<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1998
Commission File Number 0-8146
MSI HOLDINGS, INC. f/k/a MICRO-MEDIA SOLUTIONS, INC.
(Exact name of registrant as specified in charter)
UTAH 87-0280886
State or other jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or organization
501 Waller St., Austin, Texas 78702
(Address of principal executive offices)
Issuer's telephone number, including area code (512) 476-6925
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
Securities registered pursuant to section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, None
Par Value $.10
Check whether the Issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days.
(1) Yes [(X) NO] ( ) (2) Yes (X) No ( )
Number of shares of common stock outstanding at DECEMBER 31, 1998:
13,177,989.
<PAGE> 2
Part I: Financial Information Item 1:
Consolidated Financial Statements
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements Page
<S> <C>
Consolidated Balance Sheets 3
Consolidated Statements of Operation 5
Consolidated Statements of Cash Flows 6
Consolidated Statements of Stockholders' Equity 9
Notes to Consolidated Financial Statements 11
</TABLE>
<PAGE> 3
MSI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31 March 31
1998 1998
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 73,861 $ 25,786
Accounts Receivable - Trade 840,606 150,851
Inventory 312,300 285,023
Short-Term Investment - restricted 1,350,000 1,350,000
Other Receivables - Advances 171,647 86,961
---------- ----------
Total Current Assets 2,748,414 1,898,621
Property, Plant, and Equipment
(at cost) net 1,487,640 800,831
---------- ----------
TOTAL ASSETS $4,236,054 $2,699,452
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
MSI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets - continued
<TABLE>
<CAPTION>
December 31 March 31
1998 1998
(unaudited) (audited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts Payable - Trade $ 1,194,655 $ 300,035
Bank Line of Credit 1,600,000 1,228,966
Other Accrued Expenses 97,314 169,336
Current Maturities of
Long-term Debt 112,596 151,267
Current Portion of Obligations
Under Capital Leases 94,005 41,097
Other Notes Payable 200,000 200,000
------------ ------------
Total Current Liabilities 3,298,570 2,090,701
------------ ------------
Long Term Notes
Notes Payable 178,678 367,522
Obligations under Capital
Leases For Equipment 290,605 149,560
------------ ------------
Total Long Term Notes 469,283 517,082
------------ ------------
Total Liabilities 3,767,853 2,607,783
------------ ------------
Stockholders Equity
Preferred stock Series B; $5.30
stated value; 400,000 shares
authorized, issued & outstanding 2,120,000 2,597,000
Preferred stock Series C; $10.60
stated value; 94,340 shares
authorized, issued & outstanding 1,000,004 1,050,004
Preferred stock Series D; $10.60
stated value; 261,340 shares
authorized, issued & outstanding 2,770,204 --
Preferred stock Series E; $30.00
stated value; 105,000 shares
authorized, 51,975 issued &
outstanding 1,559,250
Common stock at $.10 par value;
50,000,000 authorized; 13,127,989
and 11,518,571 shares issued
and outstanding, respectively 1,317,799 1,150,685
Additional paid-in capital 3,818,387 2,666,099
Accumulated Deficit (12,117,443) (7,372,119)
------------ ------------
Total Stockholders Equity 468,201 91,669
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 4,236,054 $ 2,699,452
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
MSI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operation - (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended December 31 Ended December 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Hardware, Software & Peripherals $ 249,156 $ 212,013 $ 1,431,352 $ 1,350,810
Service, Support & Integration 155,519 188,298 394,486 702,915
Network Installation 940,958 319,950 1,115,704 685,771
------------ ------------ ------------ ------------
Net revenues 1,345,633 720,261 2,941,542 2,739,496
------------ ------------ ------------ ------------
Cost of Goods Sold
Hardware, Software & Peripherals 239,419 204,926 1,376,870 885,989
Service, Support & Integration 59,393 122,394 150,511 456,896
Network Installation 916,821 255,301 1,080,747 509,415
------------ ------------ ------------ ------------
Total cost of goods sold 1,215,633 582,621 2,608,128 1,852,300
------------ ------------ ------------ ------------
Gross Margin 130,000 137,640 333,414 887,196
Selling, General & Administrative
Salaries & benefits 729,243 576,512 2,139,673 1,304,833
Professional fees and consultants 562,359 164,392 973,699 328,451
Occupancy 127,158 70,345 325,369 158,845
Depreciation 65,000 49,720 171,991 149,160
Vehicle expense 50,995 30,210 125,427 109,061
Other expense 196,124 414,649 538,482 708,865
Interest expense, net 11,642 165,835 41,035 202,342
Provision for uncollectable -- 20,000 (35,000) 21,284
------------ ------------ ------------ ------------
Total selling, general and
Administrative expenses 1,742,521 1,491,663 4,280,676 2,982,841
------------ ------------ ------------ ------------
Net Loss (1,612,521) (1,354,023) (3,947,262) (2,095,645)
Plus preferred stock dividends (104,140) -- (798,062) --
------------ ------------ ------------ ------------
Net Loss available to
common stockholders (1,716,661) (1,354,023) (4,745,324) (2,095,645)
============ ============ ============ ============
Basic and diluted
net loss per share $ (0.14) $ (0.13) $ (0.39) $ (0.20)
============ ============ ============ ============
Basic and diluted weighted
average number of shares
Outstanding 12,056,060 10,764,733 12,051,893 10,764,733
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
MSI HOLDINGS, INC. AND SUBSIDIARIES (page 1 of 3)
Consolidated Statements of Stockholders' Equity
For the Year Ended March 31, 1998 (Audited) and
For the Nine Months Ended December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Preferred Stock
Series B Series C Series D
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance
March 31, 1997 -- -- -- -- -- --
Common stock issued:
Interest -- -- -- -- -- --
Compensation -- -- -- -- -- --
Preferred
stock dividend -- -- -- -- -- --
Preferred stock issued:
Private
Placement 420,000 2,226,000 99,057 1,050,004 -- --
Senior Debt 70,000 371,000 -- -- -- --
Preferred stock
dividend discount -- -- -- -- -- --
Stock option for:
compensation -- -- -- -- -- --
Placement agent -- -- -- -- -- --
Cash received
for uncertificated
stock -- -- -- -- -- --
Common stock-
Uncertificated
Issued for note
Receivable -- -- -- -- -- --
Note receivable
Offset against
Common stock
Subscribed -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance
March 31, 1998 490,000 $ 2,597,000 99,057 $ 1,050,004 -- --
Preferred stock issued:
Private
Placement -- -- -- -- 279,657 $ 2,964,364
Common stock issued for:
Rule 144 Stock
Compensation -- -- -- -- -- --
Preferred
stock dividend -- -- -- -- -- --
Class A Warrants
Preferred stock
conversion (90,000) (477,000) (4,717) (50,000) (18,317) (194,160)
Stock options for
Placement agents -- -- -- -- -- --
Net loss -- -- -- -- -- --
Balance -- -- -- -- -- --
December 31,1998 400,000 $ 2,120,000 94,340 $ 1,000,004 261,340 $ 2,770,204
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
MICRO-MEDIA SOLUTIONS, INC. AND SUBSIDIARIES (page 2 of 3)
Consolidated Statements of Stockholders' Equity - continued
For the Year Ended March 31, 1998 (Audited), and
For the Nine Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Preferred Stock COMMON STOCK
SERIES E Common Stock Subscribed
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance
March 31, 1997 -- -- 10,764,733 $ 1,076,473 -- --
Common stock issued:
Interest -- -- 10,286 1,029 -- --
Compensation -- -- 414,900 41,490 -- --
Preferred
stock dividend -- -- 23,742 2,374 -- --
Preferred stock issued:
Private
Placement -- -- -- -- -- --
Senior Debt
Preferred stock
dividend discount -- -- -- -- -- --
Stock option for:
compensation -- -- -- -- -- --
Placement agent -- -- -- -- -- --
Cash received
for uncertificated
stock -- -- 293,185 29,319 -- --
Common stock-
Uncertificated
Issued for note
Receivable -- -- -- -- 543,000 407,250
Note receivable
Offset against
Common stock
Subscribed -- -- -- -- (543,000) (407,250)
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance
March 31, 1998 11,506,846 1,150,685 -- --
Preferred stock issued:
Private
Placement 51,975 1,559,250 -- -- -- --
Common stock issued for:
Rule 144 stock 50,000 5,000 -- --
Compensation 31,000 3,100 -- --
Preferred
stock dividend 39,803 3,980 -- --
Class A Warrants 420,000 42,000 -- --
Preferred stock
conversion -- -- 1,130,340 113,034 -- --
Stock options for
Placement agents -- -- -- --
Net loss -- -- -- -- -- --
Balance ------------ ------------ ------------ ------------ ------------ ------------
December 31,1998 51,975 1,559,250 13,177,989 1,317,799 -- --
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
MICRO-MEDIA SOLUTIONS, INC. AND SUBSIDIARIES (page 3 of 3)
Consolidated Statements of Stockholders' Equity - continued
For the Year Ended March 31, 1998 (Audited), and
For the Nine Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Additional
(Discount on) Accumulated
Paid-in Capital Deficit Total
<S> <C> <C> <C>
Balance
March 31, 1997 $ (1,046,058) $ (133,999) $ (103,584)
Common stock issued:
Interest 4,114 -- 5,143
Compensation 250,367 -- 291,857
Preferred
stock dividend 56,294 (58,668) --
Preferred stock issued:
Private
Placement (975,641) -- 2,300,363
Senior Debt -- -- 371,000
Preferred stock
dividend discount 3,412,502 (3,412,502) --
Stock option for:
compensation 93,750 -- 93,750
Placement agent 387,641 -- 387,641
Cash received
for uncertificated
stock 483,130 -- 512,449
Common stock-
Uncertificated
Issued for note
Receivable -- -- 407,250
Note receivable
Offset against
Common stock
Subscribed -- -- (407,250)
Net loss -- (3,766,950) (3,766,950)
------------ ------------ ------------
Balance
March 31, 1998 2,666,099 (7,372,119) 91,669
Preferred stock issued:
Private
Placement (1,402,631) -- 3,120,983
Common stock issued for:
Rule 144 stock 582,500 (534,500) 53,000
Compensation 163,087 -- 166,187
Preferred
stock dividend 259,582 (263,562) --
Class A Warrants 291,900 -- 333,900
Preferred stock
conversion 608,126 -- --
Stock options for
Placement agents 649,724 -- 649,724
Net loss -- (3,947,262) (3,947,262)
Balance -- -- --
December 31,1998 3,818,387 (12,117,443) 468,201
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
MSI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Year Ended March 31, 1998 (Audited) and
For the Nine Months Ended December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
<S> <C> <C>
Cash Flows from Operating
Activities:
Net (Loss) $ (3,947,262) $ (3,766,950)
Adjustments to reconcile net income
to net cash, provided by operating
activities:
Depreciation expense 171,991 178,892
Stock issued for compensation 166,187 291,857
Stock options issued for compensation -- 93,750
Stock issued for interest -- 5,143
Change in accounts receivable (689,755) 832,062
Change in inventory (27,277) (19,569)
Change in accounts payable 894,633 (577,325)
Change in accrued expenses (72,022) 57,775
Net Cash Provided by (used by ------------ ------------
Operating Activities (3,503,505) (2,904,365)
------------ ------------
Cash Flows from Investment Activities:
Investment in property & equipment (604,238) (195,685)
Purchase of short-term investment (1,350,000)
Additional notes receivables -- (142,265)
Proceeds from notes receivables -- 477,645
Proceeds from other receivables -- 162,793
Additional other receivables (84,686) (121,341)
Net Cash provided by (Used by) -- --
Investing Activities (688,924) (1,168,853)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from Line of Credit 371,034 504,076
Proceeds from other notes payable 200,000
Change in long term debt (227,515) (162,153)
Payments in capital lease obligations (60,609) (32,485)
Proceeds from Private Placement 3,770,694 2,688,004
Proceeds from issuance of common stock 53,000 512,450
Proceeds from exercise of warrants 333,900 --
Proceeds from Senior Convertible Debt -- 371,000
Net Cash Provided by (Used by) ------------ ------------
Financing Activities 4,240,504 4,080,892
------------ ------------
Net Increase in Cash 48,075 7,674
Cash at Beginning of Period 25,786 18,112
------------ ------------
Cash at End of Period $ 73,861 $ 25,786
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
MSI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - continued
For the Year Ended March 31, 1998 (Audited) and
For the Nine Months Ended December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
<S> <C> <C>
Supplemental disclosures:
Cash paid for interest $ 85,750 $ 232,578
Supplemental schedule of non-cash investing and financing activities: Preferred
stock issued for:
Placement agent fees $ -- $ 156,000
Stock options:
Compensation -- 93,750
Placement agent fees 649,724 387,641
Common stock issued for:
Compensation 166,187 291,857
Interest on debt -- 5,143
Preferred stock dividends 263,562 58,668
Common stock subscribed for
Note receivable -- 407,250
Debt converted to preferred stock -- 371,000
Inventory received for notes -- 84,394
Inventory converted to equipment 44,021 --
Discount on preferred stock 543,500 3,412,502
Capital lease obligations 254,562 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 11
MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation:
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principals and the rules of the
Securities and Exchange Commission (the SEC), and should be read in conjunction
with the audited financial statements and notes thereto contained in the
Company's latest annual Report filed with the SEC on Form 10-KSB/A on November
12, 1998 and the latest quarterly report filed with the SEC on form 10QSB/A on
November 12, 1998. In the opinion of management, all adjustments consisting of
normal recurring adjustments, necessary for the fair presentation of financial
position and the results of operations for the interim periods presented have
been reflected here in. The results of operation are not necessarily indicative
of the results to be expected for the full year. Notes to the financial
statements which would substantially duplicate the disclosure contained in the
audited financial statements for the year ended March 31, 1998 and the nine
months ended December 31, 1998, as reported in the Form 10-KSB/A and Form
10QSB/A have been omitted.
Nature of Business and Organization:
MSI Holdings, Inc., (the Company),(formerly known as Micro-Media Solutions,
Inc.), was organized under the laws of the State of Utah on April 15, 1969. On
October 14, 1998, Micro-Media Solutions, Inc. changed its name to MSI Holdings,
Inc. The Company has two wholly-owned subsidiaries, Micro-Media Solutions, Inc.,
a Texas corporation("MSI") and TeleVista, Inc., a Texas corporation, doing
business as High Power.Net, ("TVI"). TVI was incorporated in August 1998 and has
not yet commenced operations. The Company is publicly traded on the OTC Bulletin
Board under the symbol "MSIA".
MSI is an Austin, Texas, based technology corporation formed to provide computer
hardware, software programming, system support, maintenance, media duplication,
kitting to the public and private sectors and to be a business solutions
technology integrator with infrastructure design and implementation services. In
addition, MSI provides computer networking services including system integration
and local wide-area networks. MSI is certified by the State of Texas as a
Historically Underutilized Business (HUB).
Going concern:
As shown in the accompanying consolidated financial statements, the Company has
incurred net losses of $3,947,262 for the nine month period ending December 31,
1998.As of December 31, 1998 the Company's current liabilities exceeded its
current assets by $550,156. These factors create a substantial doubt about the
Company's ability to continue as a going concern. The ability of the Company to
continue as a going concern is dependent on the Company obtaining additional
financing to fund the expenses related to operations and capital improvements.
<PAGE> 12
MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)
In November 1998 through February 1999, the Company received approximately $2
million in partial completion of a private placement agreement of a newly
created series of preferred stock (Series E), which proceeds have been used by
the Company for operating expenses and remodeling the existing facility.
Additional proceeds of approximately $1 million from the completion of the
Series E private placement are expected by the end of March 1999. The closing of
the Series E private placement will enable the Company to have sufficient funds
to meet the its working capital and capital expenditures needs. Management has
identified and closed substantial contracts with GTE and Siemens Nixdorf during
the nine months ending December 31, 1998, and believes it can produce the level
of revenue necessary to return the Company to a positive earnings trend.
The Company is also negotiating with several investment banks for an additional
$20 million private offering of the Company's securities to take place before
the end of April 1999. These funds will be used to satisfy additional capital
needs for expansion opportunities associated with the contracts identified
above. In the event the Company is unable to complete the contemplated private
placement, the Company will forego the Contract's expansion opportunities,
reduce the number of employees and overhead expenses and concentrate its efforts
on the Austin operations.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
Principles of Consolidation:
The consolidated financial statements for the nine months ended December 31,
1998 and 1997 and as of March 31, 1998, include the accounts and transactions of
the Company and MSI. All significant inter-company accounts and transactions
have been eliminated in the accompanying consolidated financial statements. The
Company, however, did not have any material asset or liability accounts or
account balances. With the exception of the Company's equity accounts and a
deficit retained earnings, the significant account balances belong to MSI.
Cash and Cash Equivalents:
Cash equivalents consist primarily of funds invested in short-term
interest-bearing accounts. The Company considers all highly liquid investments
purchased with initial maturities of three months or less to be cash
equivalents.
Accounts Receivable:
The Company follows the allowance method of expensing accounts receivable when
considered uncollectable. As of December 31, 1998 and March 31, 1998, management
believes all accounts are collectible; and therefore, no allowance has been
recorded. The financial statements include a $35,000 recovery of a previously
written-off bad debt.
Inventory:
Inventory is valued at lower of cost, using the FIFO method (first-in/first-
out), or market. Inventory consists principally of hardware and software needed
for maintaining and building network technology for customers.
<PAGE> 13
MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)
Property, Plant, and Equipment:
Property and equipment are stated at cost. For financial statement purposes,
depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Amortization of leasehold improvements is
computed using the straight-line method over the shorter of the term of the
related lease or the useful life of the leasehold improvements. Accelerated
depreciation methods are used for tax purposes. Depreciation and amortization
are calculated over the following useful lives stated in years:
<TABLE>
<CAPTION>
Useful
Lives
<S> <C>
Vehicles 5
Furniture and fixtures 5
Equipment 5
Leasehold improvements 20
</TABLE>
Revenue and cost recognition:
Hardware and peripherals sales consist of computers and related electronic
equipment. Software sales consist of the resale of prepackaged software and
operating systems from Microsoft and other vendors to the end user. Revenue is
recognized when persuasive evidence of an arrangement exist, delivery has
occurred, the customer fee is fixed and collectibility is probable. Most
hardware, software and peripherals sales are made without the right of return.
Product returns, which are minimal, are recorded as a reduction of sales upon
receipts of the product. Service, support and integration sales are recognized
upon completion of the service and is not subject to warranty.
Revenue from fixed priced contracts is recognized on the percentage-of-
completion method of accounting, measured by the cost-to-cost method. This
method is used because management considers total costs incurred to be the best
available measure of progress on contracts.
Contract costs include all direct costs and those indirect costs related to
contract performance. Changes in job performance, job conditions, and estimated
profitability and final contract settlements may result in revisions to costs
and revenue and are recognized in the period in which the revisions are
determined.
The asset, "Costs and Estimated Earnings in Excess of Billings Uncompleted
Contracts", represents revenue earned in excess of amounts billed. The liability
"Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts"
represents billings in excess of amounts earned.
Revenue and contract costs from fixed priced contracts are included in the
various categories of revenue and cost of goods sold in the accompanying
financial statements.
<PAGE> 14
MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)
Federal Income Tax:
The Company uses the liability method of accounting for income taxes as
prescribed by the Financial Accounting Standard Board Statement No. 109.
Deferred tax liabilities and assets are determined based on differences between
the financial statement and tax basis of assets and liabilities using enacted
tax rates expected to be in effect for the year in which the differences are
expected to reverse. The net change in deferred tax assets and liabilities is
reflected in the statement of operations.
