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As Filed with the Securities and Exchange Commission on December 9, 1999
Registration No.
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Exact name of Registrant as specified in charter
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MSI HOLDINGS, INC.
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State or jurisdiction of Address, including zip code, and telephone number, including I.R.S. Employer
incorporation or organization area code, of registrant's principal executive offices Identification Number
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<S> <C> <C>
UTAH MSI HOLDINGS, INC. 87-0280886
501 WALLER STREET
AUSTIN, TEXAS 78702
(512) 476-6925
Name, address, including zip code, and telephone number, With a copy to:
including area code, of agent for service ---------------
----------------------------------------- GARY L. WOOLFOLK
ROBERT J. GIBBS VIAL HAMILTON, KOCH & KNOX, L.L.P.
501 WALLER STREET 1717 MAIN STREET, SUITE 4400
AUSTIN, TEXAS 78702 DALLAS, TEXAS 75201
(512) 476-6925 (214) 712-4344
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Approximate date of commencement of proposed sale to the public
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AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registrations statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of each class of
securities to be Amount to be Proposed maximum Proposed maximum Amount of
registered registered offering price per unit aggregate offering price registration fee
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<S> <C> <C> <C> <C>
Common Stock
$0.10 par value(1) 2,894,720 $5.75(2) $16,644,640 $4,394.18
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(1) Such securities have been registered for issuance by the Registrant on a
delayed or continuous basis pursuant to Rule 415 under the Securities act
of 1933, as amended.
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(2) Estimated solely for the purpose of computing the amount of registration
fee in accordance with Rule 457(c) promulgated under the Securities Act.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this registration statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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SUBJECT TO COMPLETION, DATED DECEMBER 9, 1999
PROSPECTUS
MSI HOLDINGS, INC.
501 Waller Street
Austin, Texas 78702
(512) 476-6925
2,894,720 SHARES OF COMMON STOCK
This prospectus covers 2,894,720 shares of common stock of MSI
Holdings, Inc., that are offered by certain of our shareholders, that have been
issued or may be issuable upon conversion of some or all of the shares of our
Series E Preferred Stock, and that are issuable upon exercise of certain options
and warrants that we have granted. We will not receive any of the proceeds from
the shares offered by the selling shareholders or from the issuance of the
shares upon conversion of our Series E Preferred Stock. Upon the exercise of the
previously granted options and warrants, we may receive proceeds of up to
$486,953, which will be used for general corporate purposes. See "Use of
Proceeds" beginning on page 17.
Registration of the shares of common stock contemplated herein, will
allow certain shareholders to sell all or part of their equity interests in the
Company. The shareholders receiving, or whose shares will become, freely
tradeable shares under this Registration Statement are identified herein. See
"Selling Shareholders" beginning on page 18.
We will bear all of the cost of preparing and printing the Registration
Statement, Prospectus and any Prospectus Supplements and all filing fees and
legal and accounting expenses associated with registration under federal and
state securities laws, which are estimated at $60,000.
The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is declared effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
securities in any state where the offer or sale is not permitted.
THE OFFERING
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Number of Shares 2,894,720
Price as of Nov. 30, 1999 $ 5.75
Aggregate Offering Price $ 16,644,640
</TABLE>
Trading Symbol: MSIA
Market: OTC-BB
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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, 1999
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., and Fort Worth, Texas. The
SEC's address in Washington D.C. is 450 Fifth Street, N.W., Washington, D.C.
20549. The SEC's address in Fort Worth is 801 Cherry Street, 19th floor, Ft.
Worth, Texas 76102. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available on
the SEC's Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" information from other
documents that we file with them, which means that we can disclose important
information by referring to those documents. The information incorporated by
reference is considered to be part of this prospectus, and information that we
file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 prior to the sale of all the shares covered
by this prospectus:
o Annual Report on Form 10-KSB/A for the year ended March 31, 1999;
o All other reports filed with the SEC pursuant to Sections 13(a) or
15(d) of the Exchange Act since the end of the fiscal year ended March
31, 1999; and
o The description of our common stock (the "Common Stock") contained in
our Registration Statement on Form 10, filed with the SEC on October
27, 1975 (File Number M862263).
We will deliver to each person, including any beneficial owner,
receiving this prospectus, a copy of any or all of the information that has been
incorporated by reference and not delivered with this prospectus. You may
request a copy of these filings, at no cost, by writing or telephoning:
MSI Holdings, Inc.
501 Waller Street
Austin, Texas 78702
Attn: Robert J. Gibbs
Telephone: (512) 476-6925
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. The selling stockholders will
not make an offer of these shares in any state where the offer is not permitted.
You should not assume that the information in this prospectus or any supplement
is accurate as of any date other than the date on the front of those documents.
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A WARNING ABOUT FORWARD-LOOKING STATEMENTS
The prospectus may contain "forward-looking statements." Any statement
in this prospectus, other than a statement of historical fact, may be a
forward-looking statement.
You can generally identify forward-looking statements by looking for
words such as "may," "will," "expect," "intend," "estimate," "anticipate,"
"believe" or "continue." Variations on those or similar words, or the negatives
of such words, also may indicate forward-looking statements.
Although we believe that the expectations reflected in this prospectus
are reasonable, we cannot assure you that our expectations will be correct. We
have included herein a discussion entitled "Risk Factors," disclosing important
factors that could cause our actual results to differ materially from our
expectations. You should refer to this section in considering any
forward-looking statements.
The forward-looking statements in this prospectus are accurate only as
of its date. If our expectations change, or if new events, conditions or
circumstances arise, we are not required to, and may not, update or revise any
forward-looking statement in this prospectus.
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The following discussion is qualified in its entirety by the more
detailed information, including "Risk Factors" beginning on page 4 of this
prospectus and the Financial Statements for the year ended March 31, 1999 and
Notes thereto, incorporated by reference to our Form 10-KSB/A filed with the
SEC. You are urged to read this prospectus and the 10-KSB/A in their entirety.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors described in
"Risk Factors" and elsewhere in this prospectus. All references to the
"Company,""MSHI," "we," "us," and "our," mean MSI Holdings, Inc., and its
subsidiaries.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING FACTORS IN EVALUATING US AND OUR BUSINESS
BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. YOU SHOULD NOT
PARTICIPATE IN THE OFFERING UNLESS YOU CAN AFFORD A COMPLETE LOSS OF YOUR
INVESTMENT. THE DISCUSSIONS IN THIS PROSPECTUS AND IN OUR MOST CURRENT ANNUAL
REPORT FILED WITH THE SEC ON FORM 10-KSB/A CONTAIN FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW AND IN THE "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS"
SECTIONS OF THE 10-KSB/A, INCORPORATED HEREIN BY REFERENCE.
RISKS RELATED TO OUR BUSINESS
WE ARE OPERATING UNDER AN UNPROVEN BUSINESS MODEL.
Our business model is to generate revenues by providing customers with
bandwidth and related services. Bandwidth will be delivered through these
product offerings: broadband co-location and web-hosting, broadband webcasting,
private label Internet service providers (ISPs), Digital Subscriber Lines (DSL)
resellers program, private portals and application service provider services.
For us to be successful our products must achieve wide acceptance in the market.
We will be partially responsible for developing the market for these products
and services, and there is no assurance that we will be successful.
