addressee]
[Address]
TO WHOM IT MAY CONCERN:
We are counsel to Magnitude Information Systems, Inc., a Delaware
corporation (the "Company"), and have represented the Company in connection with
that certain Common Stock Purchase Agreement (the "Agreement") between the
Company and the Purchaser named therein, pursuant to which the Company agreed to
issue shares of its common stock (the "Common Stock") and warrants to purchase
shares of the Common Stock (the "Warrant Shares"). Pursuant to the Agreement,
the Company agreed to register the Common Stock and the Warrant Shares.
In connection with the foregoing, we advise you that the Registration
Statement on Form ____ (File No. 333-______________) of the Company (the
"Registration Statement"), a copy of which is enclosed, was declared effective
at ____________M. Eastern Time on ____________, 2000. Upon issuance of the
Underlying Shares referred to in the Company's instruction letter attached, and
provided that you have received a copy of the representation pursuant to item
(z) in the second paragraph of such instruction letter, you are authorized to
issue certificates for the Company's common stock without restrictive legends.
No stop order suspending the effectiveness of the Registration Statement
covering any or _________ ________________________.
Very truly yours,
Exhibit 4.26
FORM OF WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR MAGNITUDE
INFORMATION SYSTEMS, INC., A DELAWARE CORPORATION (THE "COMPANY"), SHALL HAVE
RECEIVED AN OPINION, IN FORM, SCOPE AND SUBSTANCE REASONABLY ACCEPTABLE TO THE
COMPANY, OF COUNSEL WHO IS REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
MAGNITUDE INFORMATION SYSTEMS, INC.
Expires: December __, 2003
No.: W-__ Number of Shares: _____
Date of Issuance: December __, 2000
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth,
the undersigned, Magnitude Information Systems, Inc., a Delaware corporation
(together with its successors and assigns, the "Issuer"), hereby certifies that
Torneaux Ltd. or its registered assigns is entitled to subscribe for and
purchase, during the period specified in this Warrant, up to 681,816 shares
(subject to adjustment as hereinafter provided) of the duly authorized, validly
issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise
price per share equal to the Warrant Price then in effect, subject, however, to
the provisions and upon the terms and conditions hereinafter set forth.
Capitalized terms used in this Warrant and not otherwise defined herein shall
have the respective meanings specified in Section 7 hereof.
1. Term. The right to subscribe for and purchase shares of Warrant Stock
represented hereby shall commence on the date of issuance of this Warrant and
shall expire at 5:00 p.m., eastern time, on [December __], 2003 (such period
being the "Term"); provided, however, that the exercise of this Warrant shall be
subject to the following limitations:
(i) the right to subscribe for and purchase the first [_______] shares
(subject to adjustment as hereinafter provided) of Warrant Stock pursuant to the
exercise of a portion of this Warrant shall be immediately granted to the Holder
as of the date of this Warrant, subject to the exercise of all prior Warrants
and the sale of the shares of Common Stock underlying such Warrants (the "First
Exercise");
(ii) the right to subscribe for and purchase the next [_______] shares
(subject to adjustment as hereinafter provided) of Warrant Stock pursuant to the
exercise of a portion of this Warrant shall be immediately granted to the Holder
upon the sale of that number of shares of Common Stock purchased pursuant to the
First Exercise (the "Second Exercise");
(iii) the right to subscribe for and purchase the next [_______] shares
(subject to adjustment as hereinafter provided) of Warrant Stock pursuant to the
exercise of a portion of this Warrant shall be immediately granted to the Holder
upon the sale of that number of shares of Common Stock purchased pursuant to the
Second Exercise (the "Third Exercise"); and
(iv) the right to subscribe for and purchase the final [_______] shares
(subject to adjustment as hereinafter provided) of Warrant Stock pursuant to the
exercise of the remaining portion of this Warrant shall be immediately granted
to the Holder upon the sale of that number of shares of Common Stock purchased
pursuant to the Third Exercise.
2. Method of Exercise Payment; Issuance of New Warrant; Transfer and
Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant may
be exercised in whole or in part at any time and from time to time during the
Term.
(b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at such Holder's election (i) by certified or official bank
check or (ii) by surrender to the Issuer for cancellation of a portion of this
Warrant representing that number of unissued shares of Warrant Stock which is
equal to the quotient obtained by dividing (A) the product obtained by
multiplying the Warrant Price by the number of shares of Warrant Stock being
purchased upon such exercise by (B) the difference obtained by subtracting the
Warrant Price from the Per Share Market Value as of the date of such exercise,
or (iii) by a combination of the foregoing methods of payment selected by the
Holder of this Warrant. In any case where the consideration payable upon such
exercise is being paid in whole or in part pursuant to the provisions of clause
(ii) of this subsection (b), such exercise shall be accompanied by written
notice from the Holder of this Warrant specifying the manner of payment thereof
and containing a calculation showing the number of shares of Warrant Stock with
respect to which rights are being surrendered thereunder and the net number of
shares of Common Stock to be issued after giving effect to such surrender.
-2-
(c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three (3) Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.