Use of Estimates and Certain Concentrations:
Management of the Company has made a number of estimates and assumptions
relating to the valuation and reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Although actual results could differ from those estimates,
management believes its estimates are reasonable. Certain components,
subassemblies and software included in the Company's computer systems are
obtained from sole suppliers or a limited number of suppliers. The Company
relies, to a certain extent, upon the ability of its suppliers' to enhance
existing products in a timely and cost-effective manner, to develop new products
to meet changing customer needs and to respond to emerging standards and other
technological developments in the computer industry. The Company's reliance on a
limited number of suppliers involves several risks, including the possibility of
shortages and/or increases in costs of components and subassemblies, and the
risk of reduced control over delivery schedules.
Financial Instruments:
Cash equivalents include highly liquid short-term investments with original
maturities of three months or less, readily convertible to known amounts of
cash. The amounts reported as cash equivalents, receivables, other assets,
accounts payable and accrued expenses and debt are considered by the Company to
be reasonable approximations of their fair values, based on market information
available to management as of December 31, 1998. The use of different market
assumptions and estimation methodologies could have a material effect on the
estimated fair value amounts. The reported fair values do not take into
consideration potential taxes or other expenses that would be incurred in an
actual settlement.
Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of cash and cash equivalents and trade accounts
receivable. A concentration of credit risk may exist with respect to trade
receivables, as many of the Company's customers are in the computer and
telecommunications industries. The Company has a large number of customers on
which it performs ongoing credit evaluations and generally does not require
collateral from its customers. Historically, the Company has not experienced
significant losses related to receivables from individual customers or groups of
customers in any particular industry or geographic area.
<PAGE> 15
MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)
NOTE 2 - STOCKHOLDERS' EQUITY
In October 1997, the Company completed a Private Placement Agreement, (the
"Agreement") with a group of accredited investors. The Agreement provides for
three "Phases" of financing. The Agreement states that conversion of the
preferred stock will not occur to the extent that the HUB status of the Company
is compromised.
Phase I of the Agreement was funded in November 1997. The Company received
$2,120,000 in exchange for 400,000 shares of series B preferred stock (5%
cumulative, convertible, non-voting, stated value $5.30) ,(the "Series B
Stock"). Each share of preferred stock is initially convertible into 10 shares
of the Company's common stock subject to adjustment and six warrants, (the
"Warrants") for the purchase of six shares of common stock at $1.50 per share.
Phase II of the Agreement was funded in February 1998. The Company received
$1,000,004 in exchange for 94,340 shares of series C preferred stock (6%
cumulative, convertible, non-voting, stated value, $10.60), (the "Series C
Stock). Each share of preferred stock is initially convertible into 10 shares of
the Company's common stock, subject to adjustment.
Phase III of the Agreement was funded in May through July 1998. The Company
received $2,923,204 in exchange for 266,340 shares of series D preferred stock
(6% cumulative, convertible, non-voting, stated value, $10.60), (the "Series D
Stock"). Each share of preferred stock is initially convertible into 10 shares
of the Company's common stock, subject to adjustment. The Company paid $349,318
and issued 13,317 shares of series D preferred stock for placement agent fees.
Also options to purchase 250,850 shares of common stock at $1.59 per share were
issued as a part of the agreement. The common stock had a fair value of $1.65 to
$2.86 per share at the grant date resulting in $487,880 in placement agent fees.
During the nine months ended December 31, 1998 the Company received $53,000 for
5,000 shares of Series D preferred stock at 10.60 per share. Due to the Series D
preferred stock being over subscribed, the company converted the 5,000 preferred
shares to 50,000 shares of Rule 144 common stock. The discount on the 50,000
shares in the amount of $534,500 has been included as a dividend in the
accompanying financial statements.
The Series D preferred stock can be converted to common stock. Therefore, a
discount in the amount of $4,843,296 at December 31, 1998 has been realized. The
discount is the difference in the intrinsic value of the common stock less the
net proceeds from the series D preferred stock. Due to the limitation on the
number of shares of stock that can be issued to retain the HUB status, the
unrecognized discount in the amount of $4,843,296 will be recorded if and when
the preferred stock is converted or the HUB status changes.
During the nine months ended December 31, 1998, Class A warrants were exercised
for 420,000 shares of common stock at $0.795 per share in the amount of
$333,900.
<PAGE> 16
MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)
NOTE 2 - STOCKHOLDERS' EQUITY
In October 1998 the Company completed a private placement agreement with a group
of accredited investors for the placement of 100,000 shares of Series E
preferred stock, stock (6% cumulative, convertible, non-voting, stated value,
$10.60), (the "Series E Stock). Each share of preferred stock is initially
convertible into 10 shares of the Company's common stock, subject to adjustment.
Also options to purchase 50,000 shares of common stock at $4.50 per share were
issued as a part of the agreement.
In November 1998 the Company received $1,485,000 in exchange for 49,500 shares
of Series E Stock. The Company paid $188,600 and issued 2,475 shares of Series E
Stock for placement agent fees. The common stock had a fair value of
$6.375 to $6.75 per share at the grant dates resulting in $161,844 in placement
agent fees.
Through February 1999, the Company had received $600,000 in exchange for 20,000
shares of Series E Stock. The Company paid $72,000 and issued 1,000 shares of
Series E Stock for placement agent fees. The remaining 30,000 shares of Series E
Stock will be funded by March 31, 1999.
Preferred stock dividends were paid with the issuance of common stock valued at
the previous thirty day average closing bid price per share of common stock as
follows:
<TABLE>
<CAPTION>
COMMON
SHARES AMOUNT
------ --------
<S> <C> <C>
March 31, 1998 23,742 $ 58,668
June 30, 1998 10,224 $ 66,743
September 30, 1998 14,151 $ 92,679
December 31, 1998 15,428 $104,140
</TABLE>
NOTE 3 - CONTINGENCY
On December 18, 1997, Argus Management, Inc. filed Plaintiff's Original Petition
in the 216th District Court of Kerr County, Texas. Argus claims the Company and
Mr. Jose G. Chavez, as joint obligors, defaulted on their obligation to Argus
pursuant to two promissory notes for $100,000 each, both dated June 2, 1997.
Argus is seeking a judgment for $200,000, together with interest on the notes at
the rate of 20% per annum from June 2, 1997, through the date the notes are
satisfied. As of March 31, 1998, $65,000 had been disbursed to third parties in
satisfaction of obligations of Argus Management, Inc. The $65,000 has been
recorded in other receivables in the accompanying financial statements.
On February 6, 1998, the Company filed Plaintiff's Original Petition in the
above-referenced case. The Company asserts breach of contract, fraud,
defamation, usury, and civil conspiracy claims against Argus Management, Inc.
The Company strongly disagrees with Argus' contentions and denies liability to
Argus under the notes and plans to oppose vigorously Argus' claims and recover
the amounts disbursed to third parties.
<PAGE> 17
MSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 (unaudited)
NOTE 3 - CONTINGENCY
On November 20, 1996, MCA Communications, Inc. ("MCA") filed a lawsuit against
the Company in County Court at Law No. 2 in Harris County, Texas. MCA claims the
Company owes $12,485 for certain goods and services that MCA claims to have
provided to MSI in connection with various projects for the Texas Department of
Health. MCA also seeks interest, costs, and attorneys' fees. On January 6, 1997,
the Company filed its answer and denied the above-referenced claim in its
entirety.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SECTION CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW.
Overview
========
Micro-Media Solutions, Inc. ("MSI"), the operating subsidiary of MSI Holdings,
Inc. was created in 1993 in Austin, Texas, to provide computer hardware,
software programming, system installation and support, maintenance, and media
duplication to the public and private sectors. MSI maintains certification as a
minority-owned business enterprise and status as a Historically Underutilized
Business ("HUB").
Among the principal costs to market and sell the Company's products are
advertising and promotion costs, salaries and commissions, and general and
administrative expenses. The Company's operating results may be subject to
fluctuations on a quarterly and annual basis as a result of various factors,
including, but not limited to, fluctuating market pricing for computer and
semiconductor memory products, industry competition, seasonal government
purchasing cycles, and working capital restrictions on manufacturing and
production. Therefore, the operating results for any particular period are not
necessarily indicative of the results that may occur in any future period.
The Company's revenues consist of hardware sales, prepackaged software sales and
the delivery of technical services, including installing and maintaining network
systems. The technical service sales of the Company typically yield a higher
margin than the hardware and software sales of the Company. This is due, in
part, to the intense competition in the hardware and software sales sector from
Original Equipment Manufactures ("OEM's") and distributors. As a result, the
Company, is attempting to strategically reposition itself from emphasizing
hardware and software sales to intensifying sales of technical services.
<PAGE> 18
Recent Developments
===================
On July 27, 1998, MSI entered into a renewable 10 year sublease with GTE
Intelligent Network Services, Inc. ("GTE") under which MSI agreed to lease a
portion of their east Austin facilities to GTE for installation of GTE's Point
of Presence ("POP") equipment (the "Sublease"). On May 29, 1998, MSI entered
into a 3 year subscription to GTE's Internet Advantage version 5.1 Connection
Service granting MSI access to GTE's POP (the "Connection Service")(the Sublease
and Connection Service are collectively referred to as the "GTE Agreement").
GTE's establishment, management and monitoring of multiple domains on behalf of
MSI is included in the Connection Service. The Connection Service was upgraded
to GTE's Internet Advantage version 6.0 on September 29, 1998. MSI will lease
connections to the POP for access to the GTE Internet network to other
businesses. MSI will target companies that need direct, high-speed access to the
Internet through turn-key collocation services for high volume (known as
bandwidth) Internet web applications. Collocation is a service that provides a
high speed, high bandwidth connection to the Internet backbone using various
backup systems to increase the connection's fault tolerance. By connecting
directly to Internet via the POP, MSI is able to eliminate the local loop, the
weakest component in localized Internet connections. MSI will have the capacity
to support over four thousand collocation rack spaces at its Austin, Texas
facilities. These rack spaces will be used to host the network servers for MSI
clients and provide those clients with direct access to the Internet. When fully
implemented, these collocation services are expected to significantly increase
The Company's revenues over the term of the Connection Service. The GTE
Agreements provide the potential for The Company to increase revenue by selling
Internet access to various high Internet demand entities for such activities as
commerce and academics. The Company has remodeled a portion of its east Austin
facility in preparation of supplying the Collocation service. It is anticipated
that the requisite hardware will be operational in February 1999.
In July 1998, MSI began providing systems integration, warehousing, systems
configuration and other fulfillment services for Siemens-Nixdorf Information
Systems, Inc. ("Siemens-Nixdorf") for Point of Sale ("POS") systems and
Automated Teller Machines for Siemens-Nixdorf's customers such as Sears-Roebuck,
and Bealls department stores (the "Siemens-Nixdorf Agreement"). This agreement
provides that Siemens-Nixdorf will store its inventory at MSI, and will charge
Siemens-Nixdorf for various systems integration services. This arrangement
provides The Company with a revenue stream without a significant working capital
commitment.
The Company formed TeleVista, Inc., a wholly owned subsidiary ("TVI") in
September of 1998 to run the electronic commerce business for the on-line sale
of hardware and software over the Internet through the use of a secure server.
Secure servers allow for the accelerated receipt of funds through credit card
payments for hardware and software purchases made through their web sites
operated by it. TVI had no operations at December 31, 1998.
<PAGE> 19
Results of Operations
=====================
Three Months Ended December 31, 1998 Compared with December 31, 1997
======================================================================
Revenues for the quarter ended December 31, 1998 of $1,345,633 increased
$625,372 or 86.8% from the $720,261 recorded in the quarter ended December 31,
1997. This increase is a combination of an increase of $37,143 in Hardware,
Software & Peripherals (HSP) revenues; decrease of $32,779 in Service, Support &
Integration (SSI) revenues; and an increase of $621,008 in Network Installation
(NI) revenues.
The 17.5% increase in HSP revenues of $37,143 is a reflection of the normal
fluctuations in sales of HSP products.
The 17.4% decrease in SSI revenues of $32,779 is a of a reduction in the scope
of work on a several contracts. New revenue sources for SSI are being developed
to replace the reduction in revenues. As described in the "Recent Developments"
section above, the Company has signed a contract with Siemens-Nixdorf to
supplement its SSI revenues. Other decreases in SSI revenues relate to normal
fluctuations in service requests from customers that occur throughout the year.
The 94% increase in NI revenues of $621,008 relates to specific significant
school district network installation contracts that were in place during each
quarter. During the quarter ended December 31, 1997 MSI was finishing a contract
for Hereford ISD. During the quarter ended December 31, 1998, MSI completed a
major portion of the work for an installation of a network system under a
contract with San Felipe Del Rio CISD.
Cost of goods sold, (COGS), for the quarter ended December 31, 1998 increased
$633,012 or 108.6% to $1,215,633 compared to the quarter ended December 31, 1997
representing 90.3% of revenue resulting in a margin of 9.7%. Cost of Goods Sold
for the quarter ended December 31, 1997 was $582,621 or 80.9% of revenue
resulting in a margin of 19.1%. The decrease in margins is a combination of an
increase in COGS for HSP in the amount of $34.493 and a decrease in COGS for SSI
in the amount of $63,001 and an increase in COGS for NI in the amount of
$661,520.
COGS as a percentage of revenues for HSP was 96.1% for the quarter ended
December 31, 1998 resulting in a margin of 4.9% compared to a margin of 3.3% for
the quarter ended December 31, 1997. The low margins on HSP revenues is due to
market pressure to lower prices on HSP products from the Company's competitors
and customers including the result of the competitive bidding process required
for sales to public entities.
COGS as a percentage of revenues for SSI was 38.2% for the quarter ended
December 31, 1998 resulting in a margin of 61.8% compared to a margin of 35.0%
for the quarter ended December 31, 1997. The increase in margins is a result of
MSI obtaining an SSI contract with Siemens Nixdorf for system integration. This
contract requires that Siemens Nixdorf supply all hardware and software products
to be integrated into the systems. Additional increases in margins are a result
of a contract to install Texas State Lottery vending machines in retail
businesses. This contract requires the lottery contractor to supply all hardware
cost.
<PAGE> 20
COGS as a percentage of revenues for NI was 97.4% for the quarter ended December
31, 1998 resulting in a margin of 2.6% compared to a margin of 20.2% for the
quarter ended December 31, 1997. The decrease in margins relate to specific
significant school district network installation contracts that were in place
during each quarter. During the nine months ending December 31, 1998 MSI
received a contract of approximately $700,000 with San Felipe Del Rio CISD (Del
Rio) for network system installation. The margin on this contract was less due
to competitive bidding required by public entities. Additional contracts with
Del Rio were received, subsequently, that allow the opportunity for increased
overall margins. Aggregate contracts and purchase orders with Del Rio are now in
excess of $1 million.
Selling, General and Administrative Expenses for the quarter ended December 31,
1998 of $1,742,521 represents 129.5% of Revenues. The 1998 amount represents an
increase over the quarter ended December 31, 1997 of $250,858 or 16.8%.
Approximately $153,000 of the increase represents the increase in staff salaries
and benefits. Staff additions include technical staff, sales staff, accounting
staff and middle management. These increases are needed as the Company prepares
to offer collocation services at its Austin, Texas facility and will also enable
the Company to work on larger service contracts. Increases in professional fees
of $398,000 is largely attributable the reporting requirements associated with
being a public company and fees paid for technical consulting related to the
design and implementation of the Collocation services described in the "Recent
Developments" section above. Occupancy expense increased approximately $57,000
due to facility expansion and increased staffing. Interest expense decreases of
$154,000 is a result of a reduction in late fees and interest charged on past
due invoices and decrease line of credit usage.
Nine Months Ended December 31, 1998 Compared with December 31, 1997
====================================================================
Revenues for the nine months ended December 31, 1998 of $2,941,542 increased
$202,046 or 7.4% from the $2,739,496 recorded in the nine months ended December
31, 1997. This increase is a combination of an increase of $80,542 in HSP
revenues; a decrease of $308,429 in SSI revenues and an increase of $429,933 in
NI revenues.
The nominal increase of $80,542 in HSP revenues reflects normal fluctuations in
sale of HSP products.
The $308,429 decrease in SSI revenues relates to a reduction in the scope of
work on two contracts. Revenues on a contract for the installation and servicing
of lottery machines decreased approximately $328,000 from the nine months ended
December 31, 1997 compared to the December 31, 1998 period. Other decreases in
revenues were on a contract for the City of Austin of approximately $64,000 from
the nine months ended December 31, 1997 compared to December 31, 1998 period.
Increases in SSI revenues of approximately $84,000 are attributed to new
contracts received from Siemens Nixdorf and the State of Texas lottery
contractor.
The $429,933 decrease in NI revenues relates to specific significant school
district network installation contracts that were in place during each period.
During the nine months ended December 31, 1997 MSI was finishing on a contract
for Hereford ISD which started in April 1997. During the nine months ended
December 31, 1998, MSI began the installation of a network system under a
contract with San Felipe Del Rio CISD. This contract was executed in July 1998
with installation beginning in August 1998.
<PAGE> 21
Cost of goods sold for the nine months ended December 31, 1998 increased
$755,828 or40.8% to $2,608,128 compared to the nine months ended December 31,
1997 representing 88.7% of revenue resulting in a margin of 11.7%. Cost of goods
sold for the nine months ended December 31, 1997 was $1,852,300 or 67.6% of
revenue resulting in a margin of 32.4%. The decrease in margins is a combination
of an increase in COGS for HSP in the amount of $490,881 and decrease in COGS
for SSI in the amount of $306,385 and an increase in COGS for NI in the amount
of $571,332.
COGS as a percentage of revenues for HSP was 96.2% for the nine months ended
December 31, 1998 resulting in a margin of 3.8% compared to a margin of 65.6%
for the nine months ended December 31, 1997. The decreasing margins are due to
market pressure to lower prices on HSP products from the Company's competitors
and customers including the result of the competitive bidding process required
for sales to public entities. Contributing to the lower margins for 1998 were
sales made below cost as a result of poor estimating of cost by MSI. Procedures
are now in place to insure profitable margins on HSP sales.
COGS as a percentage of revenues for SSI was 38.2% for the nine months ended
December 31, 1998 resulting in a margin of 61.8% compared to a margin of 35.0%
for the nine months ended December 31, 1997. The increase in margins is a result
of MSI obtaining an SSI contract with Siemens Nixdorf for system integration.
This contract requires that Siemens Nixdorf supply all hardware and software
products to be integrated into the systems. Additional decreases in COGS are a
result of a contract to install Texas State Lottery vending machines in retail
businesses. This contract requires the lottery contractor to supply all hardware
cost.
COGS as a percentage of revenues for NI was 96.9% for the nine months ended
December 31, 1998 resulting in a margin of 3.1% compared to a margin of 25.7%
for the nine months ended December 31, 1997. The decrease in margins relate to
specific significant school district network installation contracts that were in
place during each quarter. During the quarter ending December 31, 1998 MSI
received a contract of approximately $700,000 with San Felipe Del Rio CISD for
network system installation. The margin on this contract was less due to
competitive bidding required by public entities. Additional contracts with Del
Rio were received, subsequent to December 31, 1998, that allow the opportunity
for increased overall margins. Aggregate contracts and purchase orders with Del
Rio are now in excess of $1 million.
Selling, General and Administrative Expenses for the nine months ended December
31, 1998 of $4,280,676 represents 145.5% of Revenues. The 1998 amount represents
an increase over the nine months ended December 31, 1997 of $1,297,835 or 43.5%.