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WE HAVE PROVIDED HIGH-SPEED INTERNET ACCESS, DATA TRANSPORT,
CO-LOCATION AND NETWORKING SERVICES FOR A LIMITED TIME, SO YOU HAVE
LIMITED INFORMATION ON WHICH TO EVALUATE OUR BUSINESS.
Since March 1999, we have recruited a new senior management team and
changed the focus of our business from providing hardware and systems
integration services to providing a suite of high-speed Internet access, data
transport and networking services, co-location services and web site hosting
services. Because of our limited operating history in providing all of our
current services, we have limited operating and financial data about our
business upon which to base an evaluation of our performance and an investment
in our Common Stock.
WE HAVE INCURRED NET LOSSES SINCE OUR INCEPTION AND ANTICIPATE
CONTINUING LOSSES.
To date, we have had limited revenues and have not shown a profit in
our operations. As of September 30, 1999, our accumulated deficit was
approximately $27.1 million. Approximately $16 million of the deficit relates to
losses from operations, while the remaining $11.1 million relates to losses
incurred due to discounts recorded on issuances and conversions of common and
preferred stock. Although we intend to expand our marketing of products and
services, we may not be able to achieve these objectives, or, if these
objectives are achieved, we may never be profitable. If profitability is
achieved, we may not be able to sustain it. We cannot predict when, or if,
profitability might be achieved.
WE HAVE A GOING CONCERN QUALIFICATION CONTAINED IN OUR AUDITORS'
REPORTS.
The auditors' reports relating to our audited balance sheets as of
March 31, 1999 and 1998 and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended each contain an
explanatory paragraph as to our ability to continue as a going concern. Such
going concern explanation relates only to our financial statements covered by
the auditors' reports.
WE REQUIRE SUBSTANTIAL FUNDS AND MAY NEED TO RAISE ADDITIONAL CAPITAL
IN THE FUTURE.
The inability to obtain additional financing when needed would have a
negative effect on us, including possibly requiring us to curtail or cease
operations. If any future financing involves the sale of our equity securities,
the shares of our Common Stock held by our shareholders may be substantially
diluted. If we incur indebtedness or otherwise issue debt securities, we will be
subject to risks associated with indebtedness, including the risk that interest
rates may fluctuate, that restrictions may be placed on our business by
creditors and the possibility that we may not be able to repay the indebtedness.
WE NEED TO MANAGE OUR GROWTH EFFECTIVELY.
Our growth has placed and will continue to place a significant strain
on our managerial, operational and financial resources. We need to:
o Improve our financial and management controls, reporting systems and
procedures;
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o Expand, train and manage our work force for marketing, sales and
support, product development, site design, and network and equipment
repair and maintenance; and
o Manage multiple relationships with various customers, strategic
partners and other third parties.
NEGATIVE MOVEMENTS IN OUR QUARTERLY OPERATING RESULTS MAY DISAPPOINT
ANALYSTS' EXPECTATIONS, WHICH COULD HAVE A NEGATIVE IMPACT ON OUR STOCK
PRICE.
Should our results of operations from quarter to quarter fail to meet
the expectations of public market analysts and investors, our stock price could
suffer. Any significant unanticipated shortfall of revenues or increase in
expenses could negatively impact our expected quarterly results of operations
should we be unable to make timely adjustments to compensate for them.
Furthermore, a failure on our part to estimate accurately the timing or
magnitude of particular anticipated revenues or expenses could also negatively
impact our quarterly results of operations.
IF WE ARE UNABLE TO MANAGE COMPLICATIONS THAT ARISE DURING THE BUILD
OUT OF ADDITIONAL DATA CENTERS, WE MAY NOT SUCCEED IN OUR EXPANSION
PLANS.
Any delay in the build out of new data centers would significantly harm
our plans to expand our business. In our effort to build out new data centers,
we face various risks associated with significant expansion projects, including
obtaining sites, delays in adding improvements, cost estimation errors or
overruns, equipment and material delays or shortages, the inability to obtain
necessary permits on a timely basis, if at all, and other factors, many of which
are beyond our control and all of which could delay the build out of additional
data centers. The build out of data centers, each of which takes approximately
30 to 90 days to complete, is a key element of our business strategy. In
addition to our existing Austin, Texas data center, we are planning to build out
up to 15 new data centers across a wide range of geographic regions.
WE MAY BE UNABLE TO EFFECTIVELY INTEGRATE ADDITIONAL DATA CENTERS INTO
OUR EXISTING NETWORK, WHICH COULD DISRUPT OUR SERVICE.
New data centers, if completed, will result in substantial new
operating expenses, including expenses associated with hiring, training,
retaining and managing new employees, purchasing new equipment, implementing new
systems, leasing additional real estate and incurring additional depreciation
expense. In addition, if we do not institute adequate financial and managerial
controls, reporting systems and procedures with which to operate multiple
facilities in geographically dispersed locations, our operations will be
significantly harmed.
OUR FAILURE TO ACHIEVE OR SUSTAIN MARKET ACCEPTANCE AT DESIRED PRICING
LEVELS COULD IMPAIR OUR ABILITY TO ACHIEVE PROFITABILITY OR POSITIVE
CASH FLOW.
We are expanding our operations based upon our prediction of future
prices that we will attain for our services. Our failure to achieve or sustain
market acceptance at desired pricing levels could impair our ability to achieve
profitability or positive cash flow, which would have a
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material adverse effect on our business, financial condition and results of
operations. Prices for high-speed Internet access and other data transport and
networking services have fallen historically; a trend we expect will continue.
Accordingly, we cannot predict to what extent we may need to reduce our prices
to remain competitive or whether we will be able to sustain future pricing
levels as our competitors introduce competing services or similar services at
lower prices.
WE MAY BE SUBJECT TO REGULATION, TAXATION, ENFORCEMENT OR OTHER
LIABILITIES IN UNEXPECTED JURISDICTIONS, WHICH COULD HAVE AN ADVERSE
EFFECT ON OUR BUSINESS.
We intend to provide Internet access and web site hosting services to
customers located throughout the United States. As a result, we may be required
to qualify to do business or be subject to tax or other laws and regulations in
these jurisdictions even if we do not have a physical presence or employees or
property in these jurisdictions. The application of these multiple sets of laws
and regulations is uncertain, but we could find we are subject to regulation,
taxation, enforcement or other liability in unexpected ways, which could
materially adversely affect our business, financial condition and results of
operations.
WE HAVE HAD RECENT CHANGES IN MANAGEMENT.
David Hill, our previous Chief Financial Officer, resigned from MSI to
pursue other interests in February 1999. Jose Chavez, our former President and
Chief Executive Officer, Mitchell Kettrick, our former Vice President -
Technology and Secretary and Jaime Munoz, our former Vice President of
Operations, were terminated on April 20, 1999. Robert Gibbs joined the company
as our President and Chief Executive Officer in June 1999. Subsequent to June
30, 1999, Roger M. Lane, our previous Chief Operating Officer, resigned from MSI
to pursue other interests.
Subsequent to June 30, 1999, we hired Patricia Hrabina, our Vice
President of Human Resources, Cliff Luckey, our Chief Technology Officer and
Vice President of Technology & Solutions, Robert Frank, our Executive Vice
President, Douglas W. Banister, our Chief Financial Officer and Vice President
of Finance and Robert Hersch, our Vice President of Corporate Finance. This new
management team has not had the opportunity to work together in the past and
there is no assurance they will be able to successfully lead the company into
profitability.
IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL, OUR BUSINESS WILL
SUFFER.
We may be unable to continue to employ our key personnel or to attract
and retain qualified personnel in the future. Our future success depends on our
continuing ability to identify, hire, train and retain highly qualified
technical, sales, marketing and customer service personnel. The industry in
which we compete has a high level of employee mobility and aggressive recruiting
of skilled personnel. In particular, we face intense competition for qualified
personnel, particularly in software development, network engineering and product
management.
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WE ARE DEPENDENT ON MANAGEMENT.
We are dependent upon the services of Robert Gibbs, our President and
Chief Executive Officer, Cliff Luckey, our Chief Technology Office and Vice
President of Technology & Solutions and Glenn Birk, our Vice President of Sales.
The loss of their services would have a material and adverse impact on our
success, and there is no assurance that their services will continue to be
available.
IF WE DO NOT DEVELOP A SUFFICIENT SALES AND MARKETING FORCE, WE MAY NOT
BE ABLE TO GENERATE SIGNIFICANT REVENUES OR BECOME PROFITABLE.
Currently we have a small sales and marketing group and we have not
fully established distribution channels for our services and products. We may
not be able to develop a sufficient sales and marketing group. Our inability to
develop a sufficient sales and marketing group would have a negative effect on
our business, results of operations and financial condition.
OUR SUCCESS IS DEPENDENT UPON BUILDING A GOOD REPUTATION AND DEVELOPING
BRAND AWARENESS.
We believe that a strong reputation and brand awareness of the Digital
Optical Co-location Connection is critical to gaining and maintaining market
share. We expect the importance of brand awareness to increase as the number of
competitors increases. The uniqueness of our brand could be damaged by poor
service, or we could fail to create brand awareness.
WE MAY BE SUBJECT TO INFRINGEMENT CLAIMS WHICH COULD MATERIALLY
ADVERSELY AFFECT OUR BUSINESS.
Third parties, including our competitors, may assert infringement
claims against us, and, in the event of an unfavorable ruling on any claim, we
may be unable to obtain a license or similar agreement to use technology we need
to conduct our business. Our management personnel were previously employees of
other telecommunications companies. In many cases, these individuals are
conducting activities for us in areas similar to those in which they were
involved prior to joining us. As a result, we or our employees could be subject
to allegations of violation of trade secrets and other similar claims. If such
claims materialize, it could materially adversely affect our business, financial
condition and results of operations.
WE MAY BE HELD LIABLE FOR ONLINE CONTENT PROVIDED BY THIRD PARTIES.
Materials may be downloaded and distributed to others by the on line or
Internet services offered by us or the ISPs with which we have a relationship.
If this happens, claims may be made against us for defamation, negligence,
copyright or trademark infringement, or some other reason. Defending against
these claims or the imposition of liability may have a negative effect on our
business, results of operations and financial condition.
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OUR OPERATIONS DEPEND ON OUR ABILITY TO MAINTAIN FAVORABLE
RELATIONSHIPS WITH THIRD PARTY SUPPLIERS.
Our ability to provide our customers with the bandwidth they require is
dependent upon a strategic alliance with GTE. GTE built an Internet
point-of-presence (GTE POP) in the center of our facility in Austin, Texas.
However, if for any reason the GTE POP were to become unavailable to us, we
would be unable to provide the current level of services to our customers.
We do not have a contractual relationship with GTE with respect to
additional data centers. Our ability to develop additional data centers depends
on maintaining and expanding our relationship with GTE or developing
relationships with other Internet backbone providers. There can be no assurance
that we will be able to maintain our existing GTE relationship.
Through our strategic alliances with Southwestern Bell and Covad
Communications, we are able to resell DSL services to ISPs who are co-located in
our facility. We have contractual agreements with Southwestern Bell and with
Covad Communications. However, if for any reason these relationships were
terminated, we would be unable to provide these services to our customers.
We have an agreement with ClickHear Productions, Inc. whereby ClickHear
is our exclusive webcasting agent. In addition to producing all of our webcasts,
ClickHear will provide assistance with marketing and sales of our webcasting
services. ClickHear will receive a 10% commission on all of our webcasting and
streaming media sales. If we are unable to maintain relationships with these
vendors and suppliers, we would be unable to provide the current level of
services to our customers which could have a material and adverse effect on our
operating results and financial condition.
SYSTEM SECURITY RISKS OR SYSTEM FAILURES COULD DISRUPT OUR SERVICES AND
CAUSE US TO LOSE CUSTOMERS.
Substantially all of our communications and computer hardware is
located at our facility in Austin, Texas. Our system is vulnerable to damage
from fire, flood, earthquakes, power loss, telecommunications failures,
break-ins and similar events. Moreover, we do not presently have a disaster
recovery plan, carry any business interruption insurance or have any secondary
"off-site" systems. Although we have implemented security measures that meet
GTE/BBN standards, our network and computer systems could still be vulnerable to
computer viruses, intrusions, or other breaches of security that might result in
service interruptions. Additionally, our network and computer systems could be
damaged by human error, power loss and other facility failures, fire,
earthquake, floods, telecommunications failure, sabotage, vandalism and similar
events. Any damage to or failure of our network or computer systems, or the
networks of our service providers, could result in reductions in, or
terminations of, services supplied to our customers, which could have a material
adverse effect on our operations and financial results.
If unauthorized third parties gained access to confidential information
residing in our network, it could result in losses to our customers or us. The
potential for security problems could deter prospective customers from using our
services. It is possible that customers or third
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parties could assert claims of liability against us for any losses related to
system failures or breaches of security. Concerns over security or the risk of
system failures could slow the growth of commercial use of the Internet and
cause our revenues to be lower than expected. This would have a material and
adverse effect on our operational and financial results.
We expect that due to market positioning as a highly reliable provider,
our customers will be particularly sensitive to service failures. A natural
disaster, failure of one of our systems or any other unanticipated problem could
cause an interruption in our service. If service failures occur, they could have
a material and adverse effect on our operating results and financial condition.
PROBLEMS RELATING TO THE "YEAR 2000 ISSUE" COULD NEGATIVELY IMPACT OUR
BUSINESS.
Many computer systems and software products accept only two digit
entries in their date field codes and, therefore, may not be able to distinguish
whether "00" means 1900 or 2000. Because we offer Internet-related services and
because of the critical nature of many or our customers' hosted applications,
our risks of lawsuits and business operation failures related to year 2000
issues is likely to be greater than those of companies in other industries.
Although we have taken steps towards year 2000 readiness for our internal
systems and applications, we may be unable to determine whether components
incorporated from third party providers will cause year 2000 problems or will
interact in a way that causes malfunctions. We have also been unable to confirm
that all of our external service providers, including GTE, Southwestern Bell and
Covad, will not be negatively impacted by year 2000 issues. In addition, we host
customer provided hardware and software in our facilities, which our customers
may fail to upgrade or ensure year 2000 compliance and may cause failures within
our systems. To the extent that our suppliers or customers experience year 2000
problems, our infrastructure and services could be adversely affected. Our
customers' purchasing patterns could also be affected by year 2000 issues,
resulting in reduced funds available for our services.
