<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
MSI HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
July 9, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of MSI Holdings, Inc. (the "Company") to be held at 10:00 a.m., local time, on
Monday, August 9, 1999, at the offices of the Company located at 501 Waller
Street, Austin, Texas. At this meeting you will be asked to:
(i) Elect six directors;
(ii) Approve an amendment to the Company's 1998 Stock Option Plan;
(iii) Approve the adoption of the Company's Non-Employee Directors
Stock Option Plan;
(iv) Approve the appointment of Brown, Graham & Company, P.C. as
independent auditors of the Company for the fiscal year
ending March 31, 2000; and
(v) Transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
It is important that your shares be represented at the meeting;
therefore, if you do not expect to attend in person, please sign and date the
enclosed proxy and return it in the enclosed envelope at your earliest
convenience.
Very truly yours,
Ernesto Chavarria
Chairman of the Board
Austin, Texas
July 9, 1999
<PAGE> 3
MSI HOLDINGS, INC.
501 WALLER STREET
AUSTIN, TEXAS 78702
----------------------------
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 9, 1999
----------------------------
The Annual Meeting of Shareholders of MSI Holdings, Inc., a Utah
corporation (the "Company"), will be held at the offices of the Company located
at 501 Waller, Austin, Texas, on Monday, August 9, 1999, beginning at 10:00
a.m., local time. The annual meeting will be held for the following purposes:
1. Election of six directors;
2. Approval of an amendment to the Company's 1998 Stock Option
Plan;
3. Approval of the adoption of the Company's Non-Employee
Directors Stock Option Plan;
4. Approval of the appointment of Brown, Graham & Company, P.C.
as independent auditors of the Company for the fiscal year
ending March 31, 2000; and
5. The transaction of such other business as may properly come
before the Annual Meeting or any adjournment or postponement
thereof.
Only shareholders of record at the close of business on June 25, 1999
are entitled to notice of, and to vote at, the meeting or any adjournment or
postponement thereof. A list of shareholders entitled to vote at the meeting
will be available at the meeting for examination by any shareholder.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED FORM OF PROXY IN THE ENCLOSED ADDRESSED AND
STAMPED ENVELOPE. You may revoke the proxy at any time before the proxy is
exercised by delivering written notice of revocation to the Secretary of the
Company, by delivering a subsequently dated proxy or by attending the meeting
and withdrawing the proxy.
By Order of the Board of Directors,
Stephen Hoelscher
Secretary
Austin, Texas
July 9, 1999
<PAGE> 4
MSI HOLDINGS, INC.
501 WALLER STREET
AUSTIN, TEXAS 78702
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 9, 1999
This Proxy Statement is furnished to shareholders of MSI Holdings,
Inc., a Utah corporation (the "Company"), in connection with the solicitation
of proxies by the Board of Directors of the Company to be used at the Annual
Meeting of Shareholders of the Company to be held August 9, 1999 (the "Annual
Meeting"). Proxies in the form enclosed will be voted at the meeting if
properly executed, returned to the Company before the Annual Meeting and not
revoked. Any shareholder giving such a proxy may revoke it at any time before
it is voted by delivering written notice of revocation to the Secretary of the
Company, by delivering a subsequently dated proxy or by attending the meeting
and withdrawing the proxy. Attendance at the meeting will not constitute
automatic revocation of the proxy. This Proxy Statement and the enclosed proxy
form are first being sent to shareholders on or about July 9, 1999.
Included with this Proxy Statement are copies of the Company's Annual
Report for the fiscal year ended March 31, 1999 (the "1999 Annual Report"). The
1999 Annual Report does not form any part of the proxy solicitation material.
1
<PAGE> 5
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
- ----------------- ----
<S> <C>
VOTING OF PROXIES AT MEETING.................................................3
PERSONS MAKING THE SOLICITATION..............................................3
OUTSTANDING CAPITAL STOCK....................................................3
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................4
QUORUM AND VOTING............................................................5
ELECTION OF DIRECTORS........................................................5
SECTION 16 REQUIREMENTS......................................................8
TRANSACTIONS WITH DIRECTORS, OFFICERS AND AFFILIATES........................10
EXECUTIVE COMPENSATION......................................................11
PROPOSAL TO APPROVE AMENDMENT TO
1998 STOCK OPTION PLAN
TO INCREASE SHARES AVAILABLE FOR GRANT.............................13
PROPOSAL TO APPROVE ADOPTION OF
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN...........................16
PROPOSAL TO APPROVE THE APPOINTMENT OF
BROWN, GRAHAM & COMPANY, P.C.
AS INDEPENDENT AUDITORS...........................................18
SHAREHOLDERS' PROPOSALS.....................................................19
MISCELLANEOUS...............................................................19
</TABLE>
2
<PAGE> 6
VOTING OF PROXIES AT MEETING
When shareholders have appropriately specified how their proxies
should be voted, the proxies will be voted accordingly. Unless the shareholder
otherwise specifies therein, the proxy will be voted (i) FOR the election as
directors of the six nominees listed under "Election of Directors," (ii) FOR
approval of the appointment of Brown, Graham & Company, P.C. as independent
auditors of the Company for the fiscal year ending March 31, 2000, (iii) FOR
approval of the adoption of the MSI Holdings, Inc. Non-Employee Directors Stock
Option Plan; (iv) FOR the approval of an amendment to the Company's 1998 Stock
Option Plan to increase the number of shares of Common Stock available for
grant from 1,500,000 to 4,500,000; and (v) at the discretion of the proxy
holders, either FOR or AGAINST any other matter or business that may properly
come before the meeting. The Board of Directors does not know of any such other
matter or business.
PERSONS MAKING THE SOLICITATION
The accompanying proxy is being solicited by the Board of Directors of
the Company. The costs of soliciting the proxies and the Annual Meeting will be
borne entirely by the Company. In addition to the use of the mails, proxies may
be solicited by personal interview, telephone and telegram by directors and
officers and employees of the Company. Arrangements may also be made with
brokerage houses and other custodians, nominees, and fiduciaries to forward
solicitation material to the beneficial owners of shares of Common Stock held
of record by such persons, and the Company may reimburse them for reasonable
out-of-pocket expenses they incur in connection with forwarding the
solicitation material.
OUTSTANDING CAPITAL STOCK
The record date for shareholders entitled to notice of, and to vote
at, the Annual Meeting is June 25, 1999. At the close of business on that date
the Company had 22,137,739 shares of common stock, $0.10 par value per share
("Common Stock"), outstanding and entitled to vote at the Annual Meeting. Each
such share of Common Stock is entitled to one vote at the Annual Meeting.
3
<PAGE> 7
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 29, 1999, the number of
shares of Common Stock beneficially owned by (1) each person or group known by
the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (2) each director and each nominee for director of the Company,
(3) the Company's Chief Executive Officer and each of the Company's four other
most highly compensated executive officers, and (4) all directors and executive
officers as a group. Except as otherwise indicated, the Company believes that
each of the persons or groups named below has sole voting power and investment
power with respect to such Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
------------------------
NAME OF BENEFICIAL NUMBER OF
OWNER OR GROUP SHARES PERCENT
- ------------------ ---------- ----------
<S> <C> <C>
Blandina Cardenas 5,000 0.02%
Ernesto M. Chavarria (2) 150,000 0.66%
Jose G. Chavez (3) 6,675,000 29.55%
Daniel Dornier (4) 340,000 1.50%
Entrepreneurial Investors, Ltd. (5) 8,286,800 36.68%
Robert Gibbs(6) 272,590 1.21%
Stephen Hoelscher (7) 22,000 0.10%
Mitchell C. Kettrick (8) 1,500,000 6.64%
Jon J. King 0 0.00%
Luana Pearce (9) 1,250,000 5.53%
Humbert B. Powell III 0 0.00%
Davinder Sethi 0 0.00%
All officers and directors as a group (10) 8,692,000 38.47%
Schedule 13D Filers (11) 10,324,499 45.70%
</TABLE>
- -------------
(1) Calculations are based on 22,591,535 outstanding shares of Common
Stock as of June 28, 1999. Includes shares of Common Stock of the
Company beneficially owned by such persons. If a person has the right
to acquire beneficial ownership of any shares by exercise of options
within 60 days after June 29, 1999, such shares are deemed
beneficially owned by such person and are deemed to be outstanding
solely for the purpose of determining the percentage of Common Stock
that such person owns. Such shares are not included in the computation
for any other person.