Approximately $835,000 of the increase represents the increase in staff salaries
and benefits. Staff additions include technical staff, sales staff, accounting
staff and middle management. These increases are needed as the Company prepares
to offer collocation services at its Austin, Texas facility and will also enable
the Company to work on larger service contracts. Increases in professional fees
of $645,000 is attributable to the reporting requirements associated with being
a public company and fees paid for technical consulting related to the design
and implementation of the Collocation services described in the "Recent
Developments" section above. Occupancy expense increased approximately $167,000
due to facility expansion and increased staffing. Interest expense decreases of
$154,000 is a result of a reduction in late fees and interest charged on past
due invoices and decrease line of credit usage.
<PAGE> 22
Going Concern Issues
====================
The Company's significant historical losses raise a doubt as to the Company's
ability to continue as a going concern. The Company plans to address the going
concern issues described in the notes to the financial statements through an
additional private placement of series E preferred stock and from substantial
contracts signed during fiscal year ending March 31, 1999, which will provide
sufficient working capital and cash flows for the next twelve month period.
However, there can be no assurance that the Company will be able to secure such
additional capital or that the contracts will generate sufficient cash flows or
working capital. Subsequent to March 31, 1998, the Company received $2.8 million
dollars in proceeds from Private Placement Phase III (as defined) that have been
used to retire debt, decrease past due accounts payable and for operating
expenses. The Company has completed arrangements with a private investment group
for a private placement of a newly created series E of preferred stock with net
proceeds to the Company of approximately $2.6 million to take place in November
1998 through March 1999. Approximately 1.3 million was received in November 1998
on the Series E private placement with the balance to be received through March
1999.
Management, based upon expressions of interest, estimated growth and facility
capacities, believes that its contracts with GTE and Siemens Nixdorf (the
"Contracts") have the possibility of producing revenues of approximately $8
million during the next twelve month period. Management further anticipates the
contracts to yield approximately 10% of revenues as net income. The Company has
purchased the required equipment with capital leases as of September 30, 1998,
and will begin operations under the contracts by February 1999. The proceeds
from the Series E Preferred will allow the Company to remodel the existing
facility and continue operations through the end of the current fiscal year, by
which point it is anticipated that the contracts will be generating positive
cash flow and adequate working capital.
The Company is also negotiating with investment bankers for an additional $20
million private placement to be completed before the end of April 1999. These
funds will be used to satisfy additional capital needs for expansion
opportunities associated with the Contracts. In the event the Company is unable
to complete the contemplated $20 million private placement, the Company will
forego the Contracts' expansion opportunities, reduce the number of employees
and overhead expenses and concentrate its efforts on the Austin operations.
Liquidity and Capital Resources
===============================
On November 18, 1997, the Company received $2,120,000 upon completion of a
private placement whereby 400,000 of Series B Preferred were sold to
Entrepreneurial Investors, Ltd. ("EIL") for $5.30 per share. On February 4,
1998, the Company received $1,000,000 completing a second private placement
whereby 94,340 shares of Series C Preferred were sold to EIL for a purchase
price of $10.60 per share. By July, 1998, the Company received $2,964,364
completing a third private placement, whereby 279,657 shares of Series D
Preferred were sold to fourteen investors for a purchase price of $10.60 per
share. In November 1998 the Company received $1,485,000 in exchange for 49,500
shares of Series E Stock. The Company paid $188,600 and issued 2,475 shares of
Series E Stock for placement agent fees. Through February 1999, the Company had
received $600,000 in exchange for 20,000 shares of Series E Stock. The Company
paid $72,000 and issued 1,000 shares of Series E Stock for placement agent fees.
The remaining 30,000 shares of Series E Stock will be funded by
March 31, 1999.
<PAGE> 23
For the nine months ended December 31, 1998 and the year ended March 31,1998,
the Company's total assets were $4,236,054 and $2,699,452 respectively, with
liabilities of $3,767,853 and $2,607,783, respectively. Current assets of
$2,748,414 and $1,898,621 represent 120.0% and 90.8% of current liabilities of
$3,298,570 and $2,090,701. Deterioration of the Company's cash position is a
result of the Company's continuing operating losses. See "Going Concern" in Note
1 to the financial statements above. The Company's liabilities of $3,767,853 at
December 31,1998 consist of $1,600,000 of a fully secured credit line,
$1,698,570 of current liabilities and $469,283 of long-term liabilities.
Net shareholders equity as of December 31, 1998 and March 31, 1998 was $468,201
and $91,669, respectively. During the year ended March 31, 1998, and the nine
months ended December 31, 1998, the Company completed private placements of
Series B Stock, Series C Stock and Series D Stock. The Series E Stock private
placement was partially completed through December 31, 1998 with the Company
receiving $1,485,000 in exchange for 49,500 shares of Series E Stock. Receipt of
these funds enabled the Company to fund its operations, reduce its outstanding
debt and pay off past due accounts payable.
Subsequent to December 31, 1998, the Company received an additional $600,000 in
exchange for 20,000 shares of Series E Stock. The Company expects to receive an
additional $900,000 in exchange for 30,000 shares of Series E Stock by March 31,
1999 to complete the Series E placement.
During the nine months ended December 31, 1998, working capital decreased
$358,076 from March 31, 1998. The balances of its accounts payables, accrued
expenses and accounts receivables were increased as a result increased sales and
the resulting increase in related accounts. At December 31, 1998, the Company
had a working capital deficit of ($550,156) compared to a working capital
deficit of ($192,080) at March 31, 1998. The Company was current on all
significant accounts payable at December 31, 1998. As of March 31, 1998 the
Company was more than 30 days past due on $170,000 or 57% of its accounts
payable. The Company's account receivables at December 31, 1998 include
approximately $465,000 from the Del Rio Consolidated School District. This
amount was subsequently collected.
The Company has a critical need for additional working capital to meet
contractual obligations under the GTE Agreements. Management believes that the
GTE Agreements with Siemens Nixdorf Agreements have the potential to increase
revenue levels, provided that sufficient working capital is obtained. See
Management's Discussion and Analysis of Financial Conditions and Results of
Operations and Going Concern Issues.
<PAGE> 24
Year 2000 Issues
================
As with other companies, the Company has initiated a program to study the impact
on its computer system in order to be Year 2000 compliant. This study involved
identifying any modifications or replacements of certain hardware and software
maintained by the Company. The study has been completed. The company has
identified the computer systems that will require either modification, upgrade
or replacement. Implementation of the Company's Year 2000 plan should be
completed by June 30, 1999. The Company anticipates that in-house personnel will
be primarily responsible for completing these tasks and that the costs will be
insignificant. As such, the Company believes that the planned modifications,
upgrades and replacements of existing systems will be completed in a timely
fashion to assure Year 2000 compliance, and any related cost will not have a
material impact on the Company's results of operations, cash flows, or financial
conditions in future periods. The Company has budgeted for $25,000 to address
these expenses. In addition, the Company is also taking actions to assure that
its customers and vendors are taking steps to remedy their Year 2000 issues. The
Company is not incurring any unique risks in connection with Year 2000 issues.
It is however subject to the risk that information and financial resources may
be temporarily unavailable. This societal risk may temporarily disrupt cash
flows worldwide. The Company believes that by becoming, and assisting its
clients and vendors to become, Year 2000 compliant it is likely to circumvent
that threat. The Company expects to be Year 2000 compliant March 31, 1999. If
compliance is not achieved by that date, the Company will reallocate resources,
as necessary, to ensure compliance within six months, thereafter.
Inflation
=========
Management does not believe that inflation will have a material impact on the
Company's pricing of goods or services since the Company, generally, has the
ability to adjust prices to meet the current market conditions.
Subsequent Events
=================
As of March 23, 1999, MSI has been certified by GTE's BBN Professional
Services as meeting their technology and service quality standards for network
architecture, security architecture and facilities design. MSI is the first
company to receive this certification. Throughout the last half of fiscal year
1999, MSI, in conjunction with GTE's BBN Professional Services consultants
designed and implemented the Internet Accelerator Portal ("IAPTM"). The IAPTM
accelerates end-to-end Internet connectivity, increasing the user's proximity
and access speed to the Internet's content through direct connection via the
POP. This allows direct access to virtually unlimited bandwidth on demand and
eliminates the need for costly local loop circuits. End-users access high speed
connectivity services by taking advantage of Digital Subscriber Line ("DSL")
technology. In May 1999, MSI formed an alliance with Southwestern Bell to
provide Southwestern Bell's DSL service ("the Southwestern Bell DSL Reseller's
Agreement"). As an authorized reseller of Southwestern Bell's DSL service, MSI
will offer its customers (Internet Service Providers ("ISPs") and other
resellers) the opportunity to leverage Southwestern Bell's broadband technology
and provide them with high speed links, increased bandwidth and Asynchronous
Transfer Mode, a cell-based switching technology designed for broadband
transmission of voice, data and video. The combined IAP(TM), BBN Certification
and DSL Agreement, when operational, will enable MSI's customers to access the
Internet or corporate networks up to 200 times faster than conventional analog
modems.
<PAGE> 25
Subsequent to December 31, 1998, an additional 8,624,027 shares of Common Stock
were issued comprised as follows. During the last quarter of fiscal year ended
March 31, 1999: (i) 94,340 shares of Series C Preferred were converted to
943,400 shares of Common Stock; (ii) 65,000 shares of Series D Preferred were
converted to 650,000 shares of Common Stock; and (iii) 23,027 shares of Common
Stock were issued as dividends for the Series B, C, D, and E Preferred.
Subsequent to March 31, 1999: (i) 399,995 shares of Series B Preferred were
converted to 3,999,950 shares of Common Stock; (ii) 176,335 shares of Series D
Preferred were converted to 1,763,350 shares of Common Stock; and (iii) 124,430
shares of Series E Preferred were converted to 1,244,300 shares of Common Stock.
On February 22, 1999, the Company hired Glenn Birk as Vice President of Sales
and he was subsequently named an officer of the Company. Mr. Birk has over 9
years of experience in sales at NCR, AT&T, Lawson Software, and BBN/GTE. Prior
to joining MSI, Mr. Birk was an Account Executive for BBN/GTE and was
recognized as the company's sixth leading sales representative for 1998. Mr.
Birk holds a Bachelors of Business Administration degree in Marketing from the
University of Texas at Austin. Mr. Birk's employment is currently not the
subject of an employment contract.
As of March 24, 1999, Roger M. Lane became the Company's Chief Operating Officer
pursuant to an employment agreement between Mr. Lane and the Company (the "Lane
Agreement"). The Lane Agreement provides for an annual salary of $120,000 and
reimbursement of ordinary, necessary and documented business expenses. In
addition, the Lane Agreement provides for a stock option to purchase up to
450,000 shares of Common Stock vesting as follows: (i) options to purchase
100,000 shares of Common Stock will vest at six months after the grant date of
March 24, 1999; (ii) options to purchase an additional 110,000 shares of Common
Stock will vest on the first anniversary of the grant date; and (iii) options to
purchase 120,000 shares will vest on each of the second and third anniversary of
the grant date. The agreement is terminable by either party. Mr. Lane has more
than 20 years of experience in operations and logistics management in the
computer, copier, and software industries. Prior to joining MSI, Mr. Lane was
the Chief Operating Officer at Techworks, Inc. in Austin, Texas. Prior to that,
Mr. Lane was Vice-President of Operations at Ashton-Tate Corporation in
Torrance, California and Vice-President of Logistics at Intellogic Trace, Inc.
and Datapoint Corporation, both of San Antonio Texas. He holds a Bachelors of
Science degree in Mechanical Engineering from the University of Maine at Orono,
and a Masters of Science degree in Management (Inventory and Production Control)
from Rensselaer Polytechnic Institute, Troy, New York.
As of March 31, 1999, the Company has agreed to settle its lawsuits
related to the Company's relationship with a former consultant, Kenneth O'Neal
("O'Neal") and a firm which he controls, Argus Management, Inc. ("Argus"). On
December 18, 1997 Argus filed a lawsuit in Kerr County, Texas, 216th Judicial
District, to collect on two promissory notes in the aggregate principal amount
of $200,000. The Company vigorously defended this lawsuit and filed a related
suit against O'Neal and Argus in Travis County, Texas on February 6, 1998,
alleging fraud, usury in connection with the promissory notes, and seeking an
order from the Court demanding that Argus transfer 293,185 shares of Common
Stock of MSI, held by Argus, to various shareholders who have previously
purchased such shares (the "Argus Related Shares"). The agreed upon settlement
provides that Argus return 200,250 shares of MSHI's Common Stock to MSHI, that
MSHI tender $250,000 to Argus and that MSHI issue the balance of 92,935 shares
of Common Stock as restricted shares. The parties have agreed to cancel the
<PAGE> 26
two promissory notes from MSHI to Argus and release all other claims among the
parties.
On April 20, 1999, Jose Chavez, Mitchell Kettrick and Jaime Munoz, the
President and CEO, Secretary and Vice-President of Operations, respectively,
were terminated.
On June 2, 1999, a group of the Company's Common Stock shareholders
filed a Schedule 13-D for the sole purpose of acting as a group to exercise a
change in control of the Company's Board of Directors. The group filing the
Schedule 13-D consists of 25 shareholders with an aggregate of 10,324,499 shares
of the Company's Common Stock or 47.36% of the 21,802,016 shares of Common Stock
outstanding as of May 31, 1999.
PART II: Other Information
ITEM 1: LEGAL PROCEEDINGS
=========================
For a discussion of Legal Proceedings, refer to Note 3, Contingencies, in the
Notes to Consolidated Financial Statements in Part I
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
=================================================
For a discussion of Changes in Securities and Use of Proceeds, refer to Note 2,
Stockholders' Equity, in the Notes to Consolidated Financial
Statements in Part I
ITEM 3: DEFAULT UPON SENIOR SECURITIES
======================================
NONE
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
===========================================================
NONE
Item 5. OTHER INFORMATION
=========================
A shareholder who wishes to make a proposal at the 1999 Annual Meeting of
Shareholders without complying with the requirements of the SEC's Rule 14a-8
(and therefore without including the proposal in the Company's proxy materials)
should notify the Company's Secretary, at the Company's principal executive
offices, of that proposal by July 1, 1999. If a shareholder fails to give notice
by that date, then the persons named as proxies in the proxy cards solicited by
the Company's Board of Directors for that meeting will be entitled to vote the
proxy cards held by them regarding that proposal, if properly raised at the
meeting, as directed by the Company's management.
The Company's former Chief Financial Officer, David Hill, is no longer employed
by the Company and is pursuing other business interests.
<PAGE> 27
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
========================================
a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION LOCATION
- ----------- ------------------- --------
<S> <C> <C>
10.1 Contract between San Felipe Del Exhibit 10.1
Rio Consolidated ISD and MSI,
dated July 7, 1998.
10.2 Master Agreement for Exhibit 10.2
Internetworking Services
between GTE and MSI, dated May
29, 1998.
10.3 Service Schedule Internet Exhibit 10.3
Advantage Connection Services
between GTE and MSI, dated May
29, 1998.
10.4 Service Schedule Consulting Exhibit 10.4
Services between GTE and MSI,
dated October 15, 1998.
10.5 Amendment One to Service Exhibit 10.5
Schedule Consulting Services
between GTE and MSI, dated
November 13, 1998.
10.6 Employment Agreement effective Exhibit 10.6
as of March 24, 1999, between
Roger M. Lane and MSHI
</TABLE>
B) REPORTS ON FORM 8-K
None
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date 06/11/99 By: /s/ ROGER M. LANE
ROGER M. LANE, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of this Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
/s/ Ernesto Chavarria 06/11/1999
Ernesto Chavarria Chairman Of The Board Of
Directors
/s/ Blandina Cardenas 06/11/1999
Blandina Cardenas Director
/s/ Daniel Dornier 06/11/1999
Daniel Dornier Director
/s/ Jon J. King 06/11/1999
Jon J. King Director
/s/ Roger M. Lane 06/11/1999
Roger M. Lane President And
Chief Operating Officer
/s/ Stephen Hoelscher 06/11/1999
Stephen Hoelscher Controller And
Chief Accounting Officer
</TABLE>
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION LOCATION
- ----------- ------------------- --------
<S> <C> <C>
10.1 Contract between San Felipe Del Exhibit 10.1
Rio Consolidated ISD and MSI,
dated July 7, 1998.
10.2 Master Agreement for Exhibit 10.2
Internetworking Services
between GTE and MSI, dated May
29, 1998.
10.3 Service Schedule Internet Exhibit 10.3
Advantage Connection Services
between GTE and MSI, dated May
29, 1998.
10.4 Service Schedule Consulting Exhibit 10.4
Services between GTE and MSI,
dated October 15, 1998.
10.5 Amendment One to Service Exhibit 10.5
Schedule Consulting Services
between GTE and MSI, dated
November 13, 1998.
10.6 Employment Agreement effective Exhibit 10.6
as of March 24, 1999, between
Roger M. Lane and MSHI
</TABLE>
B) REPORTS ON FORM 8-K
None
<PAGE> 1
EXHIBIT 10.1
CONTRACT BETWEEN
SAN FELIPE DEL RIO CONSOLIDATED ISD
AND
MSI
DATED JULY 7, 1998.
<PAGE> 2
CONTRACT ADDENDUM BETWEEN
MICRO-MEDIA SOLUTIONS, INC.
AND
SAN FELIPE DEL RIO CONSOLIDATED ISD
The RFP#98-11 for San Felipe Del Rio Consolidated ISD and the response from
Micro-Media Solutions is a Contract for materials and services as therein set
out and the terms of the Contract are:
This Contract includes the basic proposal in the amount of $ 496,380.58 ;
----------------
(1) Plus, Alternate One in the amount of $ 264,899.65 ;
----------------
(2) Plus, Alternate Two in the amount of $ 137,500.00 ;
----------------
(3) Plus, Alternate Three in the amount of $ 127,399.65 ;
----------------
for a total Contract amount of $ 761,280.23 .
----------------
The items to be purchased are listed on the Request for Proposal.
The payment terms for these items plus labor are as follows:
Materials:
All materials will be procured and delivered to SFDRCISD warehouse within 2
weeks of contract award. Materials will be purchased by Micro-Media Solutions,
Inc. Upon delivery of such materials into SFDRCISD warehouses and sign off
(acceptance) of goods for this project by an authorized representative of
SFDRCISD, Micro-Media Solutions, Inc. will be paid by SFDRCISD. This billing
includes all cabling materials, network electronic equipment, and services for
WAN support. See Schedule "A" attached.
Labor:
Cat 5 cabling labor and network electronic equipment installation for all
campuses will be invoiced in progressive payments by school district as each
school is completed in regards to the cable and network electronic equipment
installation. Prior to billing, each campus will be inspected and signed off as
approved by an authorized representative of SFDRCISD. A ten percent retainer
will be held by SFDRCISD until the project is complete and final sign off is
approved by an authorized representative of SFDRCISD. See Schedule "A" attached.
Outside plant (fiber optic wide area network) will be invoiced in progressive
payments on a per foot completion basis monthly until complete. Prior to
billing, installation of fiber which is complete and ready for billing will be
inspected and signed off as approved by an authorized representative of
SFDRCISD. A ten percent retainer will be held by SFDRCISD until the project is
complete and
<PAGE> 3
FINAL SIGN OFF IS APPROVED BY AN AUTHORIZED REPRESENTATIVE OF SFDRCISD. SEE
SCHEDULE "A" ATTACHED.
Training will be billed after SFDRCISD selected staff has completed such
exercises. The schedule for training will be available for selection as
appropriate by SFDRCISD. See Schedule "A" attached.
SCHEDULE:
The Schedule for completion of this project is 90 calendar days (or 120
calendar days if Alternate One, Two or Three are selected) from contract award.
This schedule includes all work as agreed upon by both parties. It is assumed
and requested that a SFDRCISD authorized representative will provide timely
access to materials and buildings in order to perform required contracted
installation.