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESS IS DEPENDENT ON THE CONTINUED GROWTH IN USE AND
IMPROVEMENT OF THE INTERNET, AND IF THIS GROWTH DOES NOT OCCUR, OUR
BUSINESS WILL SUFFER.
Critical issues concerning the commercial use of the Internet remain
unresolved and may hinder the growth of Internet use, especially in the business
market that we target. Despite growing interest in the varied commercial uses of
the Internet, many businesses have been deterred from purchasing Internet
connectivity services for a number of reasons, including inconsistent or
unreliable quality of service, lack of availability of cost-effective,
high-speed options, a limited number of local access points for corporate users,
inability to integrate business applications on the Internet, the need to deal
with multiple and frequently incompatible vendors and a lack of tools to
simplify Internet access and use. Capacity constraints caused by growth in the
use of the Internet may, if left unresolved, impede further development of the
Internet to the extent that users experience delays, transmission errors and
other difficulties. Further, the adoption of the Internet for commerce and
communications, particularly by those individuals and enterprises that have
historically relied upon alternative means of commerce and communication,
generally requires an understanding and acceptance of a new way of conducting
business and
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exchanging information. In particular, enterprises that have already invested
substantial resources in other means of conducting commerce and exchanging
information may be particularly reluctant or slow to adopt a new strategy that
may make their existing personnel and infrastructure obsolete. The failure of
the market for business-related Internet solutions to further develop could
cause our revenues to grow more slowly than anticipated and reduce the demand
for our services.
THE DATA TRANSPORT AND NETWORKING INDUSTRY IS UNDERGOING RAPID
TECHNOLOGICAL CHANGES, AND NEW TECHNOLOGIES MAY BE SUPERIOR TO THE
TECHNOLOGY WE USE.
The data transport and networking industry is subject to rapid and
significant technological change, including continuing developments in DSL
technology, which does not have widely accepted standards, and alternative
technologies for providing high-speed data transport and networking. If we fail
to adapt successfully to technological changes or obsolescence, fail to adopt
technology that becomes an industry standard or fail to obtain access to
important technologies, our business, financial condition and results of
operations could be materially adversely affected. As a consequence of this
technological change and the range of technologies available:
o Our potential customers have a number of choices for meeting their data
transport and networking needs, including wireless data systems,
optical connections, cable modems and integrated services digital
network technologies;
o Our success will depend on our ability to anticipate or adapt to new
technology on a timely basis; and
o New products and technologies may emerge that may be superior to, or
may not be compatible with, our products and technologies.
THE MARKET FOR INTERNET ACCESS, DATA TRANSPORT AND NETWORKING SERVICES
IS HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
The market for Internet access, data transport and networking services
is rapidly evolving, intensely competitive and has relatively low barriers to
entry. We may not be able to compete effectively. Many of our current
competitors, as well as a number of our potential new competitors, have longer
operating histories, greater name recognition and substantially greater
financial, technical and marketing resources. Some of our competitors or
potential competitors may have the financial resources to withstand substantial
price competition. Moreover, our competitors may be able to negotiate contracts
with suppliers of telecommunications products and services which are more
favorable than contracts negotiated by us.
Many of our competitors are offering, or may soon offer, technologies
and services that will directly compete with some or all of our service
offerings. Our competitors use technologies for local access connections that
include fiber optic connections, DSL, wireless data systems, cable modems and
integrated services digital network technologies. Some of these technologies
-11-
<PAGE> 14
may provide performance advantages in some respects over DSL and other
technologies using existing copper telephone wires.
THE MARKET FOR WEB SITE HOSTING IS HIGHLY COMPETITIVE, AND WE MAY NOT
BE ABLE TO COMPETE EFFECTIVELY.
The market for web site hosting and related services is rapidly
evolving, intensely competitive and has relatively low barriers to entry. Many
of our existing competitors (and many potential competitors) have greater name
recognition, longer operating histories, larger market share and substantially
greater financial resources than we do. They may be able to respond faster to
changing technologies and market conditions. We compete in the web site hosting
market against a variety of companies, including AboveNet Communications Inc.,
Concentric Network Corporation, Digex Incorporated, Exodus Communications, Inc.,
GTE Internetworking, Level 3 Communications, Inc. and NaviSite, Inc.
OUR SERVICES ARE SUBJECT TO UNCERTAIN GOVERNMENT REGULATION, AND
CHANGES IN LAWS OR REGULATIONS COULD RESTRICT THE WAY WE OPERATE OUR
BUSINESS.
Our services are not currently directly regulated by the Federal
Communications Commission or by any other federal or state agency. However,
changes in the regulatory environment relating to the Internet market could
affect how we provide our services. These changes may include new regulations
which directly or indirectly affect our costs, service requirements and the
scope of competition for the provision of high-speed Internet connectivity. In
addition, we may choose to expend significant resources to participate in
regulatory proceedings at the federal or state level without achieving favorable
results. In addition, because many of the facilities and services we need in
order to provide Internet connectivity are subject to regulation at the federal,
state and local levels, changes in applicable laws or regulations could have an
adverse impact on our business. For example, the FCC and state
telecommunications regulators help determine the terms under which co-location
space is provided to us. They also oversee the terms under which we gain access
to an incumbent local carrier's facilities that we need in order to provide DSL
services. We expect incumbent local carriers, like Bell Atlantic and
Southwestern Bell, to pursue litigation in courts, institute administrative
proceedings with the FCC and state telecommunications regulators and lobby the
U.S. Congress in an effort to affect the applicable laws and regulations in a
manner that would be more favorable to them and may be against our interests.
WE DEPEND ON THE CONTINUED DEVELOPMENT AND RELIABILITY OF THE INTERNET
INFRASTRUCTURE.
We depend on the reliability, speed, data capacity, ease of use,
accessibility and security of the Internet as well as its continued development
and acceptance for commercial use. The success of our services and products
depends, in large part, upon the further development of an infrastructure for
providing Internet access and services. The Internet has experienced and is
expected to continue to experience significant growth in the number of users.
The Internet infrastructure may not be able to support the demands placed on it
by this continued growth in use. The Internet could also lose its viability due
to delays in the development or adoption of new standards and protocols to
handle increased levels of Internet activity, or due to increased
-12-
<PAGE> 15
governmental regulation. The infrastructure or complementary services necessary
to make the Internet a viable commercial marketplace may not develop, or the
Internet may not become a viable commercial marketplace for services and
products such as the services that we currently support. If this happens, our
business, results of operations and financial condition will be negatively
affected.
BECAUSE DSL SERVICES ARE NEW AND EVOLVING, WE CANNOT PREDICT WHETHER
THEY WILL BE ACCEPTED BY BUSINESSES AT PROFITABLE PRICES.
To be successful, we must develop and market services that are widely
accepted by businesses at profitable prices. We hope that our DSL services will
provide a significant source of revenues to us. If the market for our DSL
services fails to develop, grows more slowly than anticipated or becomes
saturated with the competitors, these events could materially adversely affect
our business, financial condition and results of operations. The market for
high-speed Internet access, data transport and networking services using copper
telephone lines is in the early stages of development. We cannot accurately
predict the rate at which this market will grow, if at all, or whether new or
increased competition will result in market saturation. The security,
reliability, ease, cost of access and quality of service relating to the use of
DSL technology for Internet and local area network access are unresolved and may
impact the growth of these services.