(d) Transferability of Warrant. Subject to Section 2(e), this Warrant may
be transferred by a Holder without the consent of the Issuer. If transferred
pursuant to this subsection and subject to the provisions of subsection (e) of
this Section 2, this Warrant may be transferred on the books of the Issuer by
the Holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant at the principal office of the Issuer, properly endorsed (by the
Holder executing an assignment in the form attached hereto) and upon payment of
any necessary transfer tax imposed upon such transfer. This Warrant is
exchangeable at the principal office of the Issuer for Warrants for the purchase
of the same aggregate number of shares of Warrant Stock, each new Warrant to
represent the right to purchase such number of shares of Warrant Stock as the
Holder hereof shall designate at the time of such exchange. All Warrants issued
on transfers or exchanges shall be dated the Original Issue Date and shall be
identical with this Warrant except as to the number of shares of Warrant Stock
issuable pursuant hereto.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges that
this Warrant or the shares of Warrant Stock to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment, and that the Holder will not offer, sell or
otherwise dispose of this Warrant or any shares of Warrant Stock to be issued
upon exercise hereof except pursuant to an effective registration statement, or
an exemption from registration, under the Securities Act and any applicable
state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant and all
certificates representing shares of Warrant Stock issued upon exercise hereof
shall be stamped or imprinted with a legend in substantially the following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES
ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR MAGNITUDE
- -3-
INFORMATION SYSTEMS, INC., A DELAWARE CORPORATION (THE
"COMPANY"), SHALL HAVE RECEIVED AN OPINION, IN FORM, SCOPE AND
SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, OF COUNSEL WHO
IS REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION OF
SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
(iii) The restrictions imposed by this subsection (e) upon the transfer of
this Warrant or the shares of Warrant Stock to be purchased upon exercise hereof
shall terminate (A) when such securities shall have been resold pursuant to an
effective registration statement under the Securities Act, (B) upon the Issuer's
receipt of an opinion of counsel, in form and substance reasonably satisfactory
to the Issuer, addressed to the Issuer to the effect that such restrictions are
no longer required to ensure compliance with the Securities Act and state
securities laws or (C) upon the Issuer's receipt of other evidence reasonably
satisfactory to the Issuer that such registration and qualification under the
Securities Act and state securities laws are not required. Whenever such
restrictions shall cease and terminate as to any such securities, the Holder
thereof shall be entitled to receive from the Issuer (or its transfer agent and
registrar), without expense (other than applicable transfer taxes, if any), new
Warrants (or, in the case of shares of Warrant Stock, new stock certificates) of
like tenor not bearing the applicable legend required by paragraph (ii) above
relating to the Securities Act and applicable state securities laws.
(f) Continuing Rights of Holder. The Issuer will, at the time of or at any
time after each exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing the extent, if any, of its continuing obligation to
afford to such Holder all rights to which such Holder shall continue to be
entitled after such exercise in accordance with the terms of this Warrant;
provided that if any such Holder shall fail to make any such request, the
failure shall not affect the continuing obligation of the Issuer to afford such
rights to such Holder.
3. Stock Fully Paid; Reservation and Listing of Shares; Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and agrees
that all shares of Warrant Stock which may be issued upon the exercise of this
Warrant or otherwise hereunder will, upon issuance, be duly authorized, validly
issued, fully paid and non-assessable and free from all taxes and liens,
security interest, charges and encumbrances of any nature whatsoever created by
or through the Issuer. The Issuer further represents, warrants, covenants and
agrees that during the period within which this Warrant may be exercised, the
Issuer will at all times have authorized and reserved for the purpose of the
issue upon exercise of this Warrant a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(b) Reservation. If any shares of Common Stock required to be reserved for
issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list
-4-
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon, maintain and increase when necessary such listing, of,
all shares of Warrant Stock from time to time issued upon exercise of this
Warrant or as otherwise provided hereunder, and, to the extent permissible under
the applicable securities exchange rules, all unissued shares of Warrant Stock
which are at any time issuable hereunder, so long as any shares of Common Stock
shall be so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder
of this Warrant shall be entitled to receive upon the exercise of this Warrant
if at the time any securities of the same class shall be listed on such
securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Certificate of Incorporation or the by-laws of the
Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms or provisions of
this Warrant, but will at all times in good faith carry out all such terms or
provisions and take all such actions as may be necessary or appropriate to
protect the rights of the Holder hereof against dilution (to the extent
specifically provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value, if any, of its
Common Stock to exceed the then effective Warrant Price, (ii) not amend or
modify any provision of the Certificate of Incorporation or by-laws of the
Issuer in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holders of the
Warrants, (iii) take all such action as may be reasonably necessary in order
that the Issuer may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, security interests,
charges, claims, encumbrances and restrictions (other than as provided herein)
upon the exercise of this Warrant, and (iv) obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Issuer to perform its obligations
under this Warrant.
(d) Ten Percent Rule. This Warrant shall not be exercisable to the extent
that the shares of Common Stock issuable upon any exercise of hereof, when
aggregated with all other shares of Common Stock then owned by the Holder (as
defined in the Purchase Agreement), would result in the Holder owning more than
9.99% of all of such Common Stock as would be outstanding on such date of
exercise, as determined in accordance with Section 16 of the Securities Exchange
Act of 1934 and the regulations promulgated thereunder.