FINAL PAYMENT:
Final payment (and the ten percent retainer) will be made by SFDRCISD ONLY upon
final completion of this project and its unqualified acceptance by SFDRCISD.
VENUE:
This project is performable in Val Verde County, Texas, including the payment
of all funds by SFDRCISD to Micro-Media Solutions, Inc.. It is agreed by the
parties that exclusive venue and jurisdiction for any dispute (or lawsuit)
between the parties hereto lies exclusively in Val Verde County, Texas.
EXECUTED this 7th day of July, 1998, in duplicate originals.
J. MOTA MAYO DELEON
- -------------------------------- --------------------------------
Signature of Authorized Official Signature of Authorized Official
SAN FELIPE DEL RIO CISD MICRO-MEDIA SOLUTIONS, INC.
JACK MOTA, ACTING SUPT. MAYO DELEON (Director of Sales)
- -------------------------------- --------------------------------
Typed or Printed Name & Title Typed or Printed Name & Title
07.07.98 Date: 7-7-98 Date:
- --------------- ------------ -------------- -------------
<PAGE> 4
DEL RIO ISD
<TABLE>
<CAPTION>
BILLED AT BILLED AS BILLED AT BILLED AS
1 TIME COMPLETED 1 TIME COMPLETED
MATERIALS LABOR TOTAL MATERIALS LABOR TOTAL
<S> <C> <C> <C> <C> <C> <C>
William B. Travis Elem. School $ 2,365.77 $ 1,320.80 $ 3,686.57 $ 1,640.00 $ 70.00 $ 1,710.00
Warehouse $ 1,052.05 $ 764.08 $ 1,816.13 $ 1,640.00 $ 70.00 $ 1,710.00
Transportation $ 1,359.88 $ 862.71 $ 2,222.59 $ 1,640.00 $ 70.00 $ 1,710.00
Technology $ 1,459.78 $ 1,245.73 $ 2,705.51 $ 1,640.00 $ 70.00 $ 1,710.00
Stephen F. Austin Elem. School $ 2,192.06 $ 1,264.25 $ 3,456.31 $ 1,640.00 $ 70.00 $ 1,710.00
Special Education $ 1,126.30 $ 651.95 $ 1,778.25 $ 1,928.00 $ 275.00 $ 2,203.00
San Filipe Middle School $ 2,432.35 $ 1,450.96 $ 3,883.31 $ 3,714.00 $ 155.00 $ 3,869.00
Sam Houston Kindergarten $ 2,636.41 $ 1,772.82 $ 4,409.23 $ 3,714.00 $ 155.00 $ 3,869.00
Ruben Chavira Elem. School $ 1,393.59 $ 844.68 $ 2,238.27 $ 1,640.00 $ 70.00 $ 1,710.00
Northern Heights Elem. School $ 2,174.98 $ 1,951.79 $ 4,126.77 $ 1,640.00 $ 70.00 $ 1,710.00
Memorial Middle School $ 1,258.15 $ 1,060.15 $ 2,318.30 $ 1,640.00 $ 70.00 $ 1,710.00
Lamar Elem. School $ 1,930.08 $ 1,030.56 $ 2,960.66 $ 1,640.00 $ 70.00 $ 1,710.00
Garfield West Elem. School $ 1,380.80 $ 877.83 $ 2,238.63 $ 1,640.00 $ 70.00 $ 1,710.00
Garfield East Elem. School $ 1,823.10 $ 1,163.50 $ 2,986.60 $ 1,640.00 $ 70.00 $ 1,710.00
Eastside Elem. School $ 2,094.89 $ 1,458.78 $ 3,553.45 $ 3,714.00 $ 155.00 $ 3,869.00
Dr. Fermin Calderon Elem. School $ 2,564.96 $ 2,278.58 $ 4,843.54 $ 1,640.00 $ 70.00 $ 1,710.00
Del Rio Middle School $ 2,763.48 $ 2,455.54 $ 5,219.02 $ 3,714.00 $ 155.00 $ 3,869.00
Del Rio High School $ 748.44 $ 261.95 $ 1,010.39 $ 2,285.00 $ 100.00 $ 2,385.00
Del Rio Freshmen School $ 732.31 $ 222.95 $ 955.26 $ 1,675.00 $ 70.00 $ 1,745.00
Cosmetology $ 861.40 $ 483.60 $ 1,345.00 $ 1,640.00 $ 70.00 $ 1,710.00
Buena Vista Elem. School $ 2,263.15 $ 3,015.35 $ 5,278.50 $ 1,640.00 $ 70.00 $ 1,710.00
Alternative Learning Center $ 784.47 $ 396.99 $ 1,181.46 $ 1,640.00 $ 70.00 $ 1,710.00
Administration Annex Bldg. 1 $ 8,232.84 $ 342.23 $ 8,575.07 $ 2,285.00 $ 100.00 $ 2,385.00
Administration Annex Bldg. 2 $ 1,732.94 $ 2,119.18 $ 3,852.10 $ 2,000.00 $ 85.00 $ 2,085.00
Administration $ 2,740.97 $ 2,665.00 $ 5,405.97 $42,720.00 $ 1,505.00 $44,225.00
---------- ---------- ---------- ---------- ---------- ----------
$50,084.95 $31,961.94 $82,046.89 $92,349.00 $ 3,805.00 $96,154.00
</TABLE>
<TABLE>
<S> <C> <C>
- -----------------------------------
Billed at 1 time Infrastructure Materials: $ 50,084.95
Billed as completed per school Infrastructure Labor: $ 31,961.94
- ----------------------------------- -----------
Total Infrastructure: $ 82,046.39
- -----------------------------------
Billed at 1 time Network Electronic Materials: $ 92,349.00
-----------
Billed as completed per school Network Electronic Labor: $ 3,805.00
- ----------------------------------- -----------
Total Network: $ 96,154.00
-----------
Total: $178,200.39
- -----------------------------------
Billed at 1 time Total OSP Materials: $ 88,677.12
Billed as completed per foot Total OSP Labor: $206,038.00
- ----------------------------------- -----------
Total OSP: $294,715.12
OSP Labor Per Ft.: $ 2.11
- -----------------------------------
Billed at 1 time Training: $ 1,395.00
Billed at 1 time 3 Servers for WAN support: $ 18,794.07
Billed as completed Additional Fiber Run: $ 3,276.00
- -----------------------------------
Total Project: $496,380.58
Additional Cable Drops price each $ 250.00
- -----------------------------------
Billed as completed per school Optional Total drop is additional drops is 550 $137,500.00
- -----------------------------------
- -----------------------------------
Billed at 1 time Optional 20 Additional Strands of Fiber $127,399.65
- -----------------------------------
GRAND TOTAL WITH OPTIONS $761,280.23
</TABLE>
<PAGE> 1
EXHIBIT 10.2
MASTER AGREEMENT FOR
INTERNETWORKING SERVICES BETWEEN
GTE AND MSI
DATED MAY 29, 1998.
<PAGE> 2
[GTE INTERNETWORKING LOGO]
MASTER AGREEMENT FOR
INTERNETWORKING SERVICES
This Master Agreement between GTE Internetworking Incorporated ("we") and the
Customer identified below ("you") indicates the packed Service Schedules and
Service Questions (collectively "Schedules") together with any additional
Schedules mutually agreed [ILLEGIBLE] in the future.
1. Services. We will provide you the Internetworking services ("Services")
specified in the Schedule(s). Our commencement of providing any of the Services
shall constitute our acceptance of this Master Agreement.
2. Prices. Prices are stated in the Schedules and are guaranteed for the Term
stated in the Schedules. If any of the Services are on a month-to-month basis,
we will give you at least 30 days notice of a price change. In addition, you
are responsible for applicable taxes, tariffs, telecommunications surcharges or
other governmental charges due on account of the Service.
3. Payment. Unless otherwise stated in a Schedule, we will invoice you
monthly. You agree to pay within 30 days from receipt of invoice. For overdue
invoices, you will pay interest of 15% for each month or part of a month (or
the maximum allowed by law, whichever is less).
4. Our Responsibility. We are responsible for providing the Services
by qualified personnel in a professional manner. WE DISCLAIM ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
5. Your Responsibility. You are responsible for the manner in which you use
the Services, including the maintenance and security of your data, computer
network and other facilities, your choice of equipment software and online
content and all other duties related to how you use the Services. Unless
expressly permitted by a Schedule or separate reseller agreement with us, you
shall not resell Services, or access to Services, directly or indirectly to
third parties.
6. Indemnification. We will indemnify you for damages, costs and attorneys
fees you incur from any claim that our design of the Services infringes any U.S.
patent, copyright, trademark, trade secret or other intellectual property right.
You will indemnify us for damages, costs and attorneys fees we incur from any
claim arising from your manner of using of the Services, your combination of the
Services with other products or services not provided by us, or your
modification of the Services. The indemnifying party shall conduct the defense
and shall have control of the litigation; the other party shall give prompt
notice of claims and shall cooperate in defending against the claim. THE PARTIES
DISCLAIM THE IMPLIED WARRANTY OF NON-INFRINGEMENT, RELYING INSTEAD ON THE TERMS
OF THIS SECTION.
7. IP Addresses. Upon expiration, cancellation or termination of the
agreement or applicable Schedule, you shall relinquish any IP addresses, or
address blocks assigned to you by us.
8. Compliance with Laws. You shall not use or permit your end users to use
the Services in ways that violate laws, infringe the rights of others, or
interfere with users of our network or other networks. For example, you shall
not distribute chain letters or unsolicited bulk electronic mail ("spamming");
program computer worms or viruses; use a false identity; attempt to gain
unauthorized entry to any site or network, distribute child pornography,
obscenity or defamatory material over the Internet or infringe copyrights,
trademarks, or other intellectual property rights. You further agree to comply
with U.S. export laws governing the transmission of technical data and other
regulated materials via the Services.
9. Termination. Either party may terminate or cancel this Agreement if the
other fails to cure a material breach of the Agreement within 30 days after
receiving written notice of the breach. We reserve the right, but assume no
obligation, to suspend performance immediately if you are more than 10 days
overdue in payments or if, in our reasonable judgment, you have violated Section
8.
10. Limitation of Liability. EXCEPT FOR INDEMNIFICATIONS PURSUANT TO SECTION
6, NEITHER PARTY (NOR ITS SUPPLIERS OR CUSTOMERS) SHALL BE LIABLE TO THE OTHER
PARTY FOR PUNITIVE, SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES
INCLUDING WITHOUT LIMITATION, LOST PROFITS OR LOSS OR DAMAGE TO DATA ARISING OUT
OF THE USE OR INABILITY TO USE SERVICES, EVEN IF THE PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
11. Limitation of Damages. OUR AGGREGATE LIABILITY TO YOU RELATING TO OR
ARISING OUT OF THIS AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE, SHALL
NOT EXCEED (a) THE TOTAL AMOUNTS PAID BY YOU TO US FOR THE SERVICE IN QUESTION,
DURING THE ONE-YEAR PERIOD IMMEDIATELY PRECEDING THE EVENT WHICH GAVE RISE TO
YOUR CLAIMS OR (b) $100,000, WHICHEVER IS LESS.
12. Acknowledgment. You agree that we may include your name in listings of our
customers.
13. Miscellaneous. The terms and conditions of this Agreement supersede all
previous agreements, proposals or representations related to the Services.
Except for assignments to GTE affiliates, neither party may assign this
Agreement without prior written consent of the other party. This Agreement
shall be governed by the submissive laws of the Commonwealth of Massachusetts.
Any changes to this Agreement, or any additions or different terms in your
purchase orders, acknowledgments or other documents, will not be effective
unless expressly agreed to in writing to us.
- --------------------------------------------------------------------------------
Please sign below to indicate your understanding and acceptance of the terms of
this Agreement.
Company (Type or Print Full Customer Name): Micro-Media Solutions Inc.
------------------------------------
Signature: /s/ MITCHELL C. KETTRICK V.P. Date: 5-29-98
-------------------------------- -----------------------------
Print Name: Mitchell C. Kettrick V.P. Title: Vice - President
------------------------------- ----------------------------
- --------------------------------------------------------------------------------
1 of 1
<PAGE> 1
EXHIBIT 10.3
SERVICE SCHEDULE INTERNET ADVANTAGE
CONNECTION SERVICES BETWEEN
GTE AND MSI
DATED MAY 29, 1998.
<PAGE> 2
[GTE INTERNETWORKING LOGO] Service Schedule
Internet Advantage Connection
Services
Rev. April 14, 1999
This Service Schedule is part of and is governed by the Master Agreement for
Internetworking Services ("Master Agreement"). The terms and conditions of the
Master Agreement are incorporated herein by reference.
1. Covered Services. We will provide you with the version of Internet
Advantage(sm) Connection Service ("IA Service") indicated in the Service
Quotation ("Quotation"). The Service Period and fees for the IA Service are
described in the Quotation. Our commencement of providing IA Service to you as
described in the Quotation shall constitute our acceptance of this Service
Schedule.
2. Service Description. IA Service provides you with dedicated access to the
Internet. Further details of the IA Service are set forth in the Service
Description for the version of the IA Services you have selected, as indicated
on the attached Quotation. Service Descriptions are available from your GTE
sales representative.
3. Service Level Guarantee and Limited Remedy. We are committed to providing
you with reliable, high quality Services, and we offer certain assurances about
the quality of Services ("Service Level Guarantee"). A description of the
current Service Level Guarantee is available on our Web sit at
http://www.bbn.com/products/access/guarantee.htm or from your GTE
Internetworking sales representative. We reserve the right to change, amend or
revise the Service Level Guarantees at any time. In the event of any change
in the Service Level Guarantee, your warranties and/or remedies any change.
The warranties and/or remedies described in the then-current Service Level
Guarantee for the applicable Service are your sole remedies under the Agreement.
THIS SERVICE LEVEL GUARANTEE IS THE SOLE AND EXCLUSIVE REMEDY FOR FAILURE OR
DEFECT OF IA SERVICE.
4. Renewal. We encourage you to contact us by sending an inquiry via email
to: [email protected] prior to the expiration of the then-current Service
Period to renew the IA Service for an additional term of one year or greater.
If the Service Period expires before it has been proposed in writing, then we
may continue to provide you with the IA Service on a month-to-month basis, at
105% of our then-current undiscounted list prices, until the Service Period has
been renewed in writing.
5. Service Cancellation You may cancel the IA Service at any time by
providing 60 days prior written notice via email to: [email protected]. If
you cancel during a Service Period, you agree to pay as (a) all IA Service fees
accrued as of the cancellation date and (b) an early cancelation fee in an
amount equal to 50% of IA Service fees due for the canceled portion of the
Service Period. You are responsible in all events for any telephone company
circuit cancellation charges incurred by us as a result of your cancellation.
If you elect IA Service with flexible pricing, the cancellation fees shall be
calculated based upon the applicable price for the lowest IA Service usage
band.
6. Domain Name Fees. All fees associated with domain name registration and
periodic maintenance of domain names are your responsibility and will be
billed directly to you by InterNIC. Such fees are not included in the prices
for the IA Service.
7. Software We Provide. In the event we provide any software to you in
connection with IA Service, we grant you a personal, non-exclusive,
non-transferable license for the duration of the Service Period, to use such
software in object code form only, on hardware provided by us, for the sole
purpose of enabling you to use the IA Service. You acknowledge that the
software is copyrighted, that title to such software remains with us and our
suppliers, if any, and that the content and design of such software are valuable
trade secrets. You are authorized to make one copy of the Software for backup
purposes only. You agree not to (a) disclose or make available to third parties
any potion of such software without our advance written permission; (b) further
copy or duplicate such software; (c) reverse engineer, decompile or disassemble
such software; (d) make derivative works from such software, or (e) modify
such software. YOU ACKNOWLEDGE THAT OUR THIRD PARTY SOFTWARE SUPPLIERS DISCLAIM
ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT.
8. IP Addresses. Upon expiration, cancellation or termination of the
Agreement or applicable Schedule, you shall relinquish any IP addresses or
address blocks assigned to you by us.
9. Return of Equipment and Software. Upon termination or expiration of the
Service Period (unless extended by the parties), you agree to return to us all
hardware and software (other than hardware and software which you have
purchased from us) which we have provided to you in connection with the IA
Service. In the event such hardware and software is not returned to us within 30
days following such termination or expiration, we will charge you the
undepreciated list price of the unreturned hardware and software, in addition
to all applicable late return fees.
10. Acceptable Use. You agree to use the IA Service in accordance with our
acceptable use policy. Our current acceptable use policy is published on our
web site at http://www.bbn.com/nup/.
Please sign below to indicate your understanding and acceptance of the terms of
this Service Schedule.
Customer (Type or Print Full Company Name): Micro-Media Solution, Inc.
--------------------------------
Signature: /s/ MITCHELL C. KETTRICK V.P. Date: 5-29-98
----------------------------- --------------------------
Print Name: Mitchell C. Kettrick V.P. Title: Vice-President
----------------------------- --------------------------
1 of 1
<PAGE> 3
[GTE INTERNETWORKING LOGO]
SERVICE QUOTATION FOR MICRO-MEDIA SOLUTIONS
- --------------------------------------------------------------------------------
TO: Jose Chavez Quote Date: May 29, 1998
Micro-Media Solutions Quote Valid To:
501 Waller Quote Number: 38561.9719.1
Austin, TX 78702 Service Level: Internet Advantage 5.1, Flex
Multi-T1 Gold
USA
Service Period (please check one as applicable):
[ ] 1 Year [ ] 2 Years [X] 3 Years
The Service Period shall commence upon the provisioning by BBN Corporation, a
subsidiary of GTE Internetworking Incorporated ("we", "our", or "us"), to you of
the services listed on this Service Quotation.
<TABLE>
<CAPTION>
RECURRING FEES (1 YEAR CONTRACT) LIST PRICE DISCOUNT MONTHLY ANNUAL
- -------------------------------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C>
Gold Multi-T1 Service Fee - Usage at 1 Mbps $3,200.00 25.0% $2,400.00 $28,800.00
Cisco 4700-M w/4 Serial, Gold Option $ 0.00 $ 0.00
Multi-T1 Packaging Kit Gold Surcharge $ 100.00 25.0% $ 75.00 $ 900.00
Fast Eth I/F Cisco4xDO-M GoldScharge $ 140.00 25.0% $ 106.00 $ 1,260.00
Leased Circuit Monthly Recurring $ 0.00 $ 0.00
Leased Circuit Monthly Recurring $ 0.00 $ 0.00
--------- ----------
$2,580.00 $30,960.00
ONE-TIME PASS LIST PRICE DISCOUNT ONE-TIME
- ------------- ---------- -------- ---------
Activation, 2xT1 $3,000.00 95.7% $ 100.00
Telco Extended Demarcation $ 150.00 100.0% $ 0.00
Leased Circuit Installation Fee $ 0.00
Leased Circuit Installation Fee $ 0.00
---------
$ 100.00
</TABLE>
Internet Advantage v5.1 Connection Service is a comprehensive, fully-managed
offering for customers who view the Internet as a strategic resource and require
a high level of reliability, quality, and performance to use the Internet as a
vehicle for collaboration and commerce.
Internet Advantage Gold Connection Service is monitored and maintained by GTE
Internetworking 24 hours a day, 365 days a year by experienced operators,
technicians, and analysts, and includes the following at no additional charge:
- -Customer Premises Equipment (CPE), provided by us, and associated Advanced
Replacement Next Business Day maintenance. Surcharge may be applicable for
additional and/or optional CPE, depending upon your selection of hardware. Gold
Service customers may also purchase on-site hardware maintenance support for an
additional charge.
- -GTE monitoring and configuration management of customer premises equipment.