(2) Includes 75,000 shares of Common Stock held by Mr. Chavarria and
75,000 shares of Common Stock issuable upon exercise of Mr.
Chavarria's options.
(3) Includes 6,575,000 shares of Common Stock held by Mr. Chavez and
100,000 shares of Common Stock issuable upon exercise of Mr. Chavez's
options. Mr. Chavez's address is 8021 Bottlebrush, Austin, Texas
78750.
(4) Includes 339,500 shares of Common Stock held by Mr. Dornier and 50
shares of Common Stock issuable upon the conversion of 5 shares of the
Company's Series E Preferred Stock, $30 stated value (the "Series E
Preferred").
(5) Entrepreneurial Investors, Ltd. ("EIL") is the beneficial owner of an
aggregate of 8,286,800 shares of Common Stock consisting of: (i)
943,400 shares of Common Stock issued upon conversion of 94,340 shares
of the Company's Series C Preferred Stock, (ii) 4,943,300 shares of
Common Stock issued upon conversion of 399,995 shares of the Company's
Series B Preferred Stock (5% cumulative, convertible, non-voting,
stated value, $5.30)(the "Series B Preferred") and 94,335 shares of
the Company's Series D Preferred Stock (6% cumulative, convertible,
non-voting, stated value, $10.60) (the "Series D Preferred"), (iii)
100 shares of Common Stock issuable upon conversion of 5 shares of
Series B Preferred and 5 shares of Series D Preferred, and (iv)
2,400,000 shares of Common Stock issuable upon the exercise of Class A
Warrants to purchase shares of Common Stock, with an exercise price of
$1.50 per share, granted in conjunction with the Private Placement
4
<PAGE> 8
of the Series B Preferred Stock. EIL's address is Citibank Building,
2nd Floor, East Mall Drive, P.O. Box 40643, Freeport, Bahamas.
(6) Includes 272,590 shares of Common Stock issuable upon the exercise of
Mr. Gibbs' options.
(7) Includes 19,000 shares of Common Stock held by Mr. Hoelscher and 3,000
shares of Common Stock held by Mr. Hoelscher's three children, 1,000
shares each.
(8) Includes 1,425,000 shares of Common Stock held by Mr. Kettrick and
75,000 shares of Common Stock issuable upon the exercise of Mr.
Kettrick's options. Mr. Kettrick's address is P.O. Box 2260, Round
Rock, Texas 78680.
(9) Includes 550,000 shares of Common Stock acquired from Jose Chavez, the
former President of the Company, 475,000 shares of Common Stock
acquired from George Villalva, a former director of the Company, and
225,000 shares of Common Stock acquired from Argus Management, Inc.
Ms. Pearce's address is 4545 Golf Vista Drive, Austin, Texas 78730.
(10) Includes 8,441,950 shares of Common Stock outstanding, 50 shares of
Common Stock issuable upon the conversion of 5 shares of the Series E
Preferred held by Mr. Dornier, 100,000 shares of Common Stock issuable
upon exercise of Mr. Chavez's Options and 75,000 shares of Common
Stock issuable upon exercise of Mr. Kettrick's options.
(11) Includes a group of entities and individuals that filed a Schedule 13D
on June 2, 1999 for the sole purpose of exercising a change in control
of the Company's Board of Directors.
QUORUM AND VOTING
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock on the record date is necessary to
constitute a quorum at the Annual Meeting. Each such outstanding share of
Common Stock is entitled to one vote. Assuming the presence of a quorum,
affirmative votes equal to at least (i) a plurality of the votes cast at the
Annual Meeting in person or by proxy is required for the election of directors,
and (ii) a majority of the votes cast at the Annual Meeting in person or by
proxy is required to approve any other proposal or matter. Cumulative voting in
the election of directors is prohibited by the Company's governing corporate
documents. Abstentions will be included in vote totals and, as such, will have
the same effect as a negative vote on each proposal other than the election of
directors. Broker non-votes, if any, will not be included in vote totals and,
as such, will have no effect on any proposal.
1. ELECTION OF DIRECTORS
Six directors are to be elected at the Annual Meeting for a term
expiring at the next annual meeting of shareholders or until their respective
successors are duly elected and qualified. To be elected a director, each
nominee must receive a plurality of all of the votes cast at the Annual Meeting
for the election of directors. Shareholders are not permitted to cumulatively
vote their shares in connection with the election of directors. Each nominee
has expressed his or her intention to serve the entire term for which election
is sought. Should any nominee become unable or unwilling to accept election or
serve as a director, the proxy holders may vote the proxies for the election in
that nominee's place of any other person the Board of Directors may recommend.
Only three of the nominees are currently directors of the Company.
The current Board of Directors' nominees for the election as directors
of the Company are as follows:
5
<PAGE> 9
ERNESTO M. CHAVARRIA
Mr. Chavarria, 44, has over 25 years of experience providing
consulting services in the area of international business development and
public affairs to Fortune 500 companies. Mr. Chavarria has been with ITBR,
Inc., an international consulting company, since 1978, and has served as its
President since 1990. Mr. Chavarria has been a director of the Company since
November 1997, and Chairman of the Board since April 1999. Mr. Chavarria holds
a Bachelor of Business Administration degree from The University of Texas at
Austin.
BLANDINA CARDENAS
Dr. Cardenas, 54, is an Associate Professor of Education Leadership at
the University of Texas at San Antonio. She has also been a Professor at the
LBJ Institute for Teaching and Learning and has served as a Director of the
Office of Minorities in Higher Education for the American Council in Education.
Dr. Cardenas has also served as the Commissioner on the U.S. Commission of
Civil Rights. From 1992 to 1995, she was a Professor at Southwest Texas State
University. Dr. Cardenas has been a Director of the Company since November
1997.
DANIEL DORNIER
Mr. Dornier, 36, has over ten years of investment banking experience.
Since 1995, Mr. Dornier has been the President of Dornier Capital Advisers,
where he manages investment portfolios for high net worth individuals in the
U.S. and Europe. Between 1993 and 1995, Mr. Dornier was a private investment
manager for various companies owned by the Dornier family. He was previously an
investment banker at SBC Warburg, Dillon, Reed from 1991 to 1993. In 1989, he
obtained his Master of Business Administration from the City University of
Bellevue, Washington, the Zurich, Switzerland campus, and in 1984 he received a
Bachelor of Business Administration degree from the University of Nuertingen,
Germany. Mr. Dornier has been a director of the Company since July 1998.
ROBERT J. GIBBS
Mr. Gibbs, 45, President and Chief Executive Officer, joined the
Company in June 1999. He has more than 20 years of experience in high
technology marketing, operations, and financial management. From May 1998 to
May 1999, Mr. Gibbs served as a consultant to various aircraft maintenance
corporations. From 1997 through May 1998, Mr. Gibbs served as Senior Vice
President and Chief Financial Officer of The 401(k) Company. From 1993 through
1997, Mr. Gibbs served as Executive Vice President, President and Chief
Financial Officer of Uniden America Corp., a global leader in wireless
communications products and services. He received a Bachelor of Science in
Finance from the University of Colorado and holds a Master of Business
Administration degree from Southern Methodist University.