(e) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.
4. Adjustment of Warrant Price and Warrant Share Number. The number and
kind of Securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
-5-
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale.
(i) In case the Issuer after the Original Issue Date shall do any of the
following (each, a "Triggering Event"): (a) consolidate with or merge into any
other Person and the Issuer shall not be the continuing or surviving Person of
such consolidation or merger, or (b) permit any other Person to consolidate with
or merge into the Issuer and the Issuer shall be the continuing or surviving
Person but, in connection with such consolidation or merger, any Capital Stock
of the Issuer shall be changed into or exchanged for Securities of any other
Person or cash or any other property, or (c) transfer all or substantially all
of its properties or assets to any other Person, or (d) effect a capital
reorganization or reclassification of its Capital Stock, then, and in the case
of each such Triggering Event, proper provision shall be made so that, upon the
basis and the terms and in the manner provided in this Warrant, the Holder of
this Warrant shall be entitled, at the option of such Holder, (x) upon the
exercise hereof at any time after the consummation of such Triggering Event, to
the extent this Warrant is not exercised prior to such Triggering Event, to
receive at the Warrant Price in effect at the time immediately prior to the
consummation of such Triggering Event in lieu of the Common Stock issuable upon
such exercise of this Warrant prior to such Triggering Event, the Securities,
cash and property to which such Holder would have been entitled upon the
consummation of such Triggering Event if such Holder had exercised the rights
represented by this Warrant immediately prior thereto, subject to adjustments
(subsequent to such corporate action) as nearly equivalent as possible to the
adjustments provided for in Section 4 hereof or (y) to sell this Warrant (or, at
such Holder's election, a portion hereof) concurrently with the Triggering Event
to the Person continuing after or surviving such Triggering Event, or to the
Issuer (if Issuer is the continuing or surviving Person) at a sales price equal
to the amount of cash, property and/or Securities to which a holder of the
number of shares of Common Stock which would otherwise have been delivered upon
the exercise of this Warrant would have been entitled upon the effective date or
closing of any such Triggering Event (the "Event Consideration"), less the
amount or portion of such Event Consideration having a fair value equal to the
aggregate Warrant Price applicable to this Warrant or the portion hereof so
sold.
(ii) Notwithstanding anything contained in this Warrant to the contrary,
the Issuer will not effect any Triggering Event unless, prior to the
consummation thereof, each Person (other than the Issuer) which may be required
to deliver any Securities, cash or property upon the exercise of this Warrant as
provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer
under this Warrant (and if the Issuer shall survive the consummation of such
Triggering Event, such assumption shall be in addition to, and shall not release
the Issuer from, any continuing obligations of the Issuer under this Warrant)
and (B) the obligation to deliver to such Holder such shares of Securities, cash
or property as, in accordance with the foregoing provisions of this subsection
(a), such Holder shall be entitled to receive, and such Person shall have
similarly delivered to such Holder an opinion of counsel for such Person, which
counsel shall be reasonably satisfactory to such Holder, stating that this
Warrant shall thereafter continue in full force and effect and the terms hereof
(including, without limitation, all of the provisions of this subsection (a))
shall be applicable to the Securities, cash or property which such Person may be
required to deliver upon any exercise of this Warrant or the exercise of any
rights pursuant hereto.
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(iii) If with respect to any Triggering Event, the Holder of this Warrant
has exercised its right as provided in clause (y) of subparagraph (i) of this
subsection (a) to sell this Warrant or a portion thereof, the Issuer agrees that
as a condition to the consummation of any such Triggering Event the Issuer shall
secure such right of Holder to sell this Warrant to the Person continuing after
or surviving such Triggering Event and the Issuer shall not effect any such
Triggering Event unless upon or prior to the consummation thereof the amounts of
cash, property and/or Securities required under such clause (y) are delivered to
the Holder of this Warrant. The obligation of the Issuer to secure such right of
the Holder to sell this Warrant shall be subject to such Holder's cooperation
with the Issuer, including, without limitation, the giving of reasonable and
customary representations and warranties to the purchaser in connection with any
such sale. Prior notice of any Triggering Event shall be given to the Holder of
this Warrant in accordance with Section 11 hereof.
(b) Subdivision or Combination of Shares. If the Issuer, at any time while
this Warrant is outstanding, shall subdivide or combine any shares of Common
Stock, (i) in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such subdivision or, if the
Issuer shall take a record of holders of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier) to reflect
the increase in the total number of shares of Common Stock outstanding as a
result of such subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the effective date of
such combination or, if the Issuer shall take a record of holders of its Common
Stock for the purpose of so combining, as at the applicable record date,
whichever is earlier) to reflect the reduction in the total number of shares of
Common Stock outstanding as a result of such combination.