- -Domain Name Service (DNS): Primary and secondary DNS are provided for up to 10
domains and 100 kilobytes of associated zone data file storage. We will
register up to 10 domain names for you with InterNIC. Fees for initial
registration and on-going maintenance fees for each domain name will be billed
to you directly by InterNIC.
<PAGE> 4
[GTE INTERNETWORKING LOGO]
SERVICE QUOTATION FOR MICRO-MEDIA SOLUTIONS
- --------------------------------------------------------------------------------
TO: Jose Chavez Quote Date: May 29, 1998
Micro-Media Solutions Quote Valid To:
501 Waller Quote Number: 38581.9719.1
Austin, TX 78702 Service Level: Internet Advantage 5.1,
USA Flex Mul
Up to 8 Mbps $14,200
Over 8 Mbps $15,700
All invoices are payable net 30 days. Applicable taxes will be additional.
This Service Quotation is applicable only for version 5.1 of Internet Advantage
Connection Service. This Service Quotation does not entitle you to any future
versions or releases of such service that we may make available during the
Service Period unless separately agreed to in writing by the parties.
<PAGE> 5
[GTE LOGO]
SERVICE QUOTATION FOR MICRO-MEDIA SOLUTIONS
- --------------------------------------------------------------------------------
To: Jose Chavez Quote Date: May 29, 1998
Micro-Media Solutions Quote Valid To:
501 Waller Quote Number: 38561.9718.1
Austin, TX 78702 Service Level: Internet Advantage 5.1,
USA Flex Mul
Additional Terms:
(a) The Service Quotation and all services that may be provided pursuant to
this Service Quotation are subject to the terms and conditions of (a) the
Master Agreement for Internetworking Services or the Master Agreement for
Internet Services or Internet Services and Products Master Agreement
previously signed by you (or, if you have not signed such a Master
Agreement, the terms and conditions of the current Master Agreement for
Internetworking Services), and (b) the Service Schedule for the applicable
services you are purchasing as indicated in this Service Quotation.
(b) Final acceptance of this Service Quotation by us is subject to credit check
approval, and confirmation of a valid Master Agreement and Service Schedule
signed by Customer.
(c) Any terms and conditions (including but not limited to those contained in a
purchase order issued by Customer) which are different from or in addition
to the terms and conditions contained in this Service Quotation, the
applicable Master Agreement, and/or the applicable Service Schedule(s)
signed by Customer, shall not be binding on us unless expressly accepted in
writing, herein or otherwise, by our authorized representative, and we
hereby object to and reject all terms and conditions not so accepted.
Customer (Type or Print Full Name): Micro-Media Solutions, Inc.
---------------------------------------
Signature: /s/Mitchell Kettrick, V.P. Date: 5-28-98
-------------------------------- ---------------------
Print Name: Mitchell Kettrick, V.P. Title: Vice-President
-------------------------------- ---------------------
Purchase orders should be made out to:
GTE Internetworking
Attention: Glenn Birk
1950 Stemmons Freeway
Suite 2032
Dallas, TX 75207
Should you have questions about this quotation, please contact Glenn Birk at
214-800-5814, E-mail: [email protected]
<PAGE> 1
EXHIBIT 10.4
SERVICE SCHEDULE CONSULTING SERVICES
BETWEEN GTE AND MSI
DATED OCTOBER 15, 1998.
<PAGE> 2
[GTE INTERNETWORKING LOGO] Service Schedule
Consulting Services
Rev. September 30, 1998
A98 STD PSA-523
This Service Schedule together with any attached Task Statements ("Service
Schedule") is part of and is governed by the Master Agreement for
Internetworking Services ("Master Agreement") executed between GTE
Internetworking Incorporated and Micro-Media Solutions Inc., dated 5/29/98. The
terms and conditions of the Master Agreement are incorporated herein by
reference.
1. Scope of Service. We will provide you with the consulting services
("Consulting Services") as defined in mutually agreed upon individual task
statements (each a "Task Statement"). Each Task Statement contains: (a) a
description of the work to be undertaken including deliverables, performance
period, compensation and other details relating to such work, (b) the
obligations and responsibilities of each party related to such Task Statement
and (c) any acceptance criteria. The Task Statement may be modified by mutual
written agreement. Changes or additions to work performed under the Task
Statement may require changes in the resources provided by us which may result
in additional costs to you or changes in the project schedule. The terms of
and conditions of each Task Statement shall be independent of and shall have no
impact upon the provisions of any other Task Statement. The first Task
Statement against this Service Schedule is entitled "Service Provider Readiness
Assessment for Micro-Media Solutions" and is dated October 14, 1998 and is
incorporated herein.
2. Pricing/Payment. Task Statements may be issued on a Time & Materials basis,
a Fixed Price basis, or a combination of both as specified in each Task
Statement.
2.1 Time & Materials. Time & Materials-type Task Statements contain an
estimated Task Statement amount including the estimated amounts for
professional labor ("Estimated Task Amount") and materials and hourly
billing rates for professional staff. Travel and other reasonable
expenses are not included in the Estimated Task Amount. We will use
reasonable efforts to complete a Time and Materials-type Task Statement
within the Estimated Task Amount but will not continue performance or
incur costs in excess of the Estimated Task Amount unless you authorize
additional funds. Amounts for non-labor items will be charged
separately. Should Task Statements contain an estimated amount for
non-labor costs we agree that we will not exceed 110% of those costs
unless you authorize additional funds.
2.2 Fixed Price. Fixed Price-type Task Statements specify a Task
Statement Fixed Price and will include all labor, materials and
expenses unless otherwise stated.
3. Term. The term of this Service Schedule ("Term") shall commence on the
execution date of this Schedule and shall expire three (3) years thereafter
unless earlier terminated by you or us in accordance with the Agreement. In the
event a Task Statement's period of performance extends beyond the Term, the
Term shall be automatically extended and remain in effect until such time as
the Task Statement's period of performance is completed.
4. Rights in Work Product.
4.1 You shall receive title, including copyright, to all written reports
prepared and delivered to you in accordance with the Task Statements;
provided, however, that rights in any intellectual property contained
or referenced in such reports shall be determined in accordance with
Section 4.2 below.
4.2 Except as set forth in Section 4.1 above, we shall retain title to the
products of our work and all intellectual property rights thereto under
this Agreement but grant to you a royalty-free nonexclusive,
nontransferable license (i) to make and use each invention or
improvement thereto, which is or may be patentable under U.S. law and
is conceived or first reduced to practice by us in the performance of
the Task Statement, and (ii) to use, duplicate or disclose all computer
software (except as noted below) and all other recorded information
(such as data tables) delivered to you in the performance of the Task
Statement. Our proprietary data and proprietary and/or commercial
software, if required, will be furnished under separate license or
other arrangement.
5. Confidentiality. We shall each retain in confidence all information and
know-how transmitted to the other that the disclosing party has identified in
writing as being proprietary and/or confidential, and will only use such
information and know-how in accordance with the terms of and during the term of
this Service Schedule. Neither party shall have an obligation to maintain the
confidentiality of information that (i) it rightfully received from another
party prior to its receipt from the disclosing party; (ii) the disclosing party
has disclosed to a third party without any obligation to maintain such
information in confidence; (iii) enters the public domain or becomes generally
known to the public by some action other than breach of this Service Schedule
by the receiving party; or (iv) is independently developed by the receiving
party. We shall each safeguard proprietary or confidential information disclosed
by the other using the same degree of care used to safeguard each other's
proprietary and confidential information but, in no event shall use less than a
reasonable degree of care. Our respective obligations under this Section 5
shall extend for a period of three years from termination, expiration or
cancellation of this Service Schedule.
6. Hiring. You agree that during the term of this Service Schedule and for one
(1) year thereafter you will not, without our prior written consent, employ or
offer employment to any employee of ours who has provided services hereunder.
7. Survival. The terms of sections 4, 5 and 6 shall survive the termination,
expiration or cancellation of this Schedule and the Master Agreement.
<PAGE> 3
[GTE INTERNETWORKING LOGO] SERVICE SCHEDULE
CONSULTING SERVICES
Rev. September 30, 1998
A98-STD-PSA
8. Disclaimer Concerning Network Security Consulting. To the extent you engage
us to provide consulting with respect to security of your network or data, we
will provide advice to assist you in impeding and detecting a security threat,
however, you will remain responsible for the security of your network and data.
IN NO EVENT WILL WE BE LIABLE FOR ANY DAMAGES RESULTING FROM SECURITY BREACHES
REGARDING YOUR NETWORK OR DATA. THIS DISCLAIMER IS IN ADDITION TO, AND NOT
INSTEAD OF, THE DISCLAIMER, LIMITATION OF LIABILITY, AND LIMITATION OF DAMAGES
CONTAINED IN THE MASTER AGREEMENT.
Agreed to and accepted by:
GTE Internetworking, Inc. Micro-Media Solutions, Inc.
By: /s/ ADAM LIPSON By: /s/ JOSE CHAVEZ
----------------------------------- -----------------------------------
Printed Name: Adam Lipson Printed Name: Jose Chavez
------------------------- -------------------------
Title: Director, Professional Services Title: President/CEO
-------------------------------- --------------------------------
Date: 10/15/98 Date: 10-15-98
--------------------------------- ---------------------------------
<PAGE> 1
EXHIBIT 10.5
AMENDMENT ONE TO SERVICE
SCHEDULE CONSULTING SERVICES
BETWEEN GTE AND MSI
DATED NOVEMBER 13, 1998.
<PAGE> 2
[GTE INTERNETWORKING LOGO] SERVICE SCHEDULE
C0NSULTING SERVICES
A98-STD-PSA-523
AMENDMENT #1
This Service Schedule Amendment #1 together with any attached Task Statement is
part of and is governed by the Master Agreement for Internetworking Services
("Master Agreement") executed between GTE Internetworking Incorporated and
Micro-Media Solutions, Inc., dated 5/29/98 and the Service Schedule for
Consulting Services ("Service Schedule") A98-STD-PSA-523 dated October 15, 1998,
executed between same. The terms and conditions of the Master Agreement and the
Service Schedule are incorporated herein by reference.
1. SCOPE OF SERVICE. We will provide you with the consulting services
("Consulting Service") identified in the attached Task Statement entitled "NAP
Design Proposal for MSI" and dated November 11, 1998 for a fixed price of
$553,000, plus travel/living expenses. The Task Statement contains (a) a
description of the work to be undertaken including deliverables, performance
period and other details relating to such work, (b) the obligations and
responsibilities of each party related to the Task Statement and (c) any
acceptance criteria. The Task Statement may be modified by mutual written
agreement. Changes or additions to work performed under the Task Statement may
require changes in the resources provided by us which may result in additional
costs to you or changes in the project schedule. The terms of and conditions of
this Task Statement are independent of and shall have no impact upon the
provisions of any other Task Statement.
2. PAYMENT TERMS. You agree to pay us in the following manner:
<TABLE>
<CAPTION>
Payment Amount Payment Due Date
-------------- ----------------
<S> <C>
10% Execution
30% 60 days after the effective date
30% 90 days after the effective date
30% Upon delivery of deliverables
</TABLE>
3. OTHER TERMS AND CONDITIONS REMAIN UNCHANGED. It is the Intention of the
parties that except for the changes explicitly listed above, all other terms and
conditions of the Master Agreement and Service Schedule and any other Exhibits,
Attachments or Addenda thereto shall remain in full force and effect.
Agreed to and accepted by
GTE Internetworking, Inc. Micro-Media Solutions, Inc.
By: /s/ KATHERINE PONGRATZ By: /s/ JOSE CHAVEZ
---------------------------------- ----------------------------------
Printed Name: Katherine Pongratz Printed Name: Jose Chavez
------------------------ ------------------------
Title: Sr. Rep. Contract Relations Title: President/CEO
------------------------------- -------------------------------
Date: 11/24/98 Date: 11-13-98
-------------------------------- --------------------------------
<PAGE> 1
Exhibit 10.6
Employment Agreement
between Roger M. Lane and MSHI
effective as of March 24, 1999
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), effective as of March 24, 1999
(the "Effective Date"), is between MSI HOLDINGS, INC., a Utah corporation (the
"Company"), and ROGER M. LANE ("Lane"). The Company and Lane are collectively
referred to in this Agreement as the "Parties."
Background
On March 23, 1999, the Parties signed a letter under which the Company offered
to Lane, and Lane accepted, employment as the Company's Chief Operating Officer
to commence April 1, 1999 (the "Employment Letter"). The Parties now desire,
however, to provide for the employment of Lane commencing on the Effective Date
in accordance with the terms of this Agreement, which supersedes the Employment
Letter.
Terms of Agreement
The Parties agree as follows:
1. EMPLOYMENT. The Company employs Lane to devote his personal services to the
business and affairs of the Company, and Lane accepts such employment, on the
terms and conditions stated in this Agreement.
1.1. Duties. Lane's title and position shall be Chief Operating Officer of
the Company. Lane's duties will be those customarily performed by persons
acting in that capacity and those that may be designated by the Chief
Executive Officer of the Company consistent with the title and position of
Chief Operating Officer of the Company. Lane shall report directly to the
Company's Chief Executive Officer. Lane shall also serve, upon request and
without additional compensation, as an officer or a director, or both, of
any subsidiary, division, or affiliate of the Company or any other entity in
which the Company holds an equity interest or which it sponsors.
1.2. Full-Time Employee. Lane shall devote his full time (except for
reasonable vacation time and absence for any disability), attention, and
best efforts to the performance of his duties described in Article 1.1.
1.3. Preparation Period. Commencing on the Effective Date, Lane shall
prepare to act as Chief Operating Officer of the Company by reviewing and
familiarizing himself with the Company and its business, including its other
personnel, its properties, and its material relationships, and with the
industry in which the Company conducts business. That period of preparation
shall extend no longer than April 15, 1999 (the "Preparation Period").
Notwithstanding any provision in any of Articles 3, 4, and 10 to the
contrary, except for the nonqualified stock option granted under the
Company's 1998 Stock Option Plan (the "Option Plan") as described in Article
3.2, Lane's activities during the Preparation Period
<PAGE> 3
shall be at no cost and without charge to the Company, and Lane shall not be
entitled to any compensation, benefits, reimbursement, or indemnification
from the Company for any of his activities or omissions during the
Preparation Period. Except as described in Article 3.2, Lane's compensation,
benefits, reimbursement, and indemnification from the Company shall commence
upon the expiration of the Preparation Period.
2. TERM. The term of Lane's employment under this Agreement (the "Term") shall
commence on the Effective Date and shall continue until terminated pursuant to
Article 5.
3. COMPENSATION. As compensation for the services rendered by Lane under this
Agreement, the Company shall, during the Term (but subject to Article 1.3), pay
or provide Lane the following:
3.1. Base Salary. The Company shall pay Lane during the Term a base salary
equal to One Hundred Twenty Thousand Dollars ($120,000.00) per fiscal year
of the Company ("Base Salary"). Base Salary shall be paid in equal
installments every two weeks, in arrears, at the Company's regular and
routine payroll dates, or at such intervals as may otherwise be agreed upon
by the Parties, and in accordance with any other payroll procedures of the
Company. Base Salary shall be prorated in any fiscal year during which Lane
is employed under this Agreement for less than the entire fiscal year, in
accordance with the number of days in that fiscal year during which Lane is
so employed. Base Salary shall also be prorated (on a daily basis) for any
partial payroll period of employment under this Agreement.
3.2. Option. Lane shall be eligible to participate in any stock option,
performance share, phantom stock, or similar long-term stock-based incentive
plan adopted by the Company for its employees in effect during the Term,
including the Option Plan. Except as described in the next sentence, the
extent to which Lane shall participate in any such plan will be determined
by the Company's Board of Directors (the "Board") or the Compensation
Committee of the Board. On or as of the Effective Date, Lane shall receive a
nonqualified stock option granting Lane the right to purchase up to Four
Hundred Fifty Thousand (450,000) shares of the Company's common stock, par
value $0.10 per share ("Common Stock"), in accordance with the Option Plan
and the Stock Option Agreement attached hereto as Exhibit "A". The Company
will use its best efforts to cause Lane's option described in the preceding
sentence and any other options granted to Lane under the Option Plan to be
included in an effective registration statement on Form S-8 (or any
applicable successor form) under the Securities Act of 1933, as amended,
filed by August 15, 1999.
3.3. Savings and Retirement Plans. Lane shall be eligible to participate in
any bonus, savings, deferred compensation, retirement or pension, or death
benefit plan adopted by the Company for its employees generally in effect
during the Term.
EMPLOYMENT AGREEMENT - ROGER LANE
2
<PAGE> 4
3.4. Welfare Benefit Plans. Lane shall be eligible to participate in any
life insurance, medical, dental, and hospitalization insurance, disability
insurance benefit, or other similar employee welfare benefit plan or program
adopted by the Company covering its employees generally in effect during the
Term.
3.5. Paid Time Off. Lane shall be entitled to fifteen (15) days of paid
vacation or time off ("PTO") per fiscal year of the Company, in accordance
with the Company's PTO policies, practices, and procedures in effect during
the Term. Such PTO shall, however, be prorated in any fiscal year during
which Lane is employed under this Agreement for less than the entire fiscal
year, in accordance with the number of days in that fiscal year during which
Lane is so employed. For the avoidance of doubt, none of Lane's time during
the Preparation Period shall be counted as, or against, PTO available to
Lane.
3.6. Transportation Allowance. During the Term, the Company shall pay Lane a
transportation allowance equal to Four Hundred Dollars ($400.00) per month
("Transportation Allowance"). The Transportation Allowance shall be payable
in equal installments together with the payments of Base Salary.
3.7. Tax Withholding. The Company may deduct from any compensation or other
amount payable to Lane under this Agreement (including under Article 5)
social security (FICA) taxes and all federal, state, municipal, and other
taxes or governmental charges as may, in the Company's judgment, be
required.
3.8. Participation in Compensation and Benefit Plans. Lane's participation
during the Term in any or all of the plans or programs adopted by the
Company described in Articles 3.2 through 3.4 ("Compensation and Benefit
Plans") will be subject to the terms and conditions of those Compensation
and Benefit Plans as they now exist or may hereafter be adopted, amended,
restated, or discontinued by the Company, including the satisfaction of all
applicable eligibility requirements and vesting provisions of those
Compensation and Benefit Plans. The Company shall have no obligation under
this Agreement to continue any or all of the Compensation and Benefit Plans
that now exist or are hereafter adopted. To the extent that Lane is eligible
to participate in any Compensation and Benefit Plan existing on the date of
this Agreement for which a plan description or plan materials are available,
the Company has provided to Lane, and Lane hereby acknowledges receipt of, a
copy of the correct and complete written plan description or plan materials
distributed to participants or prospective participants.
4. EXPENSE REIMBURSEMENT. During the Term, Lane may incur, and shall be
reimbursed by the Company for, reasonable, ordinary and necessary, and
documented business expenses to the extent that Lane complies with, and
reimbursement is permitted by, the Company's policies, practices, and
procedures.
EMPLOYMENT AGREEMENT - ROGER LANE
3
<PAGE> 5
5. EMPLOYMENT TERMINATION. Either Party may terminate Lane's employment under
this Agreement by giving written notice of termination to the other Party. If
the Company is terminating, it shall include in that notice a statement whether
the termination is because of Disability or for Cause or without Cause. The
Parties' respective rights and obligations upon the termination of Lane's
employment under this Agreement are as follows:
5.1. Termination Generally. Upon any termination of Lane's employment under
this Agreement, the Company shall pay or provide Lane the following:
5.l.a. Any amount of Base Salary and Transportation Allowance earned by,
but not yet paid to, Lane through the effective date of termination of
employment, as further described below (the "Termination Date");
5.1.b. All benefits that have been earned by or vested in, and are
payable to, Lane under, and subject to the terms (including all
eligibility requirements) of, the Compensation and Benefit Plans in
which Lane participated through the Termination Date;
5.1.c. All reimbursable expenses due, but not yet paid, to Lane as of
the Termination Date under Article 4; and
5.1.d. An amount equal to all accrued and unused PTO, calculated in
accordance with the Company's PTO policies, practices, and procedures
(including authorized deductions and the deductions required by law),
through the Termination Date.