HUMBERT B. POWELL III
Mr. Powell is a Managing Director of Sanders Morris Mundy, an
investment banking firm. Prior to joining Sanders Morris Mundy, Mr. Powell was
Vice Chairman and Director of Marleau, Lemire, Securities, Inc. and Chairman of
the Board of Marleau, Lemire USA. From 1988 through February 1995, Mr. Powell
served as a Senior Managing Director in the Corporate Finance Department of
Bear Stearns & Co. His responsibilities included both foreign and domestic
investment banking duties. Prior to his employment with Bear, Stearns & Co.,
Mr. Powell served as a Senior Vice President and Director of E.F. Hutton & Co.,
where he was also employed in various other capacities for 18 years. Mr. Powell
currently serves as a director for Bikers Dream Inc., Evolve, Lawman Corp.,
Millennium Vue Inc. and Osicom Technologies Inc., and as a trustee of
Salem-Teikyo University.
6
<PAGE> 10
DAVINDER SETHI
Dr. Sethi has been an independent advisor and investor in the fields
of information technologies and finance with experience spanning academia,
research, business and investment banking since 1994. From 1990 to 1996, he
served as Director and Senior Advisor to Barclays de Zoete Wedd. His primary
responsibility was advising major global providers of information technologies
to develop and execute corporate development opportunities. Prior to Barclays
de Zoete Wedd, Dr. Sethi spent seven years at Bell Laboratories in operations
research and communications network planning, and seven years in corporate
finance at AT&T. Dr. Sethi currently serves as a Director of Pamet Systems,
Inc., where he also serves on the Audit and Compensation Committees. Dr. Sethi
obtained Doctorate and Masters degrees in Operations Research, Economics and
Statistics from University of California at Berkeley, and is a graduate of the
Executive Management Program from Pennsylvania State University.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THESE
NOMINEES.
DIRECTORS NOT STANDING FOR RE-ELECTION
The following current members of the Board of Directors are not
standing for election at the Annual Meeting:
JOSE G. CHAVEZ, 48, has over 25 years experience in manufacturing,
engineering, system design and development, energy engineering and computer
technology management. He has been with the Company since the inception of
Micro-Media Solutions, Inc., the operating subsidiary of the Company, in
September 1993. Mr. Chavez was Plant Manager for HDS, a division of Hart
Graphics, Inc., a computer disk manufacturer from 1991 to 1993, and
Manufacturing Manager for CompuAdd Corporation, a personal computer disk
manufacturer from 1989 to 1991. Prior to working at CompuAdd, Mr. Chavez was a
section head at Hughes Aircraft for nine years. Mr. Chavez obtained a Bachelor
of Science degree in Electrical Engineering from the University of Texas at El
Paso in 1975. Mr. Chavez has been a Director of the Company since June 1997.
Mr. Chavez was terminated as the President and CEO of the Company on April 20,
1999.
MITCHELL KETTRICK, 32, has over 12 years of experience in
manufacturing, test diagnostics and networking. He has also been with the
Company since the inception of Micro-Media Solutions, Inc., the operating
subsidiary of the Company, in September 1993. Mr. Kettrick was the Quality
Assurance Manager for Hart Distribution Service, a computer disk manufacturer,
in 1992 and the Manufacturing Systems Test Manager for CompuAdd Corporation, a
personal computer manufacturer, from 1987 to 1991. Mr. Kettrick received an
Associate degree in Computer Maintenance Technology from Texas State Technical
College in 1987. Mr. Kettrick has been a director of the Company since June
1997. Mr. Kettrick was terminated as the Company's Secretary and Vice-President
on April 20, 1999.
JON J. KING, 59, has over 20 years of experience as a private venture
capital investor. For the past three years Mr. King has served as the U.S.
investment manager for Entrepreneurial Investors Ltd., a European private
equity fund and beneficial owner of at least 10% of the Company's Common Stock.
For the two years before that, Mr. King served as a consultant to various
private companies. In 1962, Mr. King obtained a Bachelors of Science degree in
Engineering from Purdue University.
BOARD MEETINGS
The Board of Directors of the Company met five times during the fiscal
year ended March 31, 1999. Each director attended at least 75% of the called
meetings. The Board of Directors currently has appointed two committees, the
Audit Committee and the Compensation Committee. The Board of Directors has no
nominating committee; the Board itself is responsible for selecting nominees
for election as directors.
AUDIT COMMITTEE
The Audit Committee is responsible for engaging and discharging the
independent auditors of the Company and for monitoring internal audit functions
and procedures. The members of the Audit Committee are Dr. Cardenas
7
<PAGE> 11
and Messrs. Chavarria and Dornier. Neither Dr. Cardenas nor Mr. Chavarria nor
Mr. Dornier is an officer or employee of the Company. The Audit Committee met
one time during the fiscal year ended March 31, 1999.
COMPENSATION COMMITTEE
The Compensation Committee is responsible for review and making
recommendations to the Board of Directors on all matters relating to
compensation and benefits provided to executive management. The members of the
Compensation Committee are Messrs. Chavarria and Dornier and Dr. Cardenas.
Neither Dr. Cardenas nor Mr. Chavarria nor Mr. Dornier is an officer or
employee of the Company. The Compensation Committee met two times during the
fiscal year ended March 31, 1999.
COMPENSATION OF DIRECTORS
Directors of the Company who are employees of the Company do not
receive compensation as directors. The Company paid each non-employee director
$1,000 for each meeting of the Board of Directors that he or she attended plus
reasonable out-of-pocket expenses incurred by him or her. The Company also paid
each non-employee director $500 for each meeting of the Audit and Compensation
Committees of the Board of Directors that he or she attended. The Board of
Directors has adopted, subject to shareholder approval at the Annual Meeting,
the Company's Non- Employee Directors Stock Option Plan. See "Proposal to
Approve Adoption of Non-Employee Directors Stock Option Plan." If that plan is
approved by the shareholders, an option to purchase 25,000 shares of Common
Stock will be granted to each non-employee director on October 1 of each year,
commencing October 1, 1999 and an option to purchase 25,000 shares of Common
Stock will be granted to each non-employee director elected to the Board of
Directors who has not previously served as a director of the Company on the
date of that director's election to the Board of Directors.
SECTION 16 REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and officers, and persons who own more than
10% of a registered class of the Company's equity securities, to file initial
reports of ownership and reports of changes in ownership with the Securities
and Exchange Commission (the "SEC") and The Nasdaq Over-the-Counter Bulletin
Board. Such persons are required by the SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it
with respect to fiscal 1999 or written representations from certain reporting
persons, the Company believes that all filing requirements applicable to its
directors, officers and persons who own more than 10% of a registered class of
the Company's equity securities have been complied with, except that Messrs.
Munoz, Hill, Upton and Chavarria, and Dr. Cardenas were late in filing Form 3
to report initial beneficial ownership in the Company.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert Gibbs 45 President and Chief Executive Officer
Roger M. Lane 51 Chief Operating Officer
Glenn Birk 30 Vice President of Sales and Marketing
Stephen Hoelscher 40 Secretary and Chief Accounting Officer
</TABLE>
8
<PAGE> 12
The Company has no knowledge of any arrangement or understanding in
existence between any executive officer named above and any other person
pursuant to which any such executive officer was or is to be elected to such
office or offices. All officers of the Company serve at the pleasure of the
Board of Directors.
BIOGRAPHICAL INFORMATION
Information concerning the business experience of Mr. Gibbs is
provided under "Election of Directors - Nominees."
ROGER M. LANE, Chief Operating Officer, joined the Company in March
1999. He has more than 20 years of operations and logistics management in the
computer, copier, and software industries. From May 1993 to December 1997, Mr.