(c) Certain Dividends and Distributions. If the Issuer, at any time while
this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend in, or make any other distribution to
its stockholders (without consideration therefor) of, shares of Common Stock,
the Warrant Price shall be adjusted, as at the date the Issuer shall take a
record of the holders of the Issuer's Capital Stock for the purpose of receiving
such dividend or other distribution (or if no such record is taken, as at the
date of such payment or other distribution), to that price determined by
multiplying the Warrant Price in effect immediately prior to such record date
(or if no such record is taken, then immediately prior to such payment or other
distribution), by a fraction (1) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such dividend
or distribution, and (2) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution (plus in the event that the Issuer paid cash for fractional shares,
the number of additional shares which would have been outstanding had the Issuer
issued fractional shares in connection with said dividends); or
(ii) Other Dividends. Pay a dividend on, or make any distribution of its
assets upon or with respect to (including, but not limited to, a distribution of
its property as a dividend in liquidation or partial liquidation or by way of
return of capital), the Common Stock (other than as described in clause (i) of
this subsection (c)), or in the event that the Company shall offer options or
rights to subscribe for shares of Common Stock, or issue any Common Stock
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Equivalents, to all of its holders of Common Stock, then on the record date for
such payment, distribution or offer or, in the absence of a record date, on the
date of such payment, distribution or offer, the Holder shall receive what the
Holder would have received had it exercised this Warrant in full immediately
prior to the record date of such payment, distribution or offer or, in the
absence of a record date, immediately prior to the date of such payment,
distribution or offer.
(d) Issuance of Additional Shares of Common Stock. If the Issuer, at any
time while this Warrant is outstanding, shall issue any Additional Shares of
Common Stock (otherwise than as provided in the foregoing subsections (a)
through (c) of this Section 4), at a price per share less than the Warrant Price
then in effect or less than the Per Share Market Value then in effect or without
consideration, then the Warrant Price upon each such issuance shall be adjusted
to that price (rounded to the nearest cent) determined by multiplying the
Warrant Price then in effect by a fraction:
(i) the numerator of which shall be equal to the sum of (A) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus (B) the number of shares of Common Stock
(rounded to the nearest whole share) which the aggregate consideration for the
total number of such Additional Shares of Common Stock so issued would purchase
at a price per share equal to the greater of the Per Share Market Value then in
effect and the Warrant Price then in effect, and
(ii) the denominator of which shall be equal to the number of shares of
Common Stock outstanding immediately after the issuance of such Additional
Shares of Common Stock.
The provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b) or (c)
of this Section 4. No adjustment of the Warrant Price shall be made under this
subsection (d) upon the issuance of any Additional Shares of Common Stock which
are issued pursuant to any Common Stock Equivalent if upon the issuance of such
Common Stock Equivalent (x) any adjustment shall have been made pursuant to
subsection (e) of this Section 4 or (y) no adjustment was required pursuant to
subsection (e) of this Section 4. No adjustment of the Warrant Price shall be
made under this subsection (d) in an amount less than $.01 per share, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment, if any, which together with
any adjustments so carried forward shall amount to $.01 per share or more;
provided that upon any adjustment of the Warrant Price as a result of any
dividend or distribution payable in Common Stock or Convertible Securities or
the reclassification, subdivision or combination of Common Stock into a greater
or smaller number of shares, the foregoing figure of $.01 per share (or such
figure as last adjusted) shall be adjusted (to the nearest one-half cent) in
proportion to the adjustment in the Warrant Price.
(e) Issuance of Common Stock Equivalents. If the Issuer, at any time while
this Warrant is outstanding, shall issue any Common Stock Equivalent and the
price per share for which Additional Shares of Common Stock may be issuable
thereafter pursuant to such Common Stock Equivalent shall be less than the
Warrant Price then in effect or less than the Per Share Market Value then in
effect, or if, after any such issuance of Common Stock Equivalents, the price
per share for which Additional Shares of Common Stock may be issuable thereafter
is amended or adjusted, and such price as so amended shall be less than the
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Warrant Price or less than the Per Share Market Value in effect at the time of
such amendment, then the Warrant Price upon each such issuance or amendment
shall be adjusted as provided in the first sentence of subsection (d) of this
Section 4 on the basis that (1) the maximum number of Additional Shares of
Common Stock issuable pursuant to all such Common Stock Equivalents shall be
deemed to have been issued (whether or not such Common Stock Equivalents are
actually then exercisable, convertible or exchangeable in whole or in part) as
of the earlier of (A) the date on which the Issuer shall enter into a firm
contract for the issuance of such Common Stock Equivalent, or (B) the date of
actual issuance of such Common Stock Equivalent, and (2) the aggregate
consideration for such maximum number of Additional Shares of Common Stock shall
be deemed to be the minimum consideration received or receivable by the Issuer
for the issuance of such Additional Shares of Common Stock pursuant to such
Common Stock Equivalent. No adjustment of the Warrant Price shall be made under
this subsection (e) upon the issuance of any Convertible Security which is
issued pursuant to the exercise of any warrants or other subscription or
purchase rights therefor, if any adjustment shall previously have been made in
the Warrant Price then in effect upon the issuance of such warrants or other
rights pursuant to this subsection (e). If no adjustment is required under this
subsection (e) upon issuance of any Common Stock Equivalent or once an
adjustment is made under this subsection (e) based upon the Per Share Market
Value in effect on the date of such adjustment, no further adjustment shall be
made under this subsection (e) based solely upon a change in the Per Share
Market Value after such date.