The amount of Base Salary and Transportation Allowance due under
Section 5.1.a shall be paid no later than thirty (30) business days after
the Termination Date; the amounts or benefits due under Section 5.1.b shall
be paid or provided in accordance with the terms of the Compensation and
Benefit Plans under which such amounts or benefits are due to Lane; and the
amounts due under Sections 5.1.c and 5.1.d shall be paid in accordance with
the terms of the Company's policies, practices, and procedures regarding
reimbursable expenses and PTO, respectively. Except as expressly provided
below in this Article 5, upon paying or providing Lane the preceding amounts
or benefits, the Company shall have no further obligation or liability under
this Agreement for base salary or any other cash compensation or for any
benefits under any of the Compensation and Benefit Plans. Upon termination
of Lane's employment, Lane shall be deemed to have resigned from any
position as an officer or director, or both, of any subsidiary, division, or
affiliate of the Company or any other entity in which the Company holds an
equity interest or which it sponsors that Lane then holds; no written
resignation need be given or delivered to the Company.
In this Agreement, the Termination Date shall be (i) the date of Lane's
death, (ii) the third business day after the date on which the Company gives
notice of termination because of
EMPLOYMENT AGREEMENT - ROGER LANE
4
<PAGE> 6
Disability, or (iii) the date of termination specified in any other notice
of termination, or if not specified in the notice of termination, the date
that notice of termination is given.
In this Agreement, "Disability" means Lane's permanent and total disability,
which shall be deemed to exist if he is unable reasonably to perform his
duties under this Agreement because of any medically determinable physical
or mental impairment which can be expected to result in death or which has
lasted or can be expected to last for at least ninety (90) consecutive days.
Any Disability shall be determined by the Board or an authorized committee
or representative thereof ("Representative"), in its sole and absolute
discretion, upon receipt of competent medical advice from a qualified
physician selected by or acceptable to the Board or its Representative. Lane
shall, if there is any question about his Disability, submit to a physical
examination by a qualified physician selected by the Board or its
Representative.
In this Agreement, "Cause" means any of the following: (i) Lane's failure to
substantially perform his duties under this Agreement, other than any such
failure resulting from his incapacity due to physical or mental illness or
Disability; (ii) Lane's engaging in any action which, or omitting to engage
in any action the omission of which, has been, is, or is reasonably expected
to be substantially injurious (monetarily or otherwise) to the Company or
its business or reputation; (iii) Lane's performance of any act or omission
constituting dishonesty that results, directly or indirectly, in significant
gain or enrichment of Lane or his family or affiliates at the expense of the
Company; or (iv) any breach by Lane of any obligation under any of Articles
6, 7, 8, and 9. Whether an event or circumstance constituting Cause exists
will be determined in good faith by the Board or its Representative. If the
Company believes that Cause for termination exists under clause (i) above in
this paragraph, the Company shall notify Lane of that belief, and that
notice shall describe the event or circumstance believed to constitute Cause
for termination. If that event or circumstance may reasonably be remedied or
corrected, Lane shall have thirty (30) days to effect that correction or
remedy. If not corrected or remedied within that thirty (30) day period,
Cause for termination shall immediately be deemed to exist, and Lane's
employment shall be deemed terminated. If the Company believes that Cause
for termination exists under any of clauses (ii), (iii), and (iv) above in
this paragraph, the Company shall notify Lane of that belief, and that
notice shall constitute immediate termination of Lane's employment.
Lane may voluntarily terminate his employment under this Agreement only by
giving at least thirty (30) days' prior written notice to the Company. Lane
shall not be liable to the Company for breach of this Agreement because of
his termination of employment in accordance with the preceding sentence.
5.2. Termination Without Cause or Upon Death or Disability. If Lane's
employment is terminated by death or by the Company because of Disability or
without Cause, Lane (or
EMPLOYMENT AGREEMENT - ROGER LANE
5
<PAGE> 7
his legal representative, estate, or heirs) shall be entitled to receive
from the Company, as liquidated damages:
5.2.a. The continued payment of Base Salary, at the rate in effect at
the Termination Date, and Transportation Allowance for twelve (12)
consecutive months following the Termination Date (the "Severance
Payments"); and
5.2.b. if Lane elects and maintains continued coverage under the
Consolidated Omnibus Benefits Reconciliation Act of 1985 and
corresponding regulations ("COBRA"), then for up to the twelve (12)
consecutive months immediately after the Termination Date, payments in
an amount equal to the difference between (i) the premiums paid or
payable by Lane for coverage under COBRA for himself and his dependents
(if any) and (ii) the premiums that he would have paid for comparable
coverage under the Company's then current group insurance plan or plans
if his employment under this Agreement had not ceased (the "Insurance
Payments"); except that the Insurance Payments shall expire or terminate
immediately upon Lane's becoming eligible for coverage under another
employer's plan or policy.
The Severance Payments shall be paid at the dates on which Lane's Base
Salary would have been payable if his employment under this Agreement had
not been terminated. The Company will commence the Severance Payments and
the Insurance Payments within ten (10) business days after the first
business day on which the release executed and delivered in accordance with
Section 5.3.a becomes irrevocable by Lane (or his legal representative,
estate, or heirs). The Company's obligations for the Insurance Payments are
not intended to negate or impair any obligation of the Company or right of
Lane under COBRA. The Severance Payments and the Insurance Payments shall be
in addition to the amounts or benefits to which Lane is entitled under
Article 5.1. Any Severance Payments or Insurance Payments (or both) under
this Article 5.2 shall not be deemed the continuation of Lane's employment
for any purpose.
5.3. Conditions to Severance Payments. Except as provided in Section 5.2.b
and below in this Article 5.3, none of the Severance Payments and the
Insurance Payments under Article 5.2 will be subject to reduction as the
result of future compensation earned or received by Lane (including by
self-employment), and Lane shall have no duty to mitigate his damages. The
Severance Payments and the Insurance Payments shall, however, be conditioned
upon:
5.3.a. The Company's receipt of a Settlement Agreement, General Release,
and Covenant Not to Sue executed and performed by Lane (or his legal
representative, estate, or heirs) in substantially the form of Exhibit
"B" to this Agreement (the "Release Agreement"); and
EMPLOYMENT AGREEMENT - ROGER LANE
6
<PAGE> 8
5.3.b. the compliance by Lane (or his legal representative, estate, or
heirs) with Articles 6, 7, 8, and 9 after the Termination Date as
specified in those Articles, as well as with the Release Agreement.
The Company may cease or reduce the Severance Payments or the Insurance
Payments (or both) if, and the Company shall be entitled to a return of the
Severance Payments and the Insurance Payments (or both) made to the extent
that, there is or has been any material violation by Lane (or his legal
representatives, estate, or heirs) of any of Articles 6, 7, 8, and 9 or of
the Release Agreement.
5.4. Termination for Cause or by Lane. If Lane's employment is terminated by
the Company for Cause or is voluntarily terminated by Lane, then Lane shall
not be entitled to any payments under this Agreement other than the amounts
or benefits to which he is entitled under Article 5.1.
5.5. Post-Termination Survival. The provisions of this Article 5 shall
survive the termination of Lane's employment by the Company and its
subsidiaries to the extent necessary to effect the post-termination payments
or benefits to which Lane is entitled under the terms of this Article 5.
6. CONFIDENTIAL INFORMATION. The Company shall provide to Lane, during the
Term, access to various trade secrets, confidential information, and proprietary
information of the Company (which, in this Article 6 as well as in Articles 7,
8, and 9, shall include the Company's subsidiaries and affiliates) which are
valuable and unique to the Company ("Confidential Information"). Confidential
Information includes the Company's plans, policies, and procedures relating to
its BBN Certification as well as the terms of, and the Company's plans,
policies, and procedures relating to, the Company's relationships with GTE,
Southwestern Bell Telephone Company, Siemens-Nixdorf Information Systems, Inc.,
and other persons having relationships that are material to the Company's
business and affairs. Lane shall not, either while in the employ of the Company
or at any time thereafter, (i) use any of the Confidential Information, or (ii)
disclose any of the Confidential Information to any person not an employee of
the Company or not engaged to render services to the Company, except (in either
case) to perform his duties under this Agreement or otherwise with the Company's
prior written consent. Nothing in this Article 6 shall preclude Lane from the
use or disclosure of information generally known to the public or not considered
confidential by the Company or from any disclosure to the extent required by law
or court order (though Lane must give the Company prior notice of any such
required disclosure and must cooperate with any reasonable requests of the
Company to obtain a protective order regarding, or to narrow the scope of, the
Confidential Information required to be disclosed). All files, records,
documents, information, data, and similar items relating to the business or
affairs of the Company, whether prepared by Lane or otherwise coming into his
possession, shall remain the exclusive property of the Company and shall not be
removed from the premises from the Company, except in the ordinary course of
business as part of Lane's performance of his duties
EMPLOYMENT AGREEMENT - ROGER LANE
7
<PAGE> 9
under this Agreement, and (in any event) shall be promptly returned or delivered
to the Company (without Lane's retaining any copies) upon the termination of
employment under this Agreement.
7. NONCOMPETITION. Lane acknowledges that, in addition to his access to and
possession of Confidential Information, during the Term he will acquire valuable
experience and special training regarding the Company's business and that the
knowledge, experience, and training he will acquire would enable him to injure
the Company if he were to engage in any business that is competitive with the
business of the Company. Therefore, Lane shall not, at any time during the Term
and for the twelve (12) consecutive months immediately after the Termination
Date, directly or indirectly (as an employee, employer, consultant, agent,
principal, partner, shareholder, officer, director, or manager or in any other
individual or representative capacity), engage, invest, or participate in any
business in direct competition with the business of the Company within a fifty
(50)-mile radius of each location, or set or group of locations, (i) at, from,
or to which the Company conducts or has conducted business or renders, provides,
or delivers, or has rendered, provided, or delivered, services or products
during the Measurement Period (as defined below) or (ii) that is or has been,
during the Measurement Period, the subject of a Proposal (as defined below) to
conduct business or render, provide, or deliver services or products thereat,
therefrom, or thereto. "Measurement Period" means, with respect to Lane's
activity (A) at any time during the Term, the Term, and (B) at any time on or
after the Termination Date, the six (6) consecutive months preceding, and
including, the Termination Date. "Proposal" means a written or formal proposal,
bid, arrangement, understanding, or agreement by the Company to or with another
person that reflects or contains negotiated or substantive terms, but does not
include any marketing contact by the Company where the other person has not
solicited that contact or indicated any interest in doing business with the
Company. (Lane shall not be prohibited, however, from owning, as a passive
investor, less than five percent (5%) of the publicly traded stock or other
securities of any entity engaged in a business competitive with that of the
Company.) Lane represents and agrees that (x) the Company has agreed to provide
him, and he will receive from the Company, special experience and knowledge,
including Confidential Information, (y) because the Confidential Information is
valuable to the Company, its protection (particularly from any competitive
business) constitutes a legitimate interest to be protected by the Company by
enforcement of the restriction in this Article 7, and (z) the enforcement of the
restriction in this Article 7 would not be unduly burdensome to Lane and that,
in order to induce the Company to enter into this Agreement (which contains
various benefits to Lane and obligations of the Company with respect to Lane's
employment), Lane is willing and able to engage, invest, or participate in
business after the Termination Date so as not to violate this Article 7. The
Parties agree that the restrictions in this Article 7 regarding scope of
activity, duration, and geographic area are reasonable; however, if any court
should determine that any of those restrictions is unenforceable, that
restriction shall not thereby be terminated, but shall be deemed amended to the
extent required to render it enforceable.
8. NONSOLICITATION. Lane shall not, at any time within the twelve (12)
consecutive months immediately after the Termination Date, either directly or
indirectly:
EMPLOYMENT AGREEMENT - ROGER LANE
8
<PAGE> 10
8.1. Disclose Contact Information. Make known to any person the names and
addresses, or other contact information, of any of the customers, suppliers,
or other persons having significant business relationships with the Company
within the information technology industry, so that such person could
affect, or attempt to affect, any of those relationships to the detriment of
the Company; or
8.2. Solicit Employees. Solicit, recruit, or hire, or attempt to solicit,
recruit, or hire, any employee or consultant of the Company, or in any other
manner attempt to induce any employee or consultant of the Company to leave
the employ of the Company or cease his or her consulting or similar business
relationship with the Company. References in this Article 8.2 to "any
employee or consultant" shall include any person who was an employee or
consultant of the Company at any time within the six (6) consecutive months
preceding, and including, the Termination Date.
9. DEVELOPMENTS. Lane shall promptly disclose to the Company all inventions,
discoveries, improvements, processes, formulas, ideas, know-how, methods,
research, compositions, and other developments, whether or not patentable or
copyrightable, that Lane, by himself or in conjunction with any other person,
conceives, makes, develops, or acquires during the Term which (i) are or relate
to the properties, assets, or existing or contemplated business or research
activities of the Company, (ii) are suggested by, arise out of, or result from,
directly or indirectly, Lane's association with the Company, or (iii) arise out
of or result from, directly or indirectly, the use of the Company's time, labor,
materials, facilities, or other resources ("Developments").
Lane hereby assigns, transfers, and conveys to the Company, and hereby agrees to
assign, transfer, and convey to the Company during or after the Term, all of his
right and title to and interest in all Developments. Lane shall, from time to
time upon the request of the Company during or after the Term, execute and
deliver any and all instruments and documents and take any and all other actions
which, in the judgment of the Company or its counsel, are or may be necessary or
desirable to document any such assignment, transfer, and conveyance to the
Company or to enable the Company to file and process applications for, and to
acquire, maintain, and enforce, any and all patents, trademarks, registrations,
or copyrights with respect to any of the Developments, or to obtain any
extension, validation, re-issue, continuance, or renewal of any such patent,
trademark, registration, or copyright. The Company will be responsible for the
preparation of any such instrument or document and for the implementation of any
such proceedings and will reimburse Lane for all reasonable expenses incurred by
him in complying with this Article 9.
10. INDEMNIFICATION. To the extent Lane is an officer or director of the
Company, the Company shall include Lane under any existing or future (i)
directors' and officers' liability insurance policy that the Company obtains and
maintains or (ii) indemnification agreements between the Company and other
executives of the Company. Subject to the foregoing sentence, the Company will
indemnify Lane to the fullest extent permitted by the laws of the Company's
EMPLOYMENT AGREEMENT - ROGER LANE
9
<PAGE> 11
state of incorporation in effect at that time or by the articles or certificate
of incorporation and by-laws of the Company, whichever affords the greater
protection to Lane.
11. CERTAIN REMEDIES. Any breach or violation by Lane of any of Articles 6, 7,
8, and 9 shall entitle the Company, as a matter of right, to an injunction
issued by any court of competent jurisdiction, restraining any further or
continued breach or violation, or to specific performance requiring the
compliance with Lane's covenants. This right to an injunction or other equitable
relief shall be in addition to, and not in lieu of, any other remedies to which
the Company may be entitled. The existence of any claim or cause of action of
Lane against the Company, or any subsidiary or affiliate of the Company, whether
based on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of Lane's covenants in any of Articles 6, 7, 8, and
9. The covenants in Articles 6, 7, 8, and 9 and in this Article 11 shall survive
the termination of Lane's employment under this Agreement.
12. BINDING AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and shall inure to the benefit of, the Company and Lane and their
respective legal representatives, heirs, executors, administrators, and
successors and assigns (as permitted by this Article 12), including any
successor to the Company by merger, consolidation, or reorganization and any
other person that acquires all or substantially all of the business and assets
of the Company. The Company shall have the right, without the need for any
consent from Lane, to assign its rights, benefits, remedies, and obligations
under this Agreement to one or more other persons. The rights, benefits,
remedies, and obligations of Lane under this Agreement are personal to Lane,
however, and may not be assigned or delegated by him; except that this shall not
preclude (i) Lane from designating one or more beneficiaries to receive any
amount or benefit that may be paid or provided after Lane's death or (ii) the
legal representative of Lane's estate from assigning any right or benefit under
this Agreement to the person or persons entitled thereto under Lane's will or
the laws of intestacy applicable to Lane's estate, as the case may be.
13. SEVERABILITY. If any provision of this Agreement is found to be invalid or
unenforceable for any reason, then (i) that provision shall be severed from this
Agreement, (ii) this Agreement shall be construed and enforced as if that
invalid or unenforceable provision never constituted a part of this Agreement,
and (iii) the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
applicable law. Further, in lieu of that invalid or unenforceable provision,
there shall be added to this Agreement a provision as similar in its terms to
that invalid or unenforceable provision as may be possible and be valid and
enforceable.
14. NOTICES. Any notice, request, or other communication to be given by either
Party under this Agreement by to the other shall be in writing and either (i)
delivered in person, (ii) delivered by prepaid same-day or overnight courier
service, (iii) sent by certified mail, postage prepaid with return receipt
requested, or (iv) transmitted by facsimile, in any case addressed to the other
Party as follows:
EMPLOYMENT AGREEMENT - ROGER LANE
10
<PAGE> 12
To the Company: MSI Holdings, Inc.
501 Waller Street
Austin, Texas 78702
Attention:________________
Facsimile: (512)473-2371
with a copy (which shall not constitute notice) to:
Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201-4761
Attn: I. Bobby Majumder, Esq.
Facsimile: (214) 969-4667
To Lane: Roger M. Lane
10610 Morado Circle #624
Austin, Texas 78759
or to such other address or facsimile number as the Party to be notified may
have designated by notice previously given in accordance with this Article 14.
Communications delivered in person or by courier service or transmitted by
facsimile shall be deemed given and received as of actual receipt (or refusal)
by the addressee. Communications mailed as described above in this Article 14
shall be deemed given and received three (3) business days after mailing or upon
actual receipt, whichever is earlier.
15. CERTAIN DEFINED TERMS. In this Agreement, (i) "person" means an individual
or any corporation, partnership, trust, unincorporated association, limited
liability company, or other legal entity, whether acting in an individual,
fiduciary, or other capacity, and any government, court, or governmental agency,
(ii) "include" and "including" do not signify any limitation, (iii) "Article"
and "Section" means any Article and any Section, respectively, of this
Agreement, unless otherwise indicated, (iv) an "affiliate" of a person means any
other person controlling, controlled by, or under common control with that
person, and (v) "business day" means any Monday through Friday, other than any
such weekday on which the executive offices of the Company are closed. In
addition, the use in this Agreement of "year," "annual," "month," or "monthly"
(or similar terms) to indicate a measurement period shall not itself be deemed
to grant rights to Lane for employment or compensation for that period.
16. ENTIRE AGREEMENT. This Agreement, with Exhibits "A" and "B", constitutes the
entire agreement between the Company and Lane with respect to the subject matter
hereof and supersedes any prior agreement (including the Employment Letter)
between the Company and Lane with respect to the same subject matter.
EMPLOYMENT AGREEMENT - ROGER LANE
11
<PAGE> 13
17. MODIFICATION AND WAIVER. No amendment to or modification of this Agreement,
or waiver of any term, provision, or condition of this Agreement, will be
binding upon a Party unless the amendment, modification, or waiver is in writing
and signed by the Party to be bound. Any waiver by a Party of a breach or
violation of any provision of this Agreement by the other Party shall not be
deemed a waiver of any other provision or of any subsequent breach or violation.
18. GENDER. Whenever the context requires in this Agreement, words denoting
gender in this Agreement include the masculine, feminine, and neuter.