OUR DSL SERVICES MAY INTERFERE WITH OR BE AFFECTED BY OTHER TRANSPORT
TECHNOLOGIES.
All transport technologies using copper telephone lines have the
potential to interfere with, or to be interfered with by, other traffic on
adjacent copper telephone lines. Such interference could degrade the performance
of our services or make us unable to provide service on selected lines.
Interference, or claims of interference, if widespread, would adversely affect
our speed of deployment, reputation, brand image, service quality and customer
retention and satisfaction. In addition, incumbent carriers may claim that the
potential for interference by DSL technology permits them to restrict or delay
our deployment of DSL services. The telecommunications industry and regulatory
agencies are still developing procedures to resolve interference issues between
competitive carriers and incumbent carriers, and these procedures may not be
effective. We may be unable to successfully negotiate interference resolution
procedures with incumbent carriers.
INTERNET SECURITY CONCERNS COULD HINDER E-BUSINESS AND THE DEMAND FOR
OUR PRODUCTS AND SERVICES.
A significant barrier to e-Business and communications over the
Internet has been the need for the secure transmission of confidential
information. We may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by breaches. Internet usage
and the demand for our services could decline if any well-publicized compromise
of security occurs. Although we are not aware of any attempts by programmers or
"hackers" to penetrate our network security, these actions could occur in the
future. A party who is able to penetrate our network security could misuse our
users' personal information or credit card information and users might sue us or
bring claims against us. Concerns over the security of
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<PAGE> 16
Internet transactions and the privacy of users may also inhibit the growth of
the Internet generally, particularly as a means of conducting commercial
transactions. Security breaches or the inadvertent transmission of computer
viruses could expose us to a risk of loss or litigation and possible liability.
Our business, results of operations and financial condition could be negatively
affected if contractual provisions attempting to limit our liability in these
areas are not successful or enforceable or if our agreements with other parties
do not contain these contractual provisions.
IF WE DO NOT CONTINUALLY UPGRADE TECHNOLOGY, WE MAY NOT BE ABLE TO
COMPETE IN OUR INDUSTRY.
We will need to continually expand and upgrade our infrastructure and
systems and ensure high levels of service, speedy operation and reliability. In
addition, we will have to improve our methods for measuring the performance and
commercial success of our different products to better respond to customers'
demands for information on product effectiveness and to better determine which
products and services can be developed most profitably. Our current and planned
personnel, financial and operating procedures and controls may not be adequate
to support our future operations. If we are unable to manage our growth
effectively, our business will be negatively affected.
RISKS RELATED TO THE OFFERING
CERTAIN AFFILIATES HAVE SUBSTANTIAL CONTROL OVER US, AND INVESTORS IN
THIS OFFERING MAY HAVE NO EFFECTIVE VOICE IN OUR MANAGEMENT.
As of September 30, 1999, our current directors and executive officers
owned approximately 1.48% of the outstanding shares of our Common Stock. Also as
of September 30, 1999, Entrepreneurial Investors, Ltd. owned approximately
25.36% of the outstanding shares of our Common Stock.
These persons and entities may continue to exert significant influence
over the business and affairs of the Company. Accordingly, these shareholders
will possess substantial control over our operations. This control may allow
them to amend corporate filings, elect all of our board of directors, other than
the director to be designated by certain of our preferred shareholders, and
substantially control all matters requiring approval by our shareholders,
including approval of significant corporate transactions. Such shareholders will
also have the ability to delay or prevent a change in our control and to
discourage a potential acquirer for us or our securities. If you purchase our
Common Stock, you may have no effective voice in our management.
Messrs. Chavez, Kettrick and Munoz, who were terminated by us on April
20, 1999, hold an aggregate of 4,561,500 shares or 19.7% of the outstanding
shares of the Common stock as of September 30, 1999. These persons have recently
settled litigation with the Company and may oppose management.
-14-
<PAGE> 17
OUR ARTICLES OF INCORPORATION AND BYLAWS CONTAIN PROVISIONS THAT COULD
DELAY OR PREVENT A CHANGE IN CONTROL AND THEREFORE COULD HURT OUR
SHAREHOLDERS.
Provisions of our articles of incorporation and bylaws could make it
more difficult for a third party to acquire control of MSI Holdings, Inc., even
if a change in control would be beneficial to shareholders. Our articles of
incorporation allow our board of directors to issue, without shareholder
approval, preferred stock with terms set by the board of directors. The
preferred stock could be issued quickly with terms that delay or prevent the
change in control of MSI Holdings, Inc. or make removal of management more
difficult. Also, the issuance of preferred stock may cause the market price of
our Common Stock to decrease.
WE HAVE A LIMITED MARKET FOR OUR COMMON STOCK, AND OUR STOCK PRICE IS
VOLATILE.
Prior to this offering, our Common Stock has been quoted on the NASD
Over-The-Counter Bulletin Board under the symbol "MSIA." Trading on the NASD
Over-The-Counter Bulletin is sporadic and highly volatile. The market price of
our Common Stock has fluctuated in the past and may continue to be volatile in
the future. The market prices of Internet-related stocks tend to be more
volatile than the market as a whole. Although we have applied to have our Common
Stock quoted on the Nasdaq National Market, there can be no assurance that an
active trading market will develop or be maintained. Failure to develop or
maintain an active trading market could negatively affect the price of our
securities, as well as affect your ability to sell your shares.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY
AFFECT OUR STOCK PRICE.
Sales in the public market of substantial amounts of Common Stock
(including sales related to the exercise of certain registration rights relating
to the Common Stock) or the perception that such sales may occur could
materially and adversely affect the market price of the Common Stock or our
ability to raise capital through of offering of equity securities. As of
September 30, 1999, we had 23,135,083 shares of Common Stock issued and
outstanding. If all the outstanding preferred shares were converted into Common
Stock as of September 30, 1999, and if all of the outstanding options and
warrants are exercised we would have had 29,612,037 shares of Common Stock
issued and outstanding. Of these shares, 10,760,166 (36.34%) would have been
eligible for future sale. The remaining 18,851,871 shares would have been
subject to the Rule 144 restrictions on sales of securities by affiliates of the
issuer.
WE HAVE NO HISTORY OF PAYING DIVIDENDS ON OUR COMMON STOCK.
We have never paid and do not anticipate paying any cash dividends on
our Common Stock in the foreseeable future. We plan to retain any future
earnings to finance growth.
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<PAGE> 18
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of Common
Stock offered by this Prospectus until the options granted in connection with
the placement of the Series E Preferred shares (the "Options") and Common Stock
Private Placement and the warrants granted to consultants for services rendered
(the "Warrants") are exercised. As of November 30, 1999, we have received
$81,500 in proceeds from the exercise of some of the Warrants, the underlying
shares of which are being registered herein. If all the remaining Warrants and
Option whose underlying shares are being registered herein are exercised, we
will receive net proceeds of up to $405,453, for a total aggregate of up to
$486,953. The exercise price received by us from issuance of the shares of
Common Stock underlying the Warrants will be used for general corporate
purposes. In addition, we will not receive any proceeds from the sale of certain
shares of Common Stock that were issued to employees and consultants for
services rendered. See "Selling Shareholders."