Lane was the Vice President of Operations at Techworks, Inc. in Austin, Texas.
He also served as Chief Operating officer of Techworks, Inc. from January 1998
to July 1998. 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
from Rensselaer Polytechnic Institute, Troy, New York.
GLENN BIRK, Vice President of Sales and Marketing, joined the Company
in February 1999. He has nearly ten years of sales experience in the Internet,
Computing and Communications industries. From January 1990 to January 1999, Mr.
Birk was employed by GTE/BBN, NCR Comten, AT&T and Lawson Software. He holds a
Bachelor of Business Administration in Marketing from the University of Texas
at Austin.
STEPHEN HOELSCHER, CPA, Secretary and Chief Accounting Officer, has 18
years of accounting and auditing experience. Mr. Hoelscher has served as the
Company's Controller since 1997. Prior to joining the Company, Mr. Hoelscher
was the Controller for Protos Software Company in Georgetown, Texas for two
years. Mr. Hoelscher was an Audit Manager with Brown, Graham and Company, P.C.
from 1989 to 1996. Mr. Hoelscher received a Bachelor of Business Administration
in Accounting from West Texas A&M University (formerly West Texas State
University) in Canyon, Texas in 1981.
9
<PAGE> 13
TRANSACTIONS WITH DIRECTORS, OFFICERS AND AFFILIATES
PRIMA DEVELOPMENT
During the third quarter of fiscal 1999, the Company received an
advance of $32,000 from Prima Development & Construction, Inc., a company owned
and controlled by Messrs. Chavez and Kettrick and certain other former
executive officers and directors of the Company. The advance bore no interest
and was repaid by the Company within ten days.
ITBR, INC.
Ernesto M. Chavarria, Chairman of the Board of Directors of the
Company, is also the President of ITBR, Inc., an international consulting
company. ITBR, Inc. has a consulting agreement with the Company pursuant to
which ITBR, Inc. is to provide marketing and business development services to
the Company. The term of the agreement extends through December 31, 1999. ITBR,
Inc. is paid $10,000 per month and is reimbursed for all reasonable business
expenses under the terms of the agreement. During the fiscal year ended March
31, 1999, the Company paid ITBR, Inc. a total of $125,332.19.
DR. SETHI AND MMH INVESTMENTS, INC.
Davinder Sethi, nominee for director of the Company, is an independent
consultant for MMH Investments, Inc., a North Carolina corporation ("MMH"). MMH
and Dr. Sethi have a consulting agreement with the Company. The term of the
agreement extends through December 1, 1999. MMH and Dr. Sethi are collectively
paid $9,000 per month and are entitled to be issued 250,000 shares of Common
Stock which shall be held in escrow. Those shares are to be released from
escrow and delivered to MMH and Dr. Sethi upon the completion of a public
offering of the Company's securities and receipt by the Company of the proceeds
from such offering.
10
<PAGE> 14
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding
compensation paid to the Company's Chief Executive Officer during the Company's
last three completed fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
SECURITIES
NAME UNDER-
AND ANNUAL COMPENSATION LYING
PRINCIPAL --------------------- OTHER ANNUAL OPTIONS ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION(1) (#)(2) COMPENSATION ($)
- ------------- ---- ---------- --------- --------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Jose G. Chavez 1999 $ 95,000 $ 0 $ 7,800 $ 0 $ 0
Former President 1998 105,000 0 0 62,500 0
and Chief 1997 50,500 34,000 0 0 0
Executive Officer
</TABLE>
- -----------------------
(1) Represents car allowance of $650.00 per month.
(2) Options to acquire shares of Common Stock.
OPTION GRANTS, EXERCISES AND FISCAL YEAR END OPTION VALUES
There were no grants to or exercises of stock options during fiscal
1999 by the Named Executive Officers. The following table provides information
related to unexercised options by the Named Executive Officers at fiscal year
end. The Company does not have any outstanding stock appreciation rights.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
------------------------
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDER- VALUE OF
LYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)
------------- -----------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($)(1) UNEXERCISABLE UNEXERCISABLE (1)
- -------------- --------------- --------------------- ------------- -----------------
<S> <C> <C> <C> <C>
Jose G. Chavez -- -- 100,000 $412,000/0
</TABLE>
- --------------------
(1) Value is calculated on the basis of the difference between the option
exercise price and the market value of the Common Stock on the exercise
date. The closing price of the Common Stock as reported on the Nasdaq
Over-the-Counter Bulletin Board on June 29, 1999 was $5.62 per share.
11
<PAGE> 15
EMPLOYMENT-RELATED AGREEMENTS
Effective June 14, 1999, the Company entered into an Employment
Agreement with Robert J. Gibbs, President and Chief Executive Officer (the
"Gibbs Agreement"). The initial term of the Gibbs Agreement is two years, which
the parties may extend for an additional two years if, on or about six months
before expiration of the initial term, they agree on the terms for the extended
period. Under the Gibbs Agreement, Mr. Gibbs' annual base salary is $150,000
during the first year of the term and $240,000 during the second year of the
term. In addition, Mr. Gibbs and the Company have entered into a Stock Option
Agreement that provides for a stock option to purchase up to 1,362,950 shares
of Common Stock vesting as follows: (i) options to purchase 272,590 shares of
Common Stock vested immediately upon the date of grant, (ii) options to
purchase 272,590 shares of Common Stock vest 91 days after the grant date,
(iii) options to purchase 545,180 shares of Common Stock vest on the first
anniversary of the grant date, (iv) options to purchase 272,590 shares of
Common Stock vest on the second anniversary of the grant date. Because all
1,500,000 shares of Common Stock authorized under the 1998 Option Plan have
been granted pursuant to the 1998 Option Plan, 427,950 shares of the 1,362,950
option shares granted to Mr. Gibbs are subject to shareholder approval of the
amendment to the 1998 Option Plan at the Annual Meeting. Mr. Gibbs is also
eligible under the Gibbs Agreement to earn an annual incentive bonus of (i)
during the first year of his term, up to $50,000 at the discretion of the Board
based on Mr. Gibbs' best efforts to effectuate a public secondary offering of
the Company's securities and up to $170,000 based on a percentage of net
proceeds received by the Company resulting from any amount raised as equity in
the Company; and (ii) during the second year of his term, a percentage of his
base salary. Pursuant to the Gibbs Agreement, he may also participate in the
Company's employee compensation and benefit plans. The Gibbs Agreement is
terminable by either party upon written notice of termination to the other
party. If Mr. Gibbs is terminated without cause, severance payments totaling
$240,000 must be paid him. In addition, if Mr. Gibbs elects and maintains
continued coverage under the Consolidated Omnibus Benefits Reconciliation Act
of 1985 and corresponding regulations, then for up to twelve months immediately
after his termination date or until Mr. Gibbs becomes eligible for coverage
under another employer's plan or policy, whichever occurs first, Mr. Gibbs is
entitled to receive premium payments in an amount as described under the Gibbs
Agreement.
Effective March 24, 1999, the Company entered into an Employment
Agreement with Roger M. Lane, Chief Operating Officer (the "Lane Agreement").
Under the Lane Agreement, Mr. Lane's annual base salary is $120,000 per year.
In addition, Mr. Lane and the Company have entered into a Stock Option
Agreement that 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 of Common Stock will vest on each of the second and third
anniversary of the grant date. The Lane Agreement is terminable by either party
upon written notice of termination to the other party.
On June 15, 1997, the Company entered into employment agreements with
Jose Chavez, President and Chief Executive Officer (the "Chavez Agreement"),
and Mitchell Kettrick, Secretary and Vice President (the "Kettrick Agreement").