19. GOVERNING LAW; VENUE. This Agreement, and the rights, remedies, obligations,
and duties of the Parties under this Agreement, shall be governed by, construed
in accordance with, and enforced under the laws of the State of Texas. The
exclusive venue of any action or proceeding relating to this Agreement or its
subject matter shall be in Travis County, Texas.
20. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
constitutes an original, but all of which constitute one and the same document.
EMPLOYMENT AGREEMENT - ROGER LANE
12
<PAGE> 14
The Parties have executed this Agreement to be effective as of the date stated
in the first paragraph.
THE COMPANY: LANE:
MSI HOLDINGS, INC.,
a Utah corporation
By: /s/ ILLEGIBLE /s/ ROGER M. LANE
--------------------------------- -------------------------------
/s/ ILLEGIBLE ROGER M. LANE
---------------------------------
/s/ ILLEGIBLE
/s/ ILLEGIBLE
EMPLOYMENT AGREEMENT - ROGER LANE
13
<PAGE> 15
EXHIBIT "A"
MSI HOLDINGS, INC.
STOCK OPTION AGREEMENT
- --------------------------------------------------------------------------------
Pursuant to the MSI Holdings, Inc. (f/k/a Micro-Media Solutions, Inc.)
1998 Stock Option Plan (the "Plan") for key employees of MS1 Holdings, Inc. (the
"Company") and its Subsidiaries (as defined in the Plan), the Company hereby
grants a nonqualified option to purchase shares of its Common Stock, $0.10 par
value ("Common Stock"), to:
ROGER M. LANE
-------------
Optionee
This option is granted to the Optionee, in consideration of his serving
as the Company's Chief Operating Officer, on the following terms and conditions:
1. NUMBER OF SHARES AND PRICE. The number of shares subject to this
option, and the exercise price per share, are:
450,000 $3.75
---------------- ------------------------
Number of Shares Exercise Price Per Share
2. OPTION PERIOD. The term of this option (the "Option Period") will
commence on the date of grant noted below in this Section 2 and will expire at
5:00 p.m., Austin, Texas time, on the earliest of (i) the 30th day after
termination of the Optionee's continuing employment or consulting relationship
with the Company and its Subsidiaries for any reason other than death, permanent
disability (as determined by the Committee (as defined in the Plan) in
accordance with the Plan) or retirement at or after seventy (70) years of age
("Normal Retirement Age"); (ii) one (1) year after the termination of the
Optionee's continuing employment or consulting relationship with the Company and
its Subsidiaries because of the death or permanent disability of the Optionee or
the retirement of the Optionee at or after Normal Retirement Age; or (iii) the
expiration date noted below in this Section 2. After the expiration date, no
further shares may be purchased under this option.
STOCK OPTION AGREEMENT - ROGER LANE
<PAGE> 16
March 24, 1999 March 24, 2004
-------------- ---------------
Date of Grant Expiration Date
3. VESTING. On the date that is six (6) months after the date of grant
under this Stock Option Agreement ("Agreement"), One Hundred Thousand (100,000)
option shares shall become vested and will be available thereafter for purchase
by the Optionee, in accordance with this Agreement, during the Option Period. On
the first anniversary of the date of grant of this option, One Hundred Ten
Thousand (110,000) of the option shares shall become vested and will be
available thereafter for purchase by the Optionee, in accordance with this
Agreement, during the remaining term of the Option Period. On each of the second
and the third anniversaries of the date of grant of this option, One Hundred
Twenty Thousand (120,000) of the option shares shall become vested and will be
available thereafter for purchase by the Optionee, in accordance with this
Agreement, during the remaining term of the Option Period; provided, that on
each such vesting date, the Optionee has been in a continuing employment or
consulting relationship with the Company since the date of grant of this option,
except as provided in Section 6 below. If the Optionee dies or becomes
permanently disabled (as determined by the Committee in accordance with the
Plan) during his continuing employment or consulting relationship with the
Company or its Subsidiaries or retires from such employment or consulting
relationship at or after Normal Retirement Age, all of the shares subject to
this option will become and be vested and immediately available for purchase by
the Optionee (or in the case of the death or disability of the Optionee, by the
person(s) specified in Section 6(b) below or Section 6(c) below, as the case may
be) in accordance with this Agreement.
4. VESTING UPON CHANGE OF CONTROL. If the Company proposes to sell all
or substantially all of its assets or to be a party to any merger, consolidation
or reorganization, or if any Acquiring Person (as defined below in this Section
4) makes a tender offer or exchange offer for the outstanding capital stock of
the Company, and as a result of any such transaction the holders of outstanding
equity securities of the Company (including, without limitation, shares of any
and all classes of capital stock of the Company and options, warrants, and other
rights to acquire shares of capital stock of the Company) immediately prior to
the consummation thereof would own, directly or indirectly, fifty percent (50%)
or less of all of the equity securities and voting power of the surviving,
resulting or purchasing corporation or other entity outstanding immediately
following the consummation thereof (any such transaction being a "Change-of-
Control Transaction"), then all of the option shares will become and be vested
and immediately available for purchase by the Optionee in accordance with this
Agreement, and the Optionee will be entitled to receive, for the aggregate
exercise price payable upon exercise of this option, in lieu of the shares of
Common Stock otherwise issuable to him upon exercise of this option, the same
kind and amount of securities or assets as may be distributable upon such
Change-of-Control Transaction to a holder of the number of shares of Common
Stock into which this option
STOCK OPTION AGREEMENT - ROGER LANE
2
<PAGE> 17
is convertible immediately prior to the date of such Change-of-Control
Transaction. An "Acquiring Person" is any person or entity other than (i) the
Company, (ii) the Optionee or any group (within the meaning of Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended) of which the Optionee is a
member, (iii) any person or entity that controls (as defined in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended) the Company on the date of
grant or any group of which any such controlling person or entity is a member,
and (iv) any employee-benefit plan or related trust sponsored or maintained by
the Company or any trustee or other fiduciary thereof. For the avoidance of
doubt, neither the conversion of convertible securities of the Company nor the
exercise or conversion of any options, warrants, or other rights to acquire
shares of capital stock of the Company outstanding on the date of grant shall
constitute a Change-of-Control Transaction.
5. EXERCISE OF OPTION. Subject to Sections 3 and 4 above and Section 6
below, this option shall be exercisable at any time and from time to time after
the date of grant and on or prior to its expiration on the expiration date, in
whole or in part with respect to any portion of the option shares that has
become vested at the time of exercise. No fractional shares will be issued. If
an exercise covers a fractional share, the number of shares to be issued on
exercise will be rounded to the next lowest share and the exercise price paid by
the Optionee for the fraction will be returned to the Optionee.
6. RIGHT TO EXERCISE; RESTRICTIONS. This option shall be exercisable
during the Option Period only by the Optionee and only if, at the time of
exercise, the Optionee has been in a continuing employment or consulting
relationship with the Company since the date of grant of this option, except
that:
(a) The Optionee may exercise this option, with respect only to
shares that were vested on the date of termination of his continuing
employment or consulting relationship with the Company and its
Subsidiaries, except for any termination described in subsections (b)
and (c) of this Section 6, until the expiration of the Option Period on
the 30th day after such termination (but, in any event, no later than
the expiration of this option on the expiration date);
(b) If the Optionee should die while in a continuing employment or
consulting relationship with the Company and its Subsidiaries, this
option may be exercised, to the extent of the shares with respect to
which this option could have been exercised by the Optionee on the date
of his death (in accordance with the last sentence of Section 3 above),
by the Optionee's estate or by a person who acquired the right to
exercise this option by bequest or inheritance or by reason of the death
of the Optionee until the expiration of the Option Period one year after
the death of Optionee (but, in any event, no later than the expiration
of this option on the expiration date); and
STOCK OPTION AGREEMENT - ROGER LANE
3
<PAGE> 18
(c) If the Optionee should become permanently disabled (as
determined by the Committee in accordance with the Plan) or retire at or
after Normal Retirement Age while in a continuing employment or
consulting relationship with the Company and its Subsidiaries, this
option may be exercised, to the extent of the shares with respect to
which this option could have been exercised by the Optionee on the date
of his disability (in accordance with the last sentence of Section 3
above), by the Optionee or his personal representative until the
expiration of the Option Period one year after such event (but, in any
event, no later than the expiration of this option on the expiration
date).
For purposes of this option, the term "continuing employment or
consulting relationship" means the absence of any interruption or termination of
the Optionee's employment by or consulting relationship with the Company or any
subsidiary of the Company which now exists or hereafter is organized or acquired
by the Company or one of its Subsidiaries. A continuing employment or consulting
relationship shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the Board. If the
Optionee's employment or consulting relationship is terminated for any reason
(including disability or retirement from active employment), but simultaneously
therewith the Optionee becomes a member of the Board or the board of directors
of a Subsidiary (a "Subsidiary Board") or is then already a member, the
employment or consulting relationship will be deemed to be a continuing
employment or consulting relationship as long as the Optionee serves as a member
of the Board or a Subsidiary Board, and (if otherwise applicable) he shall not
be deemed to have retired until cessation of or retirement from his membership
on the Board or a Subsidiary Board.
This option may not be exercised, or if exercised no shares need be
issued by the Company, unless and until the Company has obtained all necessary
approvals and consents of, and has made all necessary filings or submissions to,
governmental authorities and other persons (such as lenders to the Company).
7. MANNER OF EXERCISE. This option shall be exercisable by a written
notice to the Company which:
(a) States the election to exercise this option and the number of
shares with respect to which it is being exercised;
(b) Contains an undertaking to provide such information as is
required, in the discretion of counsel for the Company, to determine
whether an exemption from registration of such shares, if required, is
available under federal and applicable state securities laws and to make
such representations and warranties regarding the Optionee's investment
intent as such counsel may reasonably require; and
STOCK OPTION AGREEMENT - ROGER LANE
4
<PAGE> 19
(c) Is signed by the Optionee or other person or persons authorized
to exercise this option and, if signed by a person other than the
Optionee, is accompanied by appropriate evidence or proof of the
authority or right of each such person to exercise this option.
The written notice shall be accompanied by cash or a check (which, after the
Optionee's continuing employment or consulting relationship with the Company and
its Subsidiaries has ceased, must be a cashier's or certified check) in the
amount of the exercise price for the total number of shares being purchased;
except that, if then permitted under applicable securities laws, the Optionee
may exercise this option by delivering to the Company a properly executed notice
of exercise together with (i) irrevocable instructions to a securities broker to
promptly deliver to the Company cash or a check payable and acceptable to the
Company in the full amount of the exercise price for the total number of option
shares being purchased (provided, that the Optionee and the securities
broker shall comply with such procedures and enter into such agreements of
indemnity and other agreements as the Company may prescribe as a condition of
that payment procedure), or (ii) shares of Common Stock that have been owned by
the Optionee for at least six (6) months before the date of exercise, free and
clear of any and all liens, claims, and encumbrances, having a fair market value
on the last trading day preceding the date of exercise equal to the full amount
of the exercise price for the total number of option shares being purchased. The
Optionee may also make payment in any combination of the permissible forms of
payment described in the preceding sentence. The Company may also require that
the Optionee remit to the Company an amount sufficient to satisfy any federal,
state, or local withholding tax requirements, or make any other arrangements
satisfactory to the Company with regard to those taxes, as a condition to the
delivery to the Optionee of any option shares purchased pursuant to exercise of
this option.
8. NON-TRANSFERABILITY. This option and the Optionee's rights under this
Agreement may not be transferred or assigned in any manner by the Optionee other
than by will or the laws of descent and distribution, and any purported transfer
or assignment by the Optionee (other than by will or the laws of descent and
distribution) shall be void. This option may be exercised only by the Optionee
during his lifetime.
9. RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a stockholder
with respect to any shares of Common Stock covered by this option, until such
time as a certificate is issued to him for the shares. Except as provided in
Section 10 of this Agreement, no adjustment will be made for dividends or other
rights of stockholders for which the record date is prior to the issuance of a
certificate for the shares.
10. CAPITAL ADJUSTMENTS. The number of shares of Common Stock covered by
this option, and the exercise price thereof, shall be subject to such adjustment
as the Committee
STOCK OPTION AGREEMENT - ROGER LANE
5
<PAGE> 20
deems appropriate to reflect any stock dividend, stock split, share combination,
or the like of or by the Company.
11. NOTICES. Each notice relating to this option must be in writing and
delivered in person or by courier or sent by certified mail, postage prepaid
with return receipt requested, to the proper address. Each notice will be deemed
to have been given on the date it is received. Notices to the Company will be
mailed or delivered as follows:
MSI Holdings, Inc.
501 Waller
Austin, Texas 78702
Attention: Chairman of the Board
along with a copy (which shall not constitute notice) to:
Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201-4761
Attn: I. Bobby Majumder, Esq.
Telecopier: (214) 969-4667
Notices to the Optionee will be addressed to him at his home address as then
reflected in the personnel records of the Company. A party may change its or his
address for notices under this Agreement by giving a notice to that effect in
accordance with this Section 11.
12. BENEFITS OF AGREEMENT. This Agreement shall inure to the benefit of
and be binding upon each successor of the Company and upon the heirs, legal
representatives and successors of the Optionee. This Agreement shall be the sole
and exclusive source of any and all rights which the Optionee, his heirs, legal
representatives or successors, may have with respect to the shares subject to
this option.
13. RESOLUTION OF DISPUTES. Any dispute or disagreement about the
interpretation, construction or application of this Agreement will be determined
by the Committee. Any determination made by the Committee will be final, binding
and conclusive for all purposes.
STOCK OPTION AGREEMENT - ROGER LANE
6
<PAGE> 21
14. STOCK OPTION PLAN. This option is granted pursuant to the Plan,
as amended and in effect from time to time, and the Plan is incorporated in, and
made a part of, this Agreement. In the event of any conflict or inconsistency
between the terms and conditions of the Plan and the terms and conditions of
this Agreement, the terms and conditions of the Plan shall be controlling, but
the terms and conditions of the Plan shall not be considered an enlargement of
any benefits under this Agreement. In addition, this option is subject to any
rules and regulations promulgated under or for the Plan, whether now or
hereafter in effect.
15. GENDER AND NUMBER. In this Agreement, whenever required by the
context, the pronouns and any variation thereof shall be deemed to referred to
the masculine, feminine, or neuter, and the singular shall include the plural,
and visa versa.
16. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one document.
IN WITNESS WHEREOF, the Company and the Optionee have caused this
Agreement to be executed as of the date of grant noted above.
OPTIONEE MSI HOLDINGS, INC.
By:
- ------------------------------- -----------------------------------
ROGER M. LANE
-----------------------------------
STOCK OPTION AGREEMENT - ROGER LANE
7
<PAGE> 22
EXHIBIT "B"
SETTLEMENT AGREEMENT,
GENERAL RELEASE, AND COVENANT NOT TO SUE
This Settlement Agreement, General Release, and Covenant Not to Sue
("Agreement") is made and entered into as of the ______ day of ____________,
_____, by and between ________ ("Employee") and MSI HOLDINGS, INC., a Utah
corporation (the "Company"), both of which are hereinafter collectively referred
to as the "parties".
Recitals
WHEREAS, Employee was employed by the Company as its Chief Operating
Officer under the terms of an Employment Agreement dated as of March 24, 1999
(the "Employment Agreement");
WHEREAS, Employee's employment under the Employment Agreement [SHALL
TERMINATE/HAS TERMINATED] effective _____________, _________ (the "Termination
Date"); and
WHEREAS, the parties desire to settle fully and finally, in the manner
set forth herein, all differences between them which have arisen, or which may
arise, prior to, or at the time of, the execution of this Agreement, including,
but in no way limited to, any and all claims and controversies arising out of
the Employment Agreement, the employment relationship between Employee and the
Company, and the cessation or termination thereof;
Agreement
NOW, THEREFORE, in consideration of the Recitals and the mutual
promises, covenants and agreements set forth herein, the parties covenant and
agree as follows:
"Employee, for himself or herself and on behalf of his attorneys,
heirs, legatees, assigns, successors, executors, and administrators, IRREVOCABLY
AND UNCONDITIONALLY RELEASES, ACQUITS, AND FOREVER DISCHARGES the Company, its
current and former parent, subsidiary, affiliated, and related corporations,
firms, associations, partnerships, limited liability companies, and other
entities, their successors and assigns, and the current and former owners,
members, shareholders, managers, directors, officers, partners, employees,
agents, attorneys, representatives, and insurers of said corporations, firms,
associations, partnerships, limited liability companies, and other entities, and
their guardians, successors, assigns, heirs, executors, and administrators
(hereinafter collectively referred to as the "Releasees"), from any and all
claims, complaints, grievances, liabilities, obligations, promises, agreements,
damages, causes of action, rights, debts, demands, controversies, costs, losses,
damages, and expenses (including, without limitation, attorneys' fees and
expenses) whatsoever (collectively, "Claims") under any municipal, local, state,
or federal law, common or statutory -- including, but in no way limited to,
Claims under the AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, 29 U.S.C. Section
621, et seq. -- for any actions or omissions whatsoever, whether known or
unknown, that are connected with or related to the Employment Agreement, the
employment of Employee by the Company, or the cessation or termination thereof,
which existed or may have existed prior to, or contemporaneously with, the
execution of this Agreement. Employee does not, however, release, acquit, or
discharge the Releasees from any Claim arising out of any nonperformance or
failure to perform by the Company of
<PAGE> 23
any of its obligations under this Agreement or any Claim not connected with or
related to the Employment Agreement, the employment of Employee by the Company,
or the cessation or termination thereof.
2. Employee, for himself or herself and on behalf of his or her
attorneys, heirs, legatees, assigns, successors, executors, and administrators,
COVENANTS NOT TO SUE OR OTHERWISE CONSENT TO PARTICIPATE IN ANY ACTION AGAINST,
any of the Releasees based upon any of the Claims released in paragraph 1 of
this Agreement.
3. Employee agrees that he will keep the terms, amount, and fact of
this Agreement STRICTLY AND COMPLETELY CONFIDENTIAL and that he will not
communicate or otherwise disclose to any employee (past, present, or future) of
the Company or any of the other Releasees or to a member of the general public
the terms, amount, or fact of this Agreement, except as may be required by law
or compulsory process.
4. Employee waives and releases forever any right or rights he might
have to employment, reemployment, or reinstatement with the Company or any of
the other Releasees, except as may be provided under the terms of this
Agreement.
5. Upon the expiration of seven (7) days after Employee's execution of
this Agreement, the Company agrees to begin to pay or provide Employee the
Severance Payments and, if applicable, the Insurance Payments (as those terms
are defined in the Employment Agreement) in accordance with the surviving terms
of the Employment Agreement.
6. The parties hereto recognize that, by entering into this Agreement,
the Company and each other Releasee does not admit, and does specifically deny,
any violation of any local, state, or federal law, common or statutory. The
parties further recognize that this Agreement has been entered into in release
and compromise of any claims which might be asserted by Employee in connection
with his employment by the Company, or the termination thereof, and to avoid
the expense and burden of any litigation related thereto.
7. The parties acknowledge and agree that in the event Employee
materially breaches any provision of this Agreement, (a) Employee will indemnify
and hold the Company harmless from and against any and all resulting damages,
expense, or loss incurred by the Company (including, without limitation,
attorneys' fees and expenses), (b) Employee will immediately repay to the
Company in full any payments made to him under the provisions (including,
without limitation, paragraph 5) of this Agreement, and (c) the Company will be
entitled to file counterclaims against Employee for breach of the covenant not
to sue and may recover from Employee any payment not repaid to the Company, as
required by clause (b) of this paragraph 7, as well as any and all other
resulting actual or consequential damages.