PRICE RANGE OF COMMON STOCK
Our Common Stock is traded over-the-counter and is quoted on the NASD
OTC Bulletin Board under the symbol "MSIA." The table below sets forth the high
and low closing sale price of the Common Stock for the periods indicated, as
reported by the NASD OTC Bulletin Board.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- ------------- ------- -------
<S> <C> <C>
December 31, 1996 ...................................... $ 2.00 $0.0625
March 31, 1997 ......................................... 2.00 0.25
June 30, 1997 .......................................... 2.00 0.125
September 30, 1997 ..................................... 2.25 0.50
December 31, 1997 ...................................... 3.50 0.50
March 31, 1998 ......................................... 2.56 1.75
June 30, 1998 .......................................... 9.03 2.37
September 30, 1998 ..................................... 12.87 4.06
December 31, 1998 ...................................... 7.75 6.0625
March 31, 1999 ......................................... 10.75 3.25
June 30, 1999 .......................................... 10.75 4.187
September 30, 1999 ..................................... 7.00 3.75
</TABLE>
On November 30, 1999, the closing sale price for a share of our Common
Stock, as reported on the OTC Bulletin Board, was $5.75. See "Risk Factors - We
have a limited market for our Common Stock, and our stock price is volatile."
SELLING SHAREHOLDERS
The following table sets forth the ownership of the Common Stock
registered herein assuming conversion of the Series E Preferred and assuming the
exercise of the Warrants and Options.
-16-
<PAGE> 19
<TABLE>
<CAPTION>
RELATION TO
NAME MSHI TOTAL SHARES PERCENT(+)
---- ----------- ------------ ----------
<S> <C> <C> <C>
Ranier Bischoff (1) 80,000
Cornelius Dornier (2) 65,000
Daniel Dornier (3) Director 80,000
David Dornier (4) 50,000
Gabrielle Dornier (5) 30,000
Silvius Dornier (6) 100,000
Graf Von Hardenberg (6) 100,000
Andreas Preuschoff (7) 10,000
Rainer Doerflinger (8) 15,000
Greenwich AG (9) 603,340 2.61%
Frank C. Erwin (10) 30,000
Will B. Houston (11) 20,000
James E. Thorp (12) 593,666 2.57%
Edward R. Coleman (13) 10,000
Jim Troxel (14) 100,000
G. Robert Barker (15) 5,000
Beatrice Schaefer (6) 100,000
Heinz Winzeler (16) 120,840
Equity Services, Ltd. (17) 181,674
Pinecrest Associates, Inc.(18) 150,000
Panther Consulting, Inc. (18) 150,000
Peninsular Corp. (19) 50,000
Jaime Munoz (20) former officer 44,000
Tejas Holdings, Inc.(21) consultant 33,000
Capital Solutions, Inc. (22) consultant 1,200
Ronnie D. Henry (23) consultant 25,000
Carolyn S. Henry (23) consultant 10,000
Randall N. Williamson (23) consultant 5,000
Benjamin A. Siddons (23) consultant 5,000
Austex Enterprises (23) consultant 5,000
Hemisphere Trading Co. (24) 69,500
Terama Company Limited (25) 50,000
Amador DeLeon, Jr. (26) former employee 2,500
</TABLE>
- ----------
(+) The percentage calculations assume the exercise and conversion of all
warrants, options and Preferred Stock conversion rights into the underlying
shares of Common Stock. Consequently, the percentages were based on an aggregate
of 23,135,083 shares of Common Stock outstanding as of September 30, 1999.
(1) Consists of 80,000 shares of Common Stock issued upon conversion of
8,000 shares of Series E Preferred.
(2) Consists of 65,000 shares of Common Stock issued upon conversion of
6,500 shares of Series E Preferred.
(3) Consists of 5 shares of Series E Preferred convertible into 50 shares
of Common Stock and 79,950 shares of Common Stock issued upon
conversion of 7,995 shares of Series E Preferred.
-17-
<PAGE> 20
(4) Consists of 50,000 shares of Common Stock issued upon conversion of
5,000 shares of Series E Preferred.
(5) Consists of 30,000 shares of Common Stock issued upon conversion of
3,000 shares of Series E Preferred.
(6) Consists of 100,000 shares of Common Stock issued upon conversion of
10,000 shares of Series E Preferred.
(7) Consists of 10,000 shares of Common Stock issued upon conversion of
1,000 shares of Series E Preferred.
(8) Consists of 15,000 shares of Common Stock issued upon conversion of
1,500 shares of Series E Preferred.
(9) Consists of 603,340 shares of Common Stock issued upon conversion of
60,334 shares of Series E Preferred.
(10) Consists of 20,000 shares of Common Stock issued upon conversion of
2,000 shares of Series E Preferred and 10,000 shares of Common Stock
acquired in the Private Placement.
(11) Consists of 1,000 shares of Series E Preferred convertible into 10,000
shares of Common Stock and 10,000 shares of Common Stock acquired in
the Private Placement.
(12) Consists of 5,000 shares of Series E Preferred convertible into 50,000
shares of Common Stock and 543,666 shares of Common Stock acquired in
the Private Placement.
(13) Consists of 10,000 shares of Common Stock acquired in the Private
Placement.
(14) Consists of 100,000 shares of Common Stock acquired in the Private
Placement.
(15) Consists of 5,000 shares of Common Stock acquired in the Private
Placement.
(16) Consists of 20,840 shares of Common Stock issued upon conversion of
2,084 shares of Series E Preferred and 100,000 shares of Common Stock
acquired in the Private Placement.
(17) Consists of 65,840 shares of Common Stock issued upon conversion of
6,584 shares of Series E Preferred issued as placement agent shares,
65,834 shares of Common Stock covering the placement agent's options
granted in connection with the placement of the Series E Preferred,
22,500 shares of Common Stock issued as placement agent shares in
connection with the Private Placement, 22,500 shares of Common Stock
covering
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<PAGE> 21
the placement agent's options granted in connection with the Private
Placement and 5,000 shares covering options granted to the placement
agent in connection with the Placement of the Series D Preferred.
(18) Consists of 150,000 shares of Common Stock acquired in the Private
Placement.
(19) Consists of 50,000 shares of Common Stock acquired in the Private
Placement.
(20) Consists of 44,000 shares previously issued to Mr. Munoz, a former
officer of ours.
(21) Consists of 33,000 shares issued for consulting services.
(22) Consists of 1,200 shares previously issued for consulting services.
(23) Consist of 50,000 shares of Common Stock issued upon the exercise of
the Warrants granted to Henry & Associates, a consultant, for services
rendered.
(24) Consists of 62,500 shares of Common Stock issued upon conversion of
6,250 shares of Series E Preferred and 7,000 shares of Common Stock
purchased from another shareholder in a private transaction.
(25) Consists of 50,000 shares acquired from and previously issued to
Phoenix Energy Partners in satisfaction of an over-subscription for the
Series D Preferred Stock.
(26) Consists of 2,500 shares issued to a former employee in settlement of a
dispute over compensation for services rendered.