(f) Purchase of Common Stock by the Issuer. If the Issuer at any time while
this Warrant is outstanding shall, directly or indirectly through a Subsidiary
or otherwise, purchase, redeem or otherwise acquire any shares of Common Stock
at a price per share greater than the Per Share Market Value then in effect,
then the Warrant Price upon each such purchase, redemption or acquisition shall
be adjusted to that price determined by multiplying such Warrant Price by a
fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such purchase, redemption or acquisition
minus the number of shares of Common Stock which the aggregate consideration for
the total number of such shares of Common Stock so purchased, redeemed or
acquired would purchase at the Per Share Market Value; and (ii) the denominator
of which shall be the number of shares of Common Stock outstanding immediately
after such purchase, redemption or acquisition. For the purposes of this
subsection (f), the date as of which the Per Share Market Value shall be
computed shall be the earlier of (x) the date on which the Issuer shall enter
into a firm contract for the purchase, redemption or acquisition of such Common
Stock, or (y) the date of actual purchase, redemption or acquisition of such
Common Stock. For the purposes of this subsection (f), a purchase, redemption or
acquisition of a Common Stock Equivalent shall be deemed to be a purchase of the
underlying Common Stock, and the computation herein required shall be made on
the basis of the full exercise, conversion or exchange of such Common Stock
Equivalent on the date as of which such computation is required hereby to be
made, whether or not such Common Stock Equivalent is actually exercisable,
convertible or exchangeable on such date.
(g) Other Provisions Applicable to Adjustments Under this Section 4. The
following provisions shall be applicable to the making of adjustments in the
Warrant Price hereinbefore provided in Section 4:
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(i) Computation of Consideration. The consideration received by the Issuer
shall be deemed to be the following: to the extent that any Additional Shares of
Common Stock or any Common Stock Equivalents shall be issued for a cash
consideration, the consideration received by the Issuer therefor, or if such
Additional Shares of Common Stock or Common Stock Equivalents are offered by the
Issuer for subscription, the subscription price, or, if such Additional Shares
of Common Stock or Common Stock Equivalents are sold to underwriters or dealers
for public offering without a subscription offering, the public offering price,
in any such case excluding any amounts paid or receivable for accrued interest
or accrued dividends and without deduction of any compensation, discounts,
commissions, or expenses paid or incurred by the Issuer for or in connection
with the underwriting thereof or otherwise in connection with the issue thereof;
to the extent that such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the fair market value of
such consideration at the, time of such issuance as determined in good faith by
the Board. The consideration for any Additional Shares of Common Stock issuable
pursuant to any Common Stock Equivalents shall be the consideration received by
the Issuer for issuing such Common Stock Equivalents, plus the additional
consideration payable to the Issuer upon the exercise, conversion or exchange of
such Common Stock Equivalents. In case of the issuance at any time of any
Additional Shares of Common Stock or Common Stock Equivalents in payment or
satisfaction of any dividend upon any class of Capital Stock of the Issuer other
than Common Stock, the Issuer shall be deemed to have received for such
Additional Shares of Common Stock or Common Stock Equivalents a consideration
equal to the amount of such dividend so paid or satisfied. In any case in which
the consideration to be received or paid shall be other than cash, the Board
shall notify the Holder of this Warrant of its determination of the fair market
value of such consideration prior to payment or accepting receipt thereof. If,
within thirty (30) days after receipt of said notice, the Majority Holders shall
notify the Board in writing of their objection to such determination, a
determination of the fair market value of such consideration shall be made by an
Independent Appraiser selected by the Majority Holders with the approval of the
Board (which approval shall not be unreasonably withheld), whose fees and
expenses shall be paid by the Issuer.
(ii) Readjustment of Warrant Price. Upon the expiration or termination of
the right to convert, exchange or exercise any Common Stock Equivalent the
issuance of which effected an adjustment in the Warrant Price, if such Common
Stock Equivalent shall not have been converted, exercised or exchanged in its
entirety, the number of shares of Common Stock deemed to be issued and
outstanding by reason of the fact that they were issuable upon conversion,
exchange or exercise of any such Common Stock Equivalent shall no longer be
computed as set forth above, and the Warrant Price shall forthwith be readjusted
and thereafter be the price which it would have been (but reflecting any other
adjustments in the Warrant Price made pursuant to the provisions of this Section
4 after the issuance of such Common Stock Equivalent) had the adjustment of the
Warrant Price been made in accordance with the issuance or sale of the number of
Additional Shares of Common Stock actually issued upon conversion, exchange or
issuance of such Common Stock Equivalent and thereupon only the number of
Additional Shares of Common Stock actually so issued shall be deemed to have
been issued and only the consideration actually received by the Issuer (computed
as in clause (i) of this subsection (g)) shall be deemed to have been received
by the Issuer.