8. One or more waivers of a breach of any covenant, term, or provision
of this Agreement by either party shall not be construed as a waiver of a
subsequent breach of the same covenant, term, or provision, nor shall it be
considered a waiver of any other then existing or subsequent breach of a
different covenant, term, or provision.
EXHIBIT "B" TO EMPLOYMENT AGREEMENT
2
<PAGE> 24
9. If any provision or term of this Agreement is held to be illegal,
invalid, or unenforceable, (a) such provision or term shall be fully severable,
(b) this Agreement shall be construed and enforced as if such illegal, invalid,
or unenforceable provision had never constituted part of this Agreement, and (c)
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid, or unenforceable provision or
by its severance from this Agreement. Furthermore, in lieu of each such illegal,
invalid, or unenforceable provision or term there shall be added automatically
as a part of this Agreement another provision or term as similar to the illegal,
invalid, or unenforceable provision as may be possible and that is legal, valid,
and enforceable.
10. The parties agree that should one party sue the other party for a
breach of any provision of this Agreement, the prevailing party shall be
entitled to recover its attorneys' fees and costs of court. Each party shall
have the right to sue for specific performance of this Agreement, and for
declaratory and injunctive relief.
11. Either party may revoke this Agreement, within seven (7) days of
the date of its execution by Employee (the "Revocation Period"), by written
notice to the other party. Employee agrees that if he revokes this Agreement, he
shall receive none of the benefits provided for under its terms or the surviving
terms of the Employment Agreement. Employee further understands and agrees that,
unless the Company receives from Employee, prior to the expiration of the
Revocation Period, written notice of his revocation of this Agreement, this
Agreement and all of its terms shall have full force and effect, and Employee
shall have forever waived his right to revoke this Agreement.
12. This Agreement and the terms of the Employment Agreement that
survive the cessation or termination of Employee's employment thereunder
constitute the entire agreement of the parties, and supersedes all prior and
contemporaneous negotiations and agreements, oral or written, between the
parties. All prior and contemporaneous negotiations and agreements are deemed
incorporated and merged into this Agreement and are deemed to have been
abandoned if not so incorporated. No representations, oral or written, are being
relied upon by either party in executing this Agreement other than the express
representations of this Agreement and the terms of the Employment Agreement that
survive the cessation or termination of Employee's employment thereunder. This
Agreement cannot be changed or terminated without the express written consent of
the parties.
13. This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, except where preempted by federal law.
14. By executing this Agreement, Employee acknowledges that (a) this
Agreement has been reviewed with him by a representative of the Company (see
Attachment "A", which is attached hereto and incorporated herein by reference),
(b) he has had at least twenty-one (21) days to consider the terms of the
Agreement (see Attachment "A"), and has considered its terms for that period of
time or has knowingly and voluntarily waived his right to do so, (c) he has been
advised by the Company in writing to consult with an attorney regarding the
terms of the Agreement (see Attachment "A"), (d) he has consulted with, or has
had sufficient opportunity to consult with, an attorney of his own choosing
regarding the terms of this Agreement, (e) any and all questions regarding the
terms of this Agreement have been asked and answered to his complete
satisfaction, (f) he has read this Agreement and fully understands its terms and
their import, (g) except as provided by this Agreement, he has no contractual
right or claim to the benefits described herein, (h) the consideration provided
for herein is good and valuable, and (i) HE IS ENTERING INTO THIS AGREEMENT
VOLUNTARILY, OF HIS OWN FREE WILL, AND WITHOUT ANY COERCION, UNDUE INFLUENCE,
THREAT, OR INTIMIDATION OF ANY KIND OR TYPE WHATSOEVER.
EXHIBIT "B" TO EMPLOYMENT AGREEMENT
3
<PAGE> 25
EXECUTED in , Texas, this day of , .
----------------- --- ---------- -------
EMPLOYEE:
----------------------------------------
THE STATE OF ____________ )
)
COUNTY OF _______________ )
BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared _________________________, known to me to be the person whose name is
subscribed to the foregoing instrument, and acknowledged to me that he or she
executed the same for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this day of , .
----- ------ -----
---------------------------------------
Notary Public, State of
----------------
[SEAL]
EXHIBIT "B" TO EMPLOYMENT AGREEMENT
4
<PAGE> 26
EXECUTED in , Texas, this day of , .
----------------- --- ---------- -------
MSI HOLDINGS, INC.
By:
-------------------------------------
Its:
------------------------------------
THE STATE OF Texas )
)
COUNTY OF _______________ )
BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared ___________________, __________________ of MSI HOLDINGS, INC., known
to me to be the person whose name is subscribed to the foregoing instrument, and
acknowledged to me that he or she executed the same as the act of that company
for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this day of , .
----- ------ -----
---------------------------------------
Notary Public, State of Texas
[SEAL]
EXHIBIT "B" TO EMPLOYMENT AGREEMENT
5
<PAGE> 27
ATTACHMENT "A"
NOTICE OF RIGHTS
Attached hereto you will find a proposed Settlement Agreement, General
Release, and Covenant Not to Sue ("Agreement") with respect to the cessation or
termination of your employment. It is required by law that you be given at least
21 days from the date of receipt of the proposed Agreement within which to
consider its terms. During this period, please feel free to contact the person
listed below to ask any questions regarding the Agreement including, but not
limited to, the definitions of words which you do not know and the meanings of
phrases, sentences, or paragraphs which you do not understand. It is recommended
that you consult with an attorney regarding your legal rights with respect to
the Agreement during this 21-day period.
ACKNOWLEDGMENT OF RECEIPT
I acknowledge that I received a copy of MSI HOLDINGS, INC.'s proposed
Settlement Agreement, General Release, and Covenant Not to Sue at _:_ _.m. this
___ day of ___, ___, and that the Agreement and the Notice of Rights above have
been reviewed with me by the person signing below on behalf of MSI HOLDINGS,
INC.
EMPLOYEE:
- -------------------, ---- ------------------------------------
(Date)
MSI HOLDINGS, INC.
By:
------------------------------------
Its:
-----------------------------------
<PAGE> 28
MSI HOLDINGS, INC.
STOCK OPTION AGREEMENT
- --------------------------------------------------------------------------------
Pursuant to the MSI Holdings, Inc. (f/k/a Micro-Media Solutions, Inc.)
1998 Stock Option Plan (the "Plan") for key employees of MSI Holdings, Inc. (the
"Company") and its Subsidiaries (as defined in the Plan), the Company hereby
grants a nonqualified option to purchase shares of its Common Stock, $0.10 par
value ("Common Stock"), to:
ROGER M. LANE
-------------
Optionee
This option is granted to the Optionee, in consideration of his serving
as the Company's Chief Operating Officer, on the following terms and conditions:
1. NUMBER OF SHARES AND PRICE. The number of shares subject to this
option, and the exercise price per share, are:
450,000 $3.75
---------------- ------------------------
Number of Shares Exercise Price Per Share
2. OPTION PERIOD. The term of this option (the "Option Period") will
commence on the date of grant noted below in this Section 2 and will expire at
5:00 p.m., Austin, Texas time, on the earliest of (i) the 30th day after
termination of the Optionee's continuing employment or consulting relationship
with the Company and its Subsidiaries for any reason other than death, permanent
disability (as determined by the Committee (as defined in the Plan) in
accordance with the Plan) or retirement at or after seventy (70) years of age
("Normal Retirement Age"); (ii) one (1) year after the termination of the
Optionee's continuing employment or consulting relationship with the Company and
its Subsidiaries because of the death or permanent disability of the Optionee or
the retirement of the Optionee at or after Normal Retirement Age; or (iii) the
expiration date noted below in this Section 2. After the expiration date, no
further shares may be purchased under this option.
STOCK OPTION AGREEMENT - ROGER LANE
<PAGE> 29
March 24, 1999 March 24, 2004
-------------- ---------------
Date of Grant Expiration Date
3. VESTING. On the date that is six (6) months after the date of grant
under this Stock Option Agreement ("Agreement"), One Hundred Thousand (100,000)
option shares shall become vested and will be available thereafter for purchase
by the Optionee, in accordance with this Agreement, during the Option Period. On
the first anniversary of the date of grant of this option, One Hundred Ten
Thousand (110,000) of the option shares shall become vested and will be
available thereafter for purchase by the Optionee, in accordance with this
Agreement, during the remaining term of the Option Period. On each of the second
and the third anniversaries of the date of grant of this option, One Hundred
Twenty Thousand (120,000) of the option shares shall become vested and will be
available thereafter for purchase by the Optionee, in accordance with this
Agreement, during the remaining term of the Option Period; provided that on each
such vesting date, the Optionee has been in a continuing employment or
consulting relationship with the Company since the date of grant of this option,
except as provided in Section 6 below. If the Optionee dies or becomes
permanently disabled (as determined by the Committee in accordance with the
Plan) during his continuing employment or consulting relationship with the
Company or its Subsidiaries or retires from such employment or consulting
relationship at or after Normal Retirement Age, all of the shares subject to
this option will become and be vested and immediately available for purchase by
the Optionee (or in the case of the death or disability of the Optionee, by the
person(s) specified in Section 6(b) below or Section 6(c) below, as the case may
be) in accordance with this Agreement.
4. VESTING UPON CHANGE OF CONTROL. If the Company proposes to sell all
or substantially all of its assets or to be a party to any merger, consolidation
or reorganization, or if any Acquiring Person (as defined below in this Section
4) makes a tender offer or exchange offer for the outstanding capital stock of
the Company, and as a result of any such transaction the holders of outstanding
equity securities of the Company (including, without limitation, shares of any
and all classes of capital stock of the Company and options, warrants, and other
rights to acquire shares of capital stock of the Company) immediately prior to
the consummation thereof would own, directly or indirectly, fifty percent (50%)
or less of all of the equity securities and voting power of the surviving,
resulting or purchasing corporation or other entity outstanding immediately
following the consummation thereof (any such transaction being a "Change-of-
Control Transaction"), then all of the option shares will become and be vested
and immediately available for purchase by the Optionee in accordance with this
Agreement, and the Optionee will be entitled to receive, for the aggregate
exercise price payable upon exercise of this option, in lieu of the shares of
Common Stock otherwise issuable to him upon exercise of this option, the same
kind and amount of securities or assets as may be distributable upon such
Change-of-Control Transaction to a holder of the number of shares of Common
Stock into which this option
STOCK OPTION AGREEMENT - ROGER LANE
2
<PAGE> 30
is convertible immediately prior to the date of such Change-of-Control
Transaction. An "Acquiring Person" is any person or entity other than (i) the
Company, (ii) the Optionee or any group (within the meaning -of Section
13(d)(3). of the Securities Exchange Act of 1934, as amended) of which the
Optionee is a member, (iii) any person or entity that controls (as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended) the Company on
the date of grant or any group of which any such controlling person or entity is
a member, and (iv) any employee-benefit plan or related trust sponsored or
maintained by the Company or any trustee or other fiduciary thereof. For the
avoidance of doubt, neither the conversion of convertible securities of the
Company nor the exercise or conversion of any options, warrants, or other rights
to acquire shares of capital stock of the Company outstanding on the date of
grant shall constitute a Change-of-Control Transaction.
5. EXERCISE OF OPTION. Subject to Sections 3 and 4 above and Section 6
below, this option shall be exercisable at any time and from time to time after
the date of grant and on or prior to its expiration on the expiration date, in
whole or in part with respect to any portion of the option shares that has
become vested at the time of exercise. No fractional shares will be issued. If
an exercise covers a fractional share, the number of shares to be issued on
exercise will be rounded to the next lowest share and the exercise price paid by
the Optionee for the fraction will be returned to the Optionee.
6. RIGHT TO EXERCISE; RESTRICTIONS. This option shall be exercisable
during the Option Period only by the Optionee and only if, at the time of
exercise, the Optionee has been in a continuing employment or consulting
relationship with the Company since the date of grant of this option, except
that:
(a) The Optionee may exercise this option, with respect only to
shares that were vested on the date of termination of his continuing
employment or consulting relationship with the Company and its
Subsidiaries, except for any termination described in subsections (b)
and (c) of this Section 6, until the expiration of the Option Period on
the 30th day after such termination (but, in any event, no later than
the expiration of this option on the expiration date);
(b) If the Optionee should die while in a continuing employment or
consulting relationship with the Company and its Subsidiaries, this
option may be exercised, to the extent of the shares with respect to
which this option could have been exercised by the Optionee on the date
of his death (in accordance with the last sentence of Section 3 above),
by the Optionee's estate or by a person who acquired the right to
exercise this option by bequest or inheritance or by reason of the death
of the Optionee until the expiration of the Option Period one year after
the death of Optionee (but, in any event, no later than the expiration
of this option on the expiration date); and
STOCK OPTION AGREEMENT - ROGER LANE
3
<PAGE> 31
(c) If the Optionee should become permanently disabled (as
determined by the Committee in accordance with the Plan) or retire at or
after Normal Retirement Age while in a continuing employment or
consulting relationship with the Company and its Subsidiaries, this
option may be exercised, to the extent of the shares with respect to
which this option could have been exercised by the Optionee on the date
of his disability (in accordance with the last sentence of Section 3
above), by the Optionee or his personal representative until the
expiration of the Option Period one year after such event (but, in any
event, no later than the expiration of this option on the expiration
date).
For purposes of this option, the term "continuing employment or
consulting relationship" means the absence of any interruption or termination of
the Optionee's employment by or consulting relationship with the Company or any
subsidiary of the Company which now exists or hereafter is organized or acquired
by the Company or one of its Subsidiaries. A continuing employment or consulting
relationship shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the Board. If the
Optionee's employment or consulting relationship is terminated for any reason
(including disability or retirement from active employment), but simultaneously
therewith the Optionee becomes a member of the Board or the board of directors
of a Subsidiary (a "Subsidiary Board") or is then already a member, the
employment or consulting relationship will be deemed to be a continuing
employment or consulting relationship as long as the Optionee serves as a member
of the Board or a Subsidiary Board, and (if otherwise applicable) he shall not
be deemed to have retired until cessation of or retirement from his membership
on the Board or a Subsidiary Board.
This option may not be exercised, or if exercised no shares need be
issued by the Company, unless and until the Company has obtained all necessary
approvals and consents of, and has made all necessary filings or submissions to,
governmental authorities and other persons (such as lenders to the Company).
7. MANNER OF EXERCISE. This option shall be exercisable by a written
notice to the Company which:
(a) States the election to exercise this option and the number of
shares with respect to which it is being exercised;
(b) Contains an undertaking to provide such information as is
required, in the discretion of counsel for the Company, to determine
whether an exemption from registration of such shares, if required, is
available under federal and applicable state securities laws and to make
such representations and warranties regarding the Optionee's investment
intent as such counsel may reasonably require; and
STOCK OPTION AGREEMENT - ROGER LANE
4
<PAGE> 32
(c) Is signed by the Optionee or other person or persons authorized
to exercise this option and, if signed by a person other than the
Optionee, is accompanied by appropriate evidence or proof of the
authority or right of each such person to exercise this option.
The written notice shall be accompanied by cash or a check (which, after the
Optionee's continuing employment or consulting relationship with the Company and
its Subsidiaries has ceased, must be a cashier's or certified check) in the
amount of the exercise price for the total number of shares being purchased;
except that, if then permitted under applicable securities laws, the Optionee
may exercise this option by delivering to the Company a properly executed notice
of exercise together with (i) irrevocable instructions to a securities broker to
promptly deliver to the Company cash or a check payable and acceptable to the
Company in the full amount of the exercise price for the total number of option
shares being purchased (provided, that the Optionee and the securities
broker shall comply with such procedures and enter into such agreements of
indemnity and other agreements as the Company may prescribe as a condition of
that payment procedure), or (ii) shares of Common Stock that have been owned by
the Optionee for at least six (6) months before the date of exercise, free and
clear of any and all liens, claims, and encumbrances, having a fair market value
on the last trading day preceding the date of exercise equal to the full amount
of the exercise price for the total number of option shares being purchased. The
Optionee may also make payment in any combination of the permissible forms of
payment described in the preceding sentence. The Company may also require that
the Optionee remit to the Company an amount sufficient to satisfy any federal,
state, or local withholding tax requirements, or make any other arrangements
satisfactory to the Company with regard to those taxes, as a condition to the
delivery to the Optionee of any option shares purchased pursuant to exercise of
this option.
8. NON-TRANSFERABILITY. This option and the Optionee's rights under
this Agreement may not be transferred or assigned in any manner by the Optionee
other than by will or the laws of descent and distribution, and any purported
transfer or assignment by the Optionee (other than by will or the laws of
descent and distribution) shall be void. This option may be exercised only by
the Optionee during his lifetime.
9. RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to any shares of Common Stock covered by this option,
until such time as a certificate is issued to him for the shares. Except as
provided in Section 10 of this Agreement, no adjustment will be made for
dividends or other rights of stockholders for which the record date is prior to
the issuance of a certificate for the shares.
10. CAPITAL ADJUSTMENTS. The number of shares of Common Stock covered
by this option, and the exercise price thereof, shall be subject to such
adjustment as the Committee
STOCK OPTION AGREEMENT - ROGER LANE
5
<PAGE> 33
deems appropriate to reflect any stock dividend, stock split, share
combination, or the like of or by the Company.
11. NOTICES. Each notice relating to this option must be in writing and
delivered in person or by courier or sent by certified mail, postage prepaid
with return receipt requested, to the proper address. Each notice will be deemed
to have been given on the date it is received. Notices to the Company will be
mailed or delivered as follows:
MSI Holdings, Inc.
501 Waller
Austin, Texas 78702
Attention: Chairman of the Board
along with a copy (which shall not constitute notice) to:
Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201-4761
Attn: I. Bobby Majumder, Esq.
Telecopier: (214) 969-4667
Notices to the Optionee will be addressed to him at his home address as then
reflected in the personnel records of the Company. A party may change its or his
address for notices under this Agreement by giving a notice to that effect in
accordance with this Section 11.
12. BENEFITS OF AGREEMENT. This Agreement shall inure to the benefit of
and be binding upon each successor of the Company and upon the heirs, legal
representatives and successors of the Optionee. This Agreement shall be the sole
and exclusive source of any and all rights which the Optionee, his heirs, legal
representatives or successors, may have with respect to the shares subject to
this option.
13. RESOLUTION OF DISPUTES. Any dispute or disagreement about the
interpretation, construction or application of this Agreement will be determined
by the Committee. Any determination made by the Committee will be final, binding
and conclusive for all purposes.
STOCK OPTION AGREEMENT - ROGER LANE
6
<PAGE> 34
14. STOCK OPTION PLAN. This option is granted pursuant to the Plan, as
amended and in effect from time to time, and the Plan is incorporated in, and
made a part of, this Agreement. In the event of any conflict or inconsistency
between the terms and conditions of the Plan and the terms and conditions of
this Agreement, the terms and conditions of the Plan shall be controlling; but
the terms and conditions of the Plan shall not be considered an enlargement of
any benefits under this Agreement. In addition, this option is subject to any
rules and regulations promulgated under or for the Plan, whether now or
hereafter in effect.
15. GENDER AND NUMBER. In this Agreement, whenever required by the
context, the pronouns and any variation thereof shall be deemed to referred to
the masculine, feminine, or neuter, and the singular shall include the plural,
and visa versa.
16. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one document.
IN WITNESS WHEREOF, the Company and the Optionee have caused this
Agreement to be executed as of the date of grant noted above.
OPTIONEE MSI HOLDINGS, INC.
/s/ ROGER M. LANE By: /s/ ILLEGIBLE
- ------------------------------- ----------------------------------
ROGER M. LANE Chairman/MSI
----------------------------------
/s/ ILLEGIBLE
/s/ ILLEGIBLE
STOCK OPTION AGREEMENT - ROGER LANE
7