PLAN OF DISTRIBUTION
The shares of Common Stock may be offered and sold from time to time by
the Selling Shareholders, or by pledges, donees, transferees or other successors
in interest. We have no control over the Selling Shareholders in making their
decisions with respect to the offer, sale or transfer of their shares at prices
related to the then current market price or in negotiated transactions. The
shares may be sold by the Selling Shareholders in one or more transactions on
the NASD Over-The-Counter Bulletin Board or otherwise at market prices then
prevailing or in privately negotiated transactions. The shares may be sold by
one or more of the following methods: (i) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (ii) private sales; (iii)
purchases and resale by a broker-dealer for its account pursuant to this
Prospectus, and (iv) a block trade in which the broker-dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction. We have not been advised by
the Selling Shareholders that they have, as of the date hereof, made any
arrangements relating to the distribution of the shares covered by this
Prospectus. In effecting sales, broker-dealers engaged by the Selling
Shareholders may arrange for other broker-dealers to participate, and,
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<PAGE> 22
in such case, broker-dealers may receive commissions or discounts from the
Selling Shareholders in amounts to be negotiated immediately prior to sale.
In offering the shares, the Selling Shareholders and any broker-dealers
and any other participating broker-dealers who execute sales for the Selling
Shareholders may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. Accordingly, any profits realized
by the Selling Shareholders and the compensation of such broker-dealer may be
deemed to be underwriting discounts and commissions. Any shares covered by this
Prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule
144 rather than pursuant to this Prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by this Prospectus............................. 2,894,720 shares (1)
Common Stock outstanding as of September 30, 1999 .................. 23,135,083 shares (2)
OTC Electronic Bulletin Board Ticker Symbol......................... MSIA
</TABLE>
- ------------------
(1) As of the date of this prospectus, this number represents: (1)
1,402,470 shares of Common Stock issued upon conversion of 140,247
shares of Series E Preferred Stock (the "Series E Preferred"); (2)
60,050 shares of Common Stock issuable upon conversion of 6,005 shares
of Series E Preferred; (3) 65,834 shares of Common Stock covering the
options granted to the placement agent in connection with the placement
of the Series E Preferred; (4) 1,151,166 shares of Common Stock issued
in connection with the private placement of up to 1,500,000 shares of
Common Stock (the "Private Placement"); (5) 22,500 shares of Common
Stock covering the options granted the placement agent in connection
with the Private Placement; (6) 50,000 shares of Common Stock issued in
satisfaction of an over-subscription to the Series D Preferred Stock
(the "Series D Preferred"); (7) 5,000 shares covering options granted
to the Placement Agent in connection with the placement of the Series D
Preferred and not previously registered; (8) 41,200 shares of Common
Stock issued to consultants for services rendered; (9) 50,000 shares of
Common Stock issued upon the exercise of warrants previously granted to
a consultant for services rendered; (10) 44,000 shares of Common Stock
previously issued to a former officer of ours; and (11) 2,500 shares
previously issued to a former employee in settlement of a dispute over
compensation for services rendered.
(2) Includes the following Common Stock offered by this Prospectus: (1)
1,402,470 shares of Common Stock issued upon conversion of 140,247
shares of Series E Preferred; (2) 1,151,166 shares of Common Stock
issued in connection with the Private Placement; and (3) 50,000 shares
of Common Stock issued in satisfaction of an over-subscription to the
Series D Preferred; (4) 41,200 shares of Common Stock issued to
consultants for services rendered and (5) 44,000 shares of Common Stock
previously issued to a former officer of ours.
We are authorized to issue up to 50,000,000 shares of Common Stock
("Common Stock"), $0.10 par value, and up to 10,000,000 shares of preferred
stock ("Preferred Stock"). As of September 30, 1999, there were 23,135,083
shares of Common Stock outstanding and 25,015 shares of Preferred Stock
outstanding. The following is only a summary of some of the rights of
stockholders that might be important to you. You should refer to our Articles of
Incorporation and Bylaws for a complete statement of your rights as a
stockholder. Both the Articles of Incorporation and the Bylaws are filed with
the SEC as Exhibit No. 3 to our registration statement File #33-24265-LA
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<PAGE> 23
COMMON STOCK
As a holder of Common Stock you will have one vote per share on all
matters voted on by stockholders, including elections of directors. Except as
otherwise required by law or provided in any resolution adopted by the Board of
Directors with respect to any series of Preferred Stock, only holders of Common
Stock have voting rights. The Articles of Incorporation do not provide for
cumulative voting in the election of directors or for preemptive rights to
acquire new shares issued by us. Owners of Common Stock will receive dividends
if the Board declares them out of available funds. We do not expect to pay
dividends in the foreseeable future.
The transfer agent for the Common Stock is Interwest Transfer Company,
Inc. The Common Stock is traded on the NASD Over-The-Counter Bulletin Board
under the symbol "MSIA."
INDEMNIFICATION
Our Revised Articles of Incorporation state that we may indemnify each
director, officer, employee, or agent of the Company to the full extent
permitted by the laws of the state of Utah. Sections 16-10a-901 through 909 of
the Utah Revised Business Corporation Act, as amended (the "Corporation Act"),
permit a Utah corporation to indemnify its directors and officers for certain of
their acts. More specifically, Sections 16-10a-902 and 16-10a-907 of the
Corporation Act grant authority to any corporation to indemnify directors and
officers against any judgments, fines, amounts paid in settlement and reasonable
expenses, including attorney's fees, by reason of his or her having been a
corporate director or officer. Such provision is limited to instances where the
director or officer acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation, or,
in criminal proceedings, he or she had no reasonable cause to believe his or her
conduct was unlawful. Such sections confer on the director or officer an
absolute right to indemnification for expenses, including attorney's fees,
actually and reasonably incurred by him or her to the extent he or she is
successful on the merits or otherwise defense of any claim, issue, or matter. We
may not indemnify a director if the director is adjudged liable to us or deemed
to have derived an improper personal benefit in an action in which the director
is adjudged liable. Section 16-10a-906 of the Corporation Act expressly makes
indemnification contingent upon a determination that indemnification is proper
in the circumstances. Such determination must be made by the board of directors
acting through a quorum of disinterested directors, or by the board of directors
acting on the advice of independent legal counsel, or by the shareholders.
Further, Section 16-10a-904 of the Corporation Act permits a corporation to pay
attorney's fees and other litigation expenses on behalf of a director or officer
in advance of the final disposition of the action upon receipt of an undertaking
by or on behalf of such director or officer to repay such expenses to the
corporation if it is ultimately determined that he or she is not entitled to be
indemnified by the corporation to the extent the expenses so advanced by the
corporation exceed the indemnification to which he or she is entitled. Such
indemnification provisions do not exclude other indemnification rights to which
a director or officer may be
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<PAGE> 24
entitled under the corporation's certificate or articles of incorporation,
bylaws, an agreement, a vote of shareholders, or otherwise. We may also purchase
and maintain insurance to provide indemnification.
The foregoing discussion of indemnification merely summarizes certain
aspects of the indemnification provisions of the Corporation Act and is limited
by reference to the above discussed sections of the Corporation Act.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to members of the board of directors, officers, employees,
or person controlling the Company pursuant to the foregoing provisions, we has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
LEGAL MATTERS
The validity of the shares offered hereby has been passed upon for the
Company by Vial, Hamilton, Koch & Knox, L.L.P., Dallas, Texas.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our annual report on Form 10-KSB/A for the year
ended March 31, 1999, as set forth in their report (which contain an explanatory
paragraph describing conditions that raise substantial doubt about the Company's
ability to continue as a going concern as described in Note 1 to the
consolidated financial statements), which is incorporated by reference in this
prospectus and elsewhere in the registration statement. Our financial statements
are incorporated by reference in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.