(iii) Outstanding Common Stock. The number of shares of Common Stock at any
time outstanding shall (A) not include any shares thereof then directly or
indirectly owned or held by or for the account of the Issuer or any of its
Subsidiaries, and (B) be deemed to include all shares of Common Stock then
issuable upon conversion, exercise or exchange of any then outstanding Common
Stock Equivalents or any other evidences of Indebtedness, shares of Capital
Stock or other Securities which are or may be at any time convertible into or
exchangeable for shares of Common Stock or Other Common Stock.
-10-
(h) Other Action Affecting Common Stock. In case after the Original Issue
Date the Issuer shall take any action affecting its Common Stock, other than an
action described in any of the foregoing subsections (a) through (g) of this
Section 4, inclusive, and the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant in accordance with the
essential intent and principle of this Section 4, then the Warrant Price shall
be adjusted in such manner and at such time as the Board may in good faith
determine to be equitable in the circumstances.
(i) Adjustment of Warrant Share Number. Upon each adjustment in the Warrant
Price pursuant to any of the foregoing provisions of this Section 4, the Warrant
Share Number shall be adjusted, to the nearest one hundredth of a whole share,
to the product obtained by multiplying the Warrant Share Number immediately
prior to such adjustment in the Warrant Price by a fraction, the numerator of
which shall be the Warrant Price immediately before giving effect to such
adjustment and the denominator of which shall be the Warrant Price immediately
after giving effect to such adjustment. If the Issuer shall be in default under
any provision contained in Section 3 of this Warrant so that shares issued at
the Warrant Price adjusted in accordance with this Section 4 would not be
validly issued, the adjustment of the Warrant Share Number provided for in the
foregoing sentence shall nonetheless be made and the Holder of this Warrant
shall be entitled to purchase such greater number of shares at the lowest price
at which such shares may then be validly issued under applicable law. Such
exercise shall not constitute a waiver of any claim arising against the Issuer
by reason of its default under Section 3 of this Warrant.
(j) Form of Warrant after Adjustments. The form of this Warrant need not be
changed because of any adjustments in the Warrant Price or the number and kind
of Securities purchasable upon the exercise of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder), and the Warrant
Price and Warrant Share Number after giving effect to such adjustment, and shall
cause copies of such certificate to be delivered to the Holder of this Warrant
promptly after each adjustment. Any dispute between the Issuer and the Holder of
this Warrant with respect to the matters set forth in such certificate may at
the option of the Holder of this Warrant be submitted to one of the national
accounting firms currently known as the "big five" selected by the Holder,
provided that the Issuer shall have ten (10) days after receipt of notice from
such Holder of its selection of such firm to object thereto, in which case such
Holder shall select another such firm and the Issuer shall have no such right of
objection. The firm selected by the Holder of this Warrant as provided in the
preceding sentence shall be instructed to deliver a written opinion as to such
matters to the Issuer and such Holder within thirty (30) days after submission
to it of such dispute. Such opinion shall be final and binding on the parties
hereto. The fees and expenses of such accounting firm shall be paid by the
Issuer.
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6. Fractional Shares. No fractional shares of Warrant Stock will be issued
in connection with and exercise hereof, but in lieu of such fractional shares,
the Issuer shall make a cash payment therefor equal in amount to the product of
the applicable fraction multiplied by the Per Share Market Value then in effect.
7. Definitions. For the purposes of this Warrant, the following terms have
the following meanings:
"Additional Shares of Common Stock" means all shares of Common
Stock issued by the Issuer after the Original Issue Date, and all shares of
Other Common, if any, issued by the Issuer after the Original Issue Date, except
(i) the Warrant Stock, (ii) any shares of Common Stock issued to pursuant to the
Purchase Agreement, (iii) any shares of Common Stock issued pursuant to the
stock options, stock warrants, the Series A Senior Convertible Preferred Stock,
the Series B Senior Convertible Preferred Stock and the Series C Senior
Convertible Preferred Stock of the Issuer as well as the convertible debt of the
Issuer and Common Stock issued pursuant to the Issuer's 2000 Incentive Stock
Plan and the securities of the Issuer that may be placed in one or more private
placement transactions, all of which securities of the Issuer are set forth on
Schedule 3.1(c) of the Purchase Agreement.
"Board" shall mean the Board of Directors of the Issuer.
"Capital Stock" means and includes (i) any and all shares,
interests, participations or other equivalents of or interests in (however
designated) corporate stock, including, without limitation, shares of preferred
or preference stock, (ii) all partnership interests (whether general or limited)
in any Person which is a partnership, (iii) all membership interests or limited
liability company interests in any limited liability company, and (iv) all
equity or ownership interests in any Person of any other type.
"Certificate of Incorporation" means the Certificate of
Incorporation, as amended, of the Issuer as in effect on the Original Issue
Date, and as hereafter from time to time amended, modified, supplemented or
restated in accordance with the terms hereof and thereof and pursuant to
applicable law.
"Common Stock" means the Common Stock, $.0001 par value, of
the Issuer and any other Capital Stock into which such stock may hereafter be
changed.
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"Common Stock Equivalent" means any Convertible Security or
warrant, option or other right to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Security.