The Chavez Agreement provides for an annual salary of $100,000 and
reimbursement of all reasonable out-of-pocket expenses. The Chavez Agreement
also provides for a grant dated March 31, 1998, of an option to purchase up to
100,000 shares of Common Stock at a price of $1.50 per share exercisable for a
period of five (5) years commencing on March 31, 1998. In addition, during the
term of the Chavez Agreement, Chavez is entitled to a bonus, at the discretion
of the Board of Directors, consisting of cash and common stock, calculated as
follows: (1) for each ten percent (10%) increase in revenues, from year to
year, above the base of $10,000,000 in fiscal 1998, Chavez shall be issued
100,000 shares of Common Stock at fifty percent (50%) of the then current
market value, not to exceed $1.70 per share; and (2) for each $1.00 increase in
the Common Stock value above the base value of $3.00 per share in fiscal 1998,
calculated on the last ninety (90) day average, the Company shall pay Chavez a
cash bonus of $100,000 due no later than June 30 of each fiscal year. Chavez
also is entitled to an automobile allowance of up to $650.00 per month.
The Kettrick Agreement provides for an annual salary of $75,000 per
year and reimbursement of all reasonable out-of-pocket expenses. Moreover, the
Kettrick Agreement provides for a grant, dated March 31, 1998, of a five-year
12
<PAGE> 16
option to purchase up to 50,000 shares of Common Stock at a price of $1.50 per
share exercisable beginning July 1, 1998. Kettrick also has a second option,
dated March 31, 1998, for 25,000 shares at $2.25 per share exercisable for a
period of two (2) years. The Kettrick Agreement also provides for a bonus, at
the discretion of the Board of Directors, consisting of cash and Common Stock,
calculated as follows: (1) for each ten percent (10%) increase in revenues
above the base of $10,000,000 in fiscal 1998, Kettrick shall be issued 50,000
shares of Common Stock at fifty percent (50%) of the then current market value,
not to exceed $1.70 per share; and (2) for each $1.00 increase in the Common
Stock value above the base value of $3.00 per share in fiscal 1998, calculated
on the last ninety (90) day average, the Company shall pay Kettrick a cash
bonus of $50,000 due no later than June 30 of each fiscal year. Kettrick is
also entitled to an automobile allowance of up to $500.00 per month.
Messrs. Chavez and Kettrick had agreed to renegotiate the option terms
of the Chavez and Kettrick Agreements. The renegotiations were expected to be,
but were not, concluded by January 1999. On April 20, 1999, the Company
terminated Messrs. Chavez and Kettrick for cause. The Company's position is
that the Agreements were breached by Messrs. Chavez and Kettrick and that the
Company owes nothing further to Messrs. Chavez and Kettrick under the Chavez
and Kettrick Agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is responsible
for evaluating and recommending to the Board of Directors the Company's
executive compensation policies and the annual compensation of the executive
officers and other senior management of the Company thereunder. In connection
with such responsibilities, the Compensation Committee has exclusive authority
to administer the Company's 1998 Stock Option Plan, including the grant of
stock options and other awards thereunder. All other actions of the
Compensation Committee are subject to the approval of the Board of Directors.
The members of the Compensation Committee are Dr. Cardenas and Messrs.
Chavarria and Dornier. Neither Dr. Cardenas nor Mr. Chavarria nor Mr. Dornier
is an officer or employee of the Company. The Compensation Committee met two
times during the fiscal year ended March 31, 1999.
2. PROPOSAL TO APPROVE AMENDMENT TO
1998 STOCK OPTION PLAN
TO INCREASE SHARES AVAILABLE FOR GRANT
BACKGROUND AND SUMMARY OF TERMS
In July 1998, the Company adopted its 1998 Stock Option Plan (the
"1998 Option Plan") pursuant to which options may be granted to the key
employees of the Company and its subsidiaries for the purchase of shares of
Common Stock. In May 1999, the Board of Directors of the Company amended the
1998 Option Plan, subject to shareholder approval, to increase the number of
shares of Common Stock that may be issued upon exercise of options granted
under the 1998 Option Plan from 1,500,000 shares to 4,500,000 shares (subject
to adjustment to reflect any stock dividend, stock split shares combination,
recapitalization or the like, of or by the Company). At the Annual Meeting,
shareholders are being asked to approve such amendment. Management intends for
all options granted under the 1998 Option Plan to conform with the provisions
of Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
The 1998 Option Plan is designed to permit the granting of options to
key employees (including officers) of the Company and its subsidiaries to
purchase shares of Common Stock. The option period may not be more than ten
years from the date the option is granted. The Compensation Committee of the
Board of Directors determines in its discretion the key employees who will
receive grants, the number of shares subject to each option granted, the
exercise price and the option period, and it administers and interprets the
1998 Option Plan. Approximately fifty (50) of the Company's employees are
eligible to participate in the 1998 Option Plan.
Full payment for shares purchased upon exercise of an option must be
made at the time of exercise, and no shares may be issued until full payment is
made. The exercise price of each option is payable in cash or by check or,
13
<PAGE> 17
if the applicable stock option agreement so provides, in shares of Common Stock
at the fair market value per share on the date of exercise.
The Compensation Committee of the Board of Directors has discretion to
determine the terms of the exercise of any option. All installments that become
exercisable are cumulative and may be exercised at any time after they become
exercisable until the expiration of the option period. Incentive stock options
and, unless otherwise specified in the applicable stock option agreements,
nonqualified stock options may not be transferred other than by will or by the
laws of descent and distribution. If an optionee dies or becomes permanently
disabled before the termination of his option without having totally exercised
the option, the option may be exercised, to the extent that the optionee could
have exercised it on the date of his death or disability, by (i) in the case of
death, his estate or the person who acquired the right to exercise the option
by bequest or inheritance, or (ii) in the case of disability, the optionee or
his personal representative, provided that the option is exercised before the
date of the expiration of the option period of 180 days after the date of the
optionee's death or disability, whichever occurs first.
Both incentive stock options and nonqualified stock options may be
granted under the 1998 Option Plan. The 1998 Option Plan requires that the
exercise price of each incentive stock option will not be less than 100% of the
fair market value of the Common Stock at the time of the grant of the option.
No incentive stock option, however, may be granted under the 1998 Option Plan
to anyone who owns more than 10% of the outstanding Common Stock unless the
exercise price is at least 110% of the fair market value of the Common Stock at
the date of grant and the option is not exercisable for more than five years
after it is granted. There is no limit on the fair market value of incentive
stock options that may be granted to an employee in any calendar year, but no
employee maybe granted incentive options that first become exercisable during a
calendar year for the purchase of stock with an aggregate fair market value
(determined as of the date of grant of each option) in excess of $100,000. An
option (or an installment thereof) counts against the annual limitation only in
the calendar year it first becomes exercisable.
Unless the Board of Directors terminates it sooner, the 1998 Option
Plan will terminate on July 18, 2008, and no options may be granted under the
1998 Option Plan thereafter. The Board of Directors or the Compensation
Committee may amend, alter or discontinue the 1998 Option Plan without the
shareholders' approval, except that the Board of Directors or the Compensation
Committee does not have the power or authority to materially increase the
number of securities that may be issued under the 1998 Option Plan or to
materially modify the requirements of eligibility for participation in the 1998
Option Plan. The Board of Directors or the Compensation Committee, however, may
make appropriate adjustments in the number of shares the 1998 Option Plan
covers, in the number of outstanding options, and in the option exercise prices
to reflect any stock dividend, stock split, share combination or other
recapitalization and, with respect to outstanding options and option prices, to
reflect any merger, consolidation, reorganization, liquidation or similar
transaction involving the Company.