Brown, Graham and Company, P.C., independent auditors, have audited our
consolidated financial statements included in our annual report on Form 10-KSB/A
for the year ended March 31, 1998, as set forth in their report (which contain
an explanatory paragraph describing conditions that raise substantial doubt
about the Company's ability to continue as a going concern as described in Note
1 to the consolidated financial statements), which is incorporated by reference
in this prospectus and elsewhere in the registration statement. Our financial
statements are incorporated by reference in reliance on Brown, Graham and
Company, P.C.'s report, given on their authority as experts in accounting and
auditing.
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<PAGE> 25
You should rely on the information contained din this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. The statements and representations contained within this
prospectus are true and correct as of the date indicated on the cover page. The
delivery of this prospectus does not, under any circumstances, create the
implication that there has been no change since that date. This Prospectus is
not an offer to sell or a solicitation of an offer to buy any securities other
than those registered securities to which the prospectus relates. Moreover, this
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy in any circumstances in which such an offer or solicitation is unlawful.
----------------------
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information 2
A Warning About Forward
Looking Statements 3
Risk Factors 4
Use of Proceeds 16
Price Range of Common Stock 16
Selling Shareholders 16
Plan of Distribution 19
The Offering 20
Indemnification 21
Legal Matters 22
Experts 22
</TABLE>
2,894,720 Shares
MSI HOLDINGS, INC.
Common Stock
---------------
PROSPECTUS
---------------
<PAGE> 26
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses payable by the
Company in connection with the sale and distribution of the securities being
registered. All amounts are estimates except the SEC registration fee.
<TABLE>
<S> <C>
Filing Fee-Securities and Exchange Commission ........................ $ 4,394
Accountants' Fees and Expenses ....................................... $ 20,000
Fees and Expenses of Counsel for the Registrant ...................... $ 20,000
Printing and Communication Expenses .................................. $ 10,000
Blue Sky Fees and Expenses ........................................... $ 3,500
Miscellaneous Expenses ............................................... $ 2,106
----------
Total ......................................................... $ 60,000
==========
</TABLE>
The selling security holders are bearing no portion of the expenses of
the offering pursuant to agreement.
ITEM 15. Indemnification of Directors and Officers.
The Registrant's Revised Articles of Incorporation and By-Laws permit
the Registrant to indemnify its directors and officers to the fullest extent
authorized under the Utah Business Corporation Act ("UBCA"). In general, a Utah
corporation may indemnify a director or officer who was, is or is threatened to
be made, a named defendant or respondent in a proceeding by virtue of his
position in the corporation if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, in the case of criminal proceedings, had no reasonable cause
to believe his conduct was unlawful. A Utah corporation may indemnify a
director, officer, employee, or agent ("fiduciary") in an action brought by or
in the right of the corporation only if such fiduciary was not found liable to
the corporation, unless or only to the extent that a court finds him to be
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions (set forth in Item 14
above), or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE> 27
ITEM 16. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION LOCATION
------- ------------------- --------
<S> <C> <C>
4 Specimen of Securities(1) Incorporated by reference to Exhibit Nos. 1A and
1B of Registrant's Form 8-A Registration
Statement (File #0-8146)
4.1 Certificate of Designation for Series E Incorporated by reference to Form 10-QSB/A
Preferred Shares(1) filed November 12, 1998, for the period ended
June 30, 1998
4.2 Amendment to the Certificate of Designation Incorporated by reference to Form 10-QSB filed
for Series E Preferred Shares(1) August 16, 1999, for the period ended June 30, 1999
5 Legal Opinion of Vial, Hamilton, Koch &
Knox, L.L.P.(3)
23.1 Consent of Ernst & Young, L.L.P.(2) Exhibit 23.1
23.2 Consent of Brown, Graham and Company, Exhibit 23.2
P.C.(2)
23.3 Consent of Vial, Hamilton, Koch & Knox, Exhibit 23.3
L.L.P.(2)
</TABLE>
- ------------------
(1) Previously filed with the Securities and Exchange Commission and
incorporated by reference pursuant to Rule 12b-32 of the Securities
Exchange Act of 1934.
(2) Filed herewith.
(3) To be filed by amendment.
ITEM 17. Undertakings.
The Undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material
change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
<PAGE> 28
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Austin,
State of Texas, on December 1, 1999.
MSI HOLDINGS, INC.
By /s/ Robert J. Gibbs
---------------------------------
Robert J. Gibbs, President & CEO
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendment thereto has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert J. Gibbs
- ---------------------------------
Robert J. Gibbs President, CEO and Director December 1, 1999
/s/ Douglas W. Banister
- ---------------------------------
Douglas W. Banister Vice President and December 1, 1999
Chief Financial Officer
/s/ Chris Brickler
- ---------------------------------
Chris Brickler Director December 1, 1999
- ---------------------------------
Blandina Cardenas Director December 1, 1999
- ---------------------------------
Ernesto Chavarria Director December 1, 1999
/s/ Daniel Dornier
- ---------------------------------
Daniel Dornier Director December 1, 1999
/s/ Steve Metzger
- ---------------------------------
Steve Metzger Director December 1, 1999
/s/ Humbert B. Powell, III
- ---------------------------------
Humbert B. Powell, III Director December 1, 1999
- ---------------------------------
Davinder Sethi Director December 1, 1999
</TABLE>
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
4 Specimen of Securities(1)
4.1 Certificate of Designation for Series E Preferred Shares (1)
4.2 Amendment to the Certificate of Designation for Series E
Preferred Shares (1)
5 Legal Opinion of Vial, Hamilton, Koch & Knox, L.L.P.(3)
23.1 Consent of Ernst & Young, L.L.P.(2)
23.2 Consent of Brown, Graham and Company, P.C. (2)
23.3 Consent of Vial, Hamilton, Koch & Knox, L.L.P.(2)
</TABLE>
- ---------------
(1) Previously filed with the Securities and Exchange Commission and
incorporated by reference pursuant to Rule 12b-32 of the Securities
Exchange Act of 1934.
(2) Filed herewith.
(3) To be filed by amendment.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of MSI Holdings, Inc.
for the registration of 2,894,720 shares of its common stock and to the
incorporation by reference therein of our report dated September 28, 1999, with
respect to the consolidated financial statements and schedules of MSI Holdings,
Inc. included in its Annual Report (Form 10-K) for the year ended March 31,
1999, filed with the Securities and Exchange Commission.
/s/ Ernst & Young, L.L.P.
- ------------------------------------
Ernst & Young, L.L.P.
Austin, Texas
December 3, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF BROWN, GRAHAM AND COMPANY, P.C.
To the Board of Directors of MSI Holdings, Inc., a Utah corporation:
We consent to the use of our report, incorporated by reference herein, dated
June 9, 1998, as restated on September 24, 1999, and to the reference to our
firm under the heading "Experts" in the Registration Statement on Form S-3 for
the above named company.
/s/ Brown, Graham and Company, P.C.
- ------------------------------------------
Brown, Graham and Company, P.C.
Georgetown, Texas
December 7, 1999
<PAGE> 1
EXHIBIT 23.3
To the Board of Directors of MSI Holdings, Inc.
We consent to the use of our name under the heading Legal Matters in
the Registration Statement on form S-3 for the above named company.
Vial, Hamilton, Koch & Knox, L.L.P.
/s/ Gary Woolfolk
Dallas, Texas
November 23, 1999