"Convertible Securities" means evidences of Indebtedness,
shares of Capital Stock or other Securities which are or may be at any time
convertible into or exchangeable for Additional Shares of Common Stock. The term
"Convertible Security" means one of the Convertible Securities.
"Governmental Authority" means any governmental, regulatory or
self-regulatory entity, department, body, official, authority, commission,
board, agency or instrumentality, whether federal, state or local, and whether
domestic or foreign.
"Holders" mean the Persons who shall from time to time
own any Warrant. The term "Holder" means one of the Holders.
"Independent Appraiser" means a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Issuer) that is regularly engaged in
the business of appraising the Capital Stock or assets of corporations or other
entities as going concerns, and which is not affiliated with either the Issuer
or the Holder of any Warrant.
"Issuer" means Magnitude Information Systems, Inc., a
Delaware corporation, and its successors.
"Majority Holders" means at any time the Holders of Warrants
exercisable for a majority of the shares of Warrant Stock issuable under the
Warrants at the time outstanding.
"Original Issue Date" means [December __], 2000.
"Other Common" means any other Capital Stock of the Issuer of
any class which shall be authorized at any time after the date of this Warrant
(other than Common Stock) and which shall have the right to participate in the
distribution of earnings and assets of the Issuer without limitation as to
amount.
"Person" means an individual, corporation, limited liability
company, partnership, joint stock company, trust, unincorporated organization,
joint venture, Governmental Authority or other entity of whatever nature.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date the Nasdaq SmallCap
Market, Nasdaq National Market or other registered national stock exchange on
which the Common Stock is then listed or if there is no such price on such date,
then the closing bid price on such exchange or quotation system on the date
nearest preceding such date, or (b) if the Common Stock is not listed then on
the Nasdaq SmallCap Market, Nasdaq National Market or any registered national
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stock exchange, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by NASDAQ or in the National Quotation
Bureau Incorporated or similar organization or agency succeeding to its
functions of reporting prices) at the close of business on such date, or (c) if
the Common Stock is not then reported by NASDAQ the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the holder, or (d) if the
Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Independent Appraiser selected in good faith by
the Majority Holders; provided, however, that the Issuer, after receipt of the
determination by such Independent Appraiser, shall have the right to select an
additional Independent Appraiser, in which case, the fair market value shall be
equal to the average of the determinations by each such Independent Appraiser;
and provided, further that all determinations of the Per Share Market Value
shall be appropriately adjusted for any stock dividends, stock splits or other
similar transactions during such period. The determination of fair market value
by an Independent Appraiser shall be based upon the fair market value of the
Issuer determined on a going concern basis as between a willing buyer and a
willing seller and taking into account all relevant factors determinative of
value, and shall be final and binding on all parties. In determining the fair
market value of any shares of Common Stock, no consideration shall be given to
any restrictions on transfer of the Common Stock imposed by agreement or by
federal or state securities laws, or to the existence or absence of, or any
limitations on, voting rights.
"Purchase Agreement" means the Common Stock Purchase Agreement
dated as of December 18, 2000 between the Issuer and the Holder.
"Securities" means any debt or equity securities of the
Issuer, whether now or hereafter authorized, any instrument convertible into or
exchangeable for securities or a security, and any option, warrant or other
right to purchase or acquire any security. "Security" means one of the
Securities.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute then in effect.
"Subsidiary" means any corporation at least 50% of whose
outstanding Voting Stock shall at the time be owned directly or indirectly by
the Issuer or by one or more of its Subsidiaries, or by the Issuer and one or
more of its Subsidiaries.
"Term" has the meaning specified in Section 1 hereof.
"Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq SmallCap Market, Nasdaq National Market or other registered
national stock exchange on which the Common Stock has been listed, or (b) if the
Common Stock is not listed on the Nasdaq SmallCap Market, Nasdaq National Market
or other registered national stock exchange on which the Common Stock has been
listed, a day on which the Common Stock is quoted in the over-the-counter
market, as reported by the OTC Bulletin Board, or (c) if the Common Stock is not
quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided, however, that in the event that the Common Stock is
not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading Day
shall mean any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
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"Voting Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
having ordinary voting power for the election of a majority of the members of
the Board of Directors (or other governing body) of such corporation, other than
Capital Stock having such power only by reason of the happening of a
contingency.
"Warrants" means the Warrants issued and sold pursuant to the
Purchase Agreement, including, without limitation, this Warrant, and any other
warrants of like tenor issued in substitution or exchange for any thereof
pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof or of any of
such other Warrants.
"Warrant Price" means $______________, as such price may be
adjusted from time to time as shall result from the adjustments specified in
Section 4 herein.
"Warrant Share Number" means at any time the aggregate number
of shares of Warrant Stock which may at such time be purchased upon exercise of
this Warrant, after giving effect to all prior adjustments and increases to such
number made or required to be made under the terms hereof.
"Warrant Stock" means Common Stock issuable upon exercise of
any Warrant or Warrants or otherwise issuable pursuant to any Warrant or
Warrants.