At June 29, 1999, options to purchase all 1,500,000 shares of Common
Stock authorized under the 1998 Option Plan had been granted pursuant to the
1998 Option Plan, and options to purchase an additional 427,950 shares of
Common Stock had been granted under the 1998 Option Plan subject to shareholder
approval of the amendment at the Annual Meeting. No options granted under the
1998 Option Plan have been exercised. As of June 29, 1999, the market value of
all shares of Common Stock subject to outstanding options was $10,835,079
(based upon the closing price of the Common Stock of $5.62 as reported on the
Nasdaq Over-the-Counter Bulletin Board on such date).
TAX STATUS OF STOCK OPTIONS
Pursuant to the 1998 Option Plan, the Board of Directors, or a
committee of the Board of Directors appointed to administer the 1998 Option
Plan, may provide for an option to qualify either as an "incentive stock
option" ("ISO") or as a "nonqualified option" for United States federal income
tax purposes.
Incentive Stock Options. All stock options that qualify under the
rules of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), will be entitled to ISO treatment. To receive ISO treatment, an
optionee must not dispose of the acquired stock within two years after the
option is granted or within one year after exercise. In
14
<PAGE> 18
addition, the individual must have been an employee of the Company for the
entire time from the date of granting of the option until three months (or one
year if the employee is disabled) before the date of the exercise. The
requirement that the individual be an employee and the two-year and one-year
holding periods are waived in the case of death of the employee. If all such
requirements are met, no tax will be imposed upon exercise of the option, and
any gain upon sale of the stock will be entitled to capital gain treatment. The
employee's gain on exercise (the excess of fair market value at the time of
exercise over the exercise price) of an ISO is a tax preference item and,
accordingly, is included in the computation of alternative minimum taxable
income.
If an employee does not meet the two-year and one-year holding
requirement (a "disqualifying disposition"), but does meet all other
requirements, tax will be imposed at the time of sale of the stock. Any gain
recognized will be treated as ordinary income rather than capital gain and the
Company will get a corresponding deduction at the time of sale, in an amount
equal to the income that the employee would have recognized on exercise of the
option. Any remaining gain on sale will be short-term or long-term capital
gain, depending on the holding period of the stock. If the amount realized on
the disqualifying disposition is less than the value at the date of exercise,
the amount includible in gross income, and the amount deductible by the
Company, will equal the excess of the amount realized on the sale or exchange
over the exercise price.
An optionee's stock option agreement may permit payment for stock upon
the exercise of an ISO to be made with other shares of Common Stock. In such a
case, in general, if an employee uses stock acquired pursuant to the exercise
of an ISO to acquire other stock in connection with the exercise of an ISO, it
may result in ordinary income if the stock so used has not met the minimum
statutory holding period necessary for favorable tax treatment as an ISO.
Nonqualified Options. In general, no taxable income will be recognized
by the optionee, and no deduction will be allowed to the Company, upon the
grant of an option. Upon exercise of a nonqualified option an optionee will
recognize ordinary income (and the Company will be entitled to a corresponding
tax deduction if applicable withholding requirements are satisfied) in an
amount equal to the amount by which the fair market value of the shares on the
exercise date exceeds the option exercise price. Any gain or loss realized by
an optionee on disposition of such shares generally is a capital gain or loss
and does not result in any tax deduction to the Company.
The foregoing statements are based upon present federal income tax
laws and regulations and are subject to change if the tax laws and regulations,
or interpretations thereof, are changed.
REQUIRED VOTE
The favorable vote of the holders of a majority of the outstanding
shares of Common Stock present and entitled to vote at the Annual Meeting in
person or by proxy is required to approve the proposed amendment to the 1998
Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
AMENDMENT OF THE 1998 OPTION PLAN.
15
<PAGE> 19
3. PROPOSAL TO APPROVE ADOPTION OF
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
BACKGROUND AND SUMMARY OF TERMS
On June 22, 1999, the Board of Directors adopted the Non-Employee
Directors Stock Option Plan (the "Directors Option Plan"), subject to approval
by the shareholders at the Annual Meeting. The Directors Option Plan provides
for the grant of nonqualified options, as defined by the Code, to directors who
are not employees of the Company. The purpose of the Directors Option Plan is
to provide non-employee directors with a proprietary interest in the Company
which will (i) increase the interest of non-employee directors in the Company's
welfare, (ii) furnish an incentive to the non-employee directors to continue
their services to the Company and (iii) provide a means through which the
Company may attract able persons to serve on its Board. If the six nominees for
director set forth above are elected and the Directors Option Plan is approved
by the shareholders at the Annual Meeting, five of the Company's directors -
all but Mr. Gibbs - will be non-employee directors and, therefore, eligible to
participate in the Directors Option Plan.
The Directors Option Plan covers up to 1,000,000 shares of Common
Stock and provides for automatic grants of stock options. The Directors Option
Plan provides for the grant, after the approval of the Directors Option Plan by
the shareholders of the Company, of (i) an option to purchase 25,000 shares of
Common Stock to each serving non-employee director on October 1 of each year
("Annual Option"), commencing October 1, 1999, or if October 1 is not a trading
day, the next trading day immediately thereafter (the "Annual Grant Date"), and
(ii) an option to purchase 25,000 shares of Common Stock to each non-employee
director elected to the Board of Directors who has not previously served as a
director of the Company on the date of such director's election to the Board of
Directors (the "Initial Options"). Non-employee directors may elect not to
receive option grants under the Directors Option Plan by giving written notice
to the Company in the manner specified in the Directors Option Plan.
The Directors Option Plan requires that the exercise price for each
stock option must be equal to the closing price of Common Stock on the last
trading day immediately preceding the Annual Grant Date or the date of grant of
Initial Options, whichever is applicable.
The Directors Option Plan is administered by the Board of Directors.
The following table set forth the number of options that would have
been received by the persons named below if the Directors Option Plan had been
in effect in fiscal year 1999:
<TABLE>
<CAPTION>
MSI HOLDINGS, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
NAME AND POSITION DOLLAR VALUE NUMBER OF OPTION SHARES
- ----------------- ------------ -----------------------
<S> <C> <C>
Blandina Cardenas, Director -- 25,000
Jose G. Chavez, Director (1) --
Ernesto Chavarria, Chairman of the Board 25,000
Daniel Dornier, Director 25,000
Mitchell C. Kettrick, Director (1) -- --
Executive Officers as a Group (2) -- --
Non-Executive Directors as a Group 75,000
Non-Executive Officer Employees as a Group (2) -- --
</TABLE>
- ----------------------
(1) Did not cease to be an employee of the Company until after March 31,
1999.
(2) Ineligible to participate in the Directors Option Plan.
16
<PAGE> 20
Each option granted to a non-employee director elected to the Board
who has not previously served as a director will be fully vested and
exercisable as of the date of his or her election to the Board. Each Annual
Option granted to a serving non-employee director will become fully vested and
exercisable on the anniversary of the Annual Grant Date for such Annual Option
if the optionholder is then sitting on the Board. Options may not be
transferred other than by will or by the laws of descent and distribution.
Unless sooner terminated by action of the Board, the Plan will terminate on
October 1, 2009. If a non-employee director dies prior to the termination of
his option without having totally exercised the option, the option may be
exercised, to the extent the deceased non-employee director could have
exercised the option on the date of his death, by his estate or by the person
who acquired the right to exercise the option by bequest or inheritance,
provided that the option is exercised prior to the date of the option's
expiration or 180 days from the date of the non-employee director's death,
whichever occurs first.
Full payment for shares purchased upon exercise of an option must be
made at the time of exercise. No shares may be issued until full payment is
made. Unless sooner terminated by action of the Board of Directors, the
Directors Option Plan will terminate on October 1, 2009.
Generally, an optionee will not recognize income for federal income
tax purposes upon the grant of an option. On exercise of such option, however,
the optionee will recognize ordinary income in an amount equal to the excess of
the fair market value of the shares on the date of exercise over the option
price of such shares, and the Company will be allowed a federal income tax
deduction equal to the amount of ordinary income recognized by the optionee at
the time of such recognition by the optionee.