8. Other Notices. In case at any time:
(A) the Issuer shall make any distributions to the holders of Common
Stock; or
(B) the Issuer shall authorize the granting to all holders of its Common Stock
of rights to subscribe for or purchase any shares of Capital Stock of any class
or of any Common Stock Equivalents or Convertible Securities or other rights; or
(C) there shall be any reclassification of the Capital Stock of the
Issuer; or
(D) there shall be any capital reorganization by the Issuer; or
(E) there shall be any (i) consolidation or merger involving the Issuer or (ii)
sale, transfer or other disposition of all or substantially all of the Issuer's
property, assets or business (except a merger or other reorganization in which
the Issuer shall be the surviving corporation and its shares of Capital Stock
shall continue to be outstanding and unchanged and except a consolidation,
merger, sale, transfer or other disposition involving a wholly-owned
Subsidiary); or
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(F) there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Issuer or any partial liquidation of the Issuer or
distribution to holders of Common Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be. Such notice shall be given at least twenty
(20) days prior to the action in question and not less than twenty (20) days
prior to the record date or the date on which the Issuer's transfer books are
closed in respect thereto. The Issuer shall give to the Holder notice of all
meetings and actions by written consent of its stockholders, at the same time in
the same manner as notice of any meetings of stockholders is required to be
given to stockholders who do not waive such notice (or, if such actions require
no notice, then two (2) Trading Days written notice thereof describing the
matters upon which action is to be taken). The Holder shall have the right to
send two representatives selected by it to each meeting, who shall be permitted
to attend, but not vote at, such meeting and any adjournments thereof. This
Warrant entitles the Holder to receive copies of all financial and other
information distributed or required to be distributed to the holders of the
Common Stock.
9. Amendment and Waiver. Any term, covenant, agreement or condition in this
Warrant may be amended, or compliance therewith may be waived (either generally
or in a particular instance and either retroactively or prospectively), by a
written instrument or written instruments executed by the Issuer and the
Majority Holders; provided, however, that no such amendment or waiver shall
reduce the Warrant Share Number, increase the Warrant Price, shorten the period
during which this Warrant may be exercised or modify any provision of this
Section 9 without the consent of the Holder of this Warrant.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW. THIS WARRANT SHALL NOT BE INTERPRETED OR
CONSTRUED WITH ANY PRESUMPTION AGAINST THE PARTY CAUSING THIS WARRANT TO BE
DRAFTED.
11. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., eastern standard time,
on a Trading Day, (ii) the Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., eastern standard time, on any
date and earlier than 11:59 p.m., eastern standard time, on such date, (iii) the
Trading Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to the Holder of this Warrant or of Warrant Stock issued pursuant
hereto, addressed to such Holder at its last known address or facsimile number
appearing on the books of the Issuer maintained for such purposes, or with
respect to the Issuer, addressed to:
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Magnitude Information Systems, Inc.
401 Route 24
Chester, NJ 07930
Tel. No.: (908) 879-2722
Fax No.: (908) 879-7006
Attention: [__]
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Issuer shall be sent to Joseph J.
Tomasek, Esq., 77 North Bridge Street, Somerville, NJ 08876, Facsimile no.:
(908) 429-0040. Copies of notices to the Holder shall be sent to Parker Chapin
LLP, 405 Lexington Avenue, New York, New York 10174, Attention: Christopher S.
Auguste, Esq., Facsimile no.: (212) 704-6288.
12. Warrant Agent. The Issuer may, by written notice to each Holder of this
Warrant, appoint an agent having an office in New York, New York for the purpose
of issuing shares of Warrant Stock on the exercise of this Warrant pursuant to
subsection (b) of Section 2 hereof, exchanging this Warrant pursuant to
subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
13. Remedies. The Issuer stipulates that the remedies at law of the Holder
of this Warrant in the event of any default or threatened default by the Issuer
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate and that, to the fullest extent permitted by law,
such terms may be specifically enforced by a decree for the specific performance
of any agreement contained herein or by an injunction against a violation of any
of the terms hereof or otherwise.
14. Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Issuer, the Holder hereof and (to the extent provided herein) the Holders of
Warrant Stock issued pursuant hereto, and shall be enforceable by any such
party.
15. Modification and Severability. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
16. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
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IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day
and year first above written.
MAGNITUDE INFORMATION SYSTEMS, INC.
By:
Name:
Title:
EXERCISE FORM
[NAME OF ISSUER]
The undersigned _______________, pursuant to the provisions of the
within Warrant, hereby elects to purchase _____ shares of Common Stock of
___________________ covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
---------------------
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and
transfers unto __________________ the within Warrant and all rights evidenced
thereby and does irrevocably constitute and appoint _____________, attorney, to
transfer the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
---------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and
transfers unto __________________ the right to purchase _________ shares of
Warrant Stock evidenced by the within Warrant together with all rights therein,
and does irrevocably constitute and appoint ___________________, attorney, to
transfer that part of the said Warrant on the books of the within named
corporation.
Dated: _________________ Signature ___________________________
Address _____________________
--------------------
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-__ canceled (or transferred or exchanged) this _____
day of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-__ issued for ____ shares of Common Stock in the
name of _______________.