The Directors Option Plan contains antidilution provisions applicable
in the event of an increase or decrease in the number of outstanding shares of
the Company effected by any stock dividend, stock split, share combination,
exchange of shares, recapitalization, merger, consolidation, separation,
reorganization, liquidation or the like of or by the Company.
The Board of Directors may at any time amend or discontinue the
Directors Option Plan without the approval of the shareholders of the Company,
except as necessary to comply with applicable law or regulation or applicable
requirements of any stock exchanges(s) or The Nasdaq Over-the-Counter Bulletin
Board on which the Common Stock is then traded.
The preceding summary of the Directors Option Plan is qualified in its
entirety by reference to the text of the Directors Option Plan, a copy of which
is set forth as Exhibit A to this Proxy Statement.
REQUIRED VOTE
The favorable vote of the holders of a majority of the shares of
Common Stock present and entitled to vote at the Annual Meeting in person or by
proxy is required to approve the Directors Option Plan. If the requisite vote
of the shareholders is not obtained, the Directors Option Plan will be null and
void.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE DIRECTORS OPTION PLAN.
17
<PAGE> 21
4. PROPOSAL TO APPROVE THE APPOINTMENT OF
BROWN, GRAHAM & COMPANY, P.C.
AS INDEPENDENT AUDITORS
The firm of Brown, Graham & Company, P.C. has been the Company's
independent certified public accountants since May 11, 1998. Brown, Graham &
Company, P.C. has been approved by the Board of Directors as the Company's
independent auditors for the fiscal year ending March 31, 2000, subject to
approval of such appointment by the shareholders. Representatives of Brown,
Graham & Company, P.C. are expected to be present at the Annual Meeting with
the opportunity to make a statement if they desire to do so, and such
representatives are expected to be available to respond to appropriate
questions by shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
PROPOSAL TO RATIFY THE APPOINTMENT OF BROWN, GRAHAM & COMPANY, P.C. AS
INDEPENDENT AUDITORS.
18
<PAGE> 22
SHAREHOLDERS' PROPOSALS
Shareholders may submit proposals on matters appropriate for
shareholder action at subsequent annual meetings of the Company consistent with
the Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as
amended. For such proposals to be considered for inclusion in the Proxy
Statement and Proxy relating to the 2000 Annual Meeting of Shareholders, such
proposals must be received by the Secretary of the Company on or before April
14, 2000.
5. MISCELLANEOUS
The Board of Directors knows of no business other than that set forth
above to be transacted at the Annual Meeting. If other matters requiring a vote
of the shareholders arise, the persons designated as proxies will vote the
shares of Common Stock represented by the proxies in accordance with their
judgment on such matters.
The information contained in the Proxy Statement relating to the
occupations and security holdings of the directors and executive officers of
the Company and their transactions with the Company is based upon information
received from the individual directors and officers. All information relating
to any beneficial owner of more than 5% of the Company's Common Stock is based
upon information contained in reports filed by such owner with the SEC.
By Order of the Board of Directors,
Stephen Hoelscher
Secretary
Austin, Texas
July 9, 1999
19
<PAGE> 23
EXHIBIT A
MSI HOLDINGS, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
INTRODUCTION
On June 22, 1999 (the "Effective Date"), the Board of Directors of MSI
Holdings, Inc. (the "Company") adopted the following Non-Employee Directors
Stock Option Plan:
1. PURPOSE. The purpose of the Plan is to provide non-employee
directors of the Company with a proprietary interest in the Company through
the granting of options which will
(a) increase the interest of the non-employee directors in
the Company's welfare;
(b) furnish an incentive to the non-employee directors to
continue their services for the Company; and
(c) provide a means through which the Company may attract
able persons to serve on the Board.
2. ADMINISTRATION. The Plan will be administered by the Board.
3. PARTICIPANTS. All non-employee directors of the Company are
to be granted options under the Plan, and upon such grant will become
participants in the Plan.
4. SHARES SUBJECT TO PLAN. Options may not be granted under the
Plan for more than 1,000,000 shares of Common Stock, but this number may be
adjusted to reflect, as deemed appropriate by the Board, any stock
dividend, stock split, share combination, recapitalization or the like, of
or by the Company. Shares to be optioned and sold may be made available
from either authorized but unissued Common Stock or Common Stock held by
the Company in its treasury.
<PAGE> 24
Shares that by reason of the expiration of an option or otherwise are no
longer subject to purchase pursuant to an option granted under the Plan may
be reoffered under the Plan.
5. ALLOTMENT OF SHARES. Grants of options under the Plan shall
be as described in this Section 5.
(a) On October 1 of each year commencing with October 1,
1999, or if October 1 is not a Trading Day, the next Trading Day
immediately thereafter (the "Annual Grant Date"), each then
serving non-employee director of the Company shall be granted an
option, effective as of that Annual Grant Date, to purchase
25,000 shares of Common Stock of the Company.
(b) Each non-employee who is elected to the Board who has
not previously served as a director of the Company shall be
granted an option, effective as of the date of his election to
the Board (the "Initial Grant Date"), to purchase 25,000 shares
of Common Stock.
(c) Any non-employee director may elect by written notice to
the Company not to receive one or more option grants hereunder,
by electing on the Initial Grant Date or at least six months in
advance of the Annual Grant Date, whichever is applicable, of the
option.
(d) The Plan shall be submitted to the Company's
shareholders for approval. The Board will not grant options under
the Plan prior to the time of shareholder approval.
6. GRANT OF OPTIONS. All options under the Plan shall be
automatically granted as provided in Section 5. The grant of options shall
be evidenced by stock option agreements containing such terms and
provisions as are approved by the Board, but not inconsistent with the
Plan. The Company shall execute stock option agreements upon instructions
from the Board.
Page 2 of 6
<PAGE> 25
7. OPTION PRICE. The option price shall be equal to the closing
price of Common Stock of the Company on (a) for the grants under Section
5(a), the Effective Date and (b) for all subsequent grants, the last
Trading Day immediately preceding the Annual Grant Date or the Initial
Grant Date, whichever is applicable, on which such grants are made.
8. OPTION PERIOD. The Option Period will begin on the effective
date of the option grant and will terminate on the fifth anniversary of
that date.
9. RIGHTS IN EVENT OF DEATH OR DISABILITY. If a participant
dies or becomes disabled prior to termination of his right to exercise an
option in accordance with the provisions of his stock option agreement
without having totally exercised the option, the option may be exercised,
to the extent of the shares with respect to which the option could have
been exercised by the participant on the date of his death or disability,
by (i) the participant's estate or by the person who acquired the right to
exercise the option by bequest or inheritance or by reason of the death of
the participant, or (ii) the participant or his personal representative in
the event of the participant's disability, provided the option is exercised
prior to the date of its expiration or not more than 180 days after the
date of the participant's death or disability, whichever first occurs. The
date of disability of a participant shall be determined by the Board.
10. PAYMENT. Full payment for shares purchased upon exercising
an option shall be made in cash or by check at the time of exercise, or on
such other terms as are set forth in the applicable option agreement. In
addition, the participant shall tender payment of the amount as may be
requested by the Company, if any, for purposes of satisfying its statutory
liability to withhold federal, state or local income or other taxes
incurred by reason of the exercise of an option. No shares may be issued
until full payment of the purchase price therefor has been made, and a
participant will have none of the rights of a shareholder until shares are
issued to him.
Page 3 of 6
<PAGE> 26
11. VESTING.
(a) Each option described in Section 5(c) will be fully
vested and exercisable on the Initial Grant Date of that option.
Each other option will become fully vested and exercisable on the
anniversary of the Annual Grant Date for such option, provided
that the optionholder is then sitting on the Board.
(b) No fractional share will be issued; if an installment
would cover a fractional share, such installment will be rounded
to the next higher whole share (except in the case of the final
installment, which will be for the balance of the total optioned
shares).
(c) In no event may an option be exercised or shares be
issued pursuant to an option if any requisite action, approval or
consent of any governmental authority of any kind having
jurisdiction over the exercise of options shall not have been
taken or secured.
12. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of
shares of Common Stock covered by each outstanding option granted under the
Plan and the option price thereof, and the number of shares to be granted
pursuant to Section 5(b) and the option price thereof, may be adjusted to
reflect, as deemed appropriate by the Board, any stock dividend, stock
split, share combination, exchange of shares, recapitalization, merger,
consolidation, separation, reorganization, liquidation or the like of or by
the Company.
13. TAX WITHHOLDING. The Board may make such rules and
procedures as it considers desirable in order to satisfy any obligation of
the Company to withhold the statutory prescribed minimum amount of federal
income taxes or other taxes with respect to any option granted under the
Plan. Such rules and procedures may provide that the withholding obligation
may be satisfied by the Company withholding shares of Common Stock
otherwise issuable upon exercise of an option in an amount equal to the
statutory prescribed minimum withholding applicable to ordinary income
resulting from the exercise of the option.
Page 4 of 6
<PAGE> 27
14. NON-ASSIGNABILITY. Options may not be transferred other than
by will or by the laws of descent and distribution. Except in the case of
the death or disability of a participant, options granted to a participant
may be exercised only by the participant.
15. INTERPRETATION. The Board shall interpret the Plan and shall
prescribe such rules and regulations in connection with the operation of
the Plan as it determines to be advisable for the administration of the
Plan. The Board may rescind and amend its rules and regulations.
16. AMENDMENT OR DISCONTINUANCE. The Plan may be amended or
discontinued by the Board without the approval of the shareholders of the
Company, except as necessary to comply with applicable law or regulation or
applicable requirements of the stock exchange(s) or The Nasdaq Stock Market
on which the Company's securities are traded.
17. EFFECT OF PLAN. Neither the adoption of the Plan nor any
action of the Board shall be deemed to give any non-employee director any
right to be granted an option to purchase Common Stock or any other rights
except as may be evidenced by the Plan and each stock option agreement, or
any amendment thereto, duly authorized by the Board and executed on behalf
of the Company in accordance with the Plan, and then only to the extent and
on the terms and conditions expressly set forth herein and therein. The
existence of the Plan and the options granted hereunder shall not affect in
any way the right of the Board, the Committee or the shareholders of the
Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of bonds,
debentures, or shares of preferred stock ahead of or affecting Common Stock
or the rights thereof, the dissolution or liquidation of the Company or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding. Nothing contained in the Plan or in any
agreement for an option granted thereunder shall confer upon any
non-employee director any right to (i) continue as a director of the
Company or any of its subsidiaries or (ii) interfere in any way with
Page 5 of 6
<PAGE> 28
the right of the Company, any of its subsidiaries or the Company's
shareholders to terminate his directorship at any time.
18. TERM. Unless sooner terminated by action of the Board, the
Plan will terminate on October 1, 2009. No options will be granted under
the Plan after that date, but options granted before that date will
continue to be effective in accordance with their terms.
19. DEFINITIONS. For the purposes of the Plan, unless the
context requires otherwise, the following terms shall have the meanings
indicated:
(a) "Board" means the Board of Directors of the Company.
(b) "Common Stock" means the Common Stock which the Company
is currently authorized to issue or may in the future be
authorized to issue (as long as the common stock varies from that
currently authorized, if at all, only in amount of par value).
(c) "Option Period" means the period during which an option
may be exercised.
(d) "Plan" means this Non-Employee Directors Stock Option
Plan, as may be amended from time to time.
(e) "Trading Day" shall mean a day on which the NASDAQ Stock
Market or other United States securities exchange is open for
trading.
Page 6 of 6
<PAGE> 29
MSI HOLDINGS, INC.
The undersigned hereby (i) acknowledges receipt of the Notice dated July 9,
1999, of the Annual Meeting of Shareholders of MSI Holdings, Inc. (the
"Company") to be held at the Company's offices located at 501 Waller Street,
Austin, Texas on Monday, August 9, 1999 at 10:00 a.m., local time, and the Proxy
Statement in connection therewith; and (ii) appoints Blandina Cardenas and
Ernesto M. Chavarria, and each of them, his/her proxies with full power of
substitution, for and in the name, place and stead of the undersigned, to vote
upon and act with respect to all of the shares of Common Stock of the Company
standing in the name of the undersigned or with respect to which the undersigned
is entitled to vote and act, at the meeting and at any adjournment thereof, and
the undersigned directs that his proxy be voted as follows:
(a) Proposal to elect six directors to serve until the 2000 annual meeting of
shareholders, or until their respective successors are elected and
qualified.
<TABLE>
<S> <C>
[ ] FOR all nominees listed below (except as [ ] WITHHOLD AUTHORITY to vote for all nominees
marked to the contrary) listed below
</TABLE>
Directors: Ernesto M. Chavarria, Blandina Cardenas, Daniel Dornier, Robert J.
Gibbs, Humbert B. Powell III and Davinder Sethi
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE BELOW.)
- --------------------------------------------------------------------------------
(b) Proposal to approve the appointment by the Board of Directors of Brown,
Graham & Company, P.C. as independent auditors of the Company for the fiscal
year ending March 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(c) Proposal to approve adoption of the MSI Holdings, Inc. Non-Employee
Directors Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(d) Proposal to approve an amendment to the Company's 1998 Stock Option Plan to
increase shares available for grant.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(e) In the discretion of the proxies on any other matter that may properly come
before the meeting or any adjournment thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
(CONTINUED FROM OTHER SIDE)
THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED FOR THE MATTERS SPECIFICALLY REFERRED TO ABOVE.
If more than one of the proxies named above shall be present in person or by
substitute at the meeting or any adjournment thereof, both of the proxies so
present and voting, either in person or by substitute, shall exercise all of the
proxies hereby given.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such Common Stock and hereby ratifies and confirms
all that the proxies, their substitutes, or any of them may lawfully do by
virtue hereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
Dated:
--------------------------------------
--------------------------------------
--------------------------------------
Please date this Proxy and sign your
name exactly as it appears hereon.
Where there is more than one owner,
each should sign. When signing as an
attorney, administrator, executor,
guardian or trustee, please add your
title as such. If executed by a
corporation, the Proxy should be
signed by a duly authorized officer.
Please date, sign and mail this proxy
card in the enclosed envelope. No
postage is required.
<PAGE> 30
Internet Special - MSI Investors Only
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[ ] YES! I want to subscribe to MSI'S FRIENDS & FAMILY INTERNET
SERVICE for $18.00 per month
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Nationwide, Dial-Up Internet Access (56k, V.90), E-Mail, Newsgroups, 5MB of Web
Space. Over 650 Local Access Numbers. No Set-Up Fees. No Roaming Charges.
RETURN THIS CARD TODAY, OR CALL 1-800-840-1594 X155
Name: Title:
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Phone: Fax:
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[ ] No, I do not wish to sign up for the Friends & Family Internet Service,
however I would like to receive future info about MSI via email at ___________
MICRO-MEDIA SOLUTIONS, INC. o 501 WALLER, AUSTIN TX 78702
PHONE: 512-476-6925 o FAX: 512-473-2371
www.msiaustin.com
[email protected]
<PAGE> 31
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NECESSARY
IF MAILED
IN THE
UNITED STATES
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FIRST-CLASS MAIL PERMIT NO. 5029 AUSTIN TX
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MICRO-MEDIA SOLUTIONS INC
501 WALLER ST
AUSTIN TX 78702-9834
