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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from __________ to
__________
Commission File Number 0-8164
MSI HOLDINGS, INC.
(Exact name of small business issuer as specified in charter)
UTAH 87-0280886
(State of incorporation or organization) (IRS Employer I.D. No.)
1121 EAST 7TH STREET AUSTIN, TEXAS 78702
(Address of principal executive offices) (Zip Code)
512-476-6925
(Issuer's telephone number)
501 WALLER STREET AUSTIN, TEXAS
(Former address)
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 reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] NO [ ]
As of January 31, 2000 the Registrant had 26,363,487 shares of common stock
issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes [X] NO [ ]
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MSI HOLDINGS, INC.
FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 1999
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Consolidated Financial Statements (unaudited) 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12
Item 5. Other Matters 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE PAGE 13
</TABLE>
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PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MSI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS December 31,
1999
------------
<S> <C>
Current assets
Cash $ 228,703
Accounts receivable - trade 422,944
Prepaid debt issuance costs 180,659
Other receivables - advances 95,407
Other current assets 98,308
------------
Total current assets 1,026,021
Property, plant, and equipment, net 3,109,912
Other assets 92,953
------------
TOTAL ASSETS $ 4,228,886
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable - trade $ 1,511,036
Other accrued expenses 186,200
Short-term notes payable 1,689,020
Current maturities of notes payable 179,282
Current portion of obligations under capital leases 364,652
------------
Total current liabilities 3,930,190
Long-term liabilities
Obligations under capital leases 939,746
Deferred rent 336,404
------------
Total long-term liabilities 1,276,150
Commitments and Contingencies --
------------
Total liabilities 5,206,340
------------
Stockholders' equity (deficit)
Preferred stock; 10,000,000 shares authorized:
Convertible preferred stock Series B; $5.30 stated value;
490,000 authorized, 5 shares issued and outstanding 27
Convertible preferred stock Series D; $10.60 stated value;
279,657 authorized, 19,005 shares issued and outstanding 201,453
Convertible preferred stock Series E; $30.00 stated value;
157,500 authorized, 6,005 shares issued and outstanding 180,150
Common stock at $.10 par value; 50,000,000 authorized, 23,843,437
shares (excluding 200,250 shares held in treasury) issued
and outstanding 2,384,344
Additional paid-in-capital 28,514,983
Accumulated deficit (32,258,411)
------------
Total stockholders' equity (deficit) (977,454)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 4,228,886
============
</TABLE>
The accompanying notes are an integral part of these financial statements
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MSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Hardware, software and peripherals $ -- $ 249,156 $ 122,404 $ 1,431,352
Networks, LAN/WAN -- 940,958 310,341 1,115,704
Service, support and integration -- 155,519 362,531 394,486
Broadband Internet services 278,455 -- 373,182 --
------------ ------------ ------------ ------------
278,455 1,345,633 1,168,458 2,941,542
------------ ------------ ------------ ------------
Cost of goods sold:
Hardware, software and peripherals -- 239,419 187,923 1,376,870
Networks, LAN/WAN -- 916,821 375,326 1,080,747
Service, support and integration -- 59,393 163,754 150,511
Broadband Internet services 453,622 -- 539,348 --
------------ ------------ ------------ ------------
453,622 1,215,633 1,266,351 2,608,128
------------ ------------ ------------ ------------
Gross margin (deficit) (175,167) 130,000 (97,893) 333,414
------------ ------------ ------------ ------------
Selling, general and administrative expenses:
Salaries and benefits 1,524,028 729,243 3,030,351 2,290,138
Professional fees and consultants 475,408 562,359 2,252,511 1,083,199
Advertising and marketing 25,206 -- 167,415 --
Occupancy 323,425 127,158 575,400 325,369
Depreciation and amortization 109,621 65,000 295,677 171,991
Vehicle expense 41,204 50,995 72,850 125,427
Other expense 350,142 196,124 757,925 503,482
------------ ------------ ------------ ------------
Total selling, general and administrative expenses 2,849,034 1,730,879 7,152,129 4,499,606
Interest expense, net 769,284 11,642 1,028,626 412,035
------------ ------------ ------------ ------------
Total expenses 3,618,318 1,742,521 8,180,756 4,911,641
------------ ------------ ------------ ------------
Net loss $ (3,793,485) $ (1,612,521) $ (8,278,648) $ (4,578,227)
============ ============ ============ ============
Preferred stock dividends and stock discounts (1,349,964) (1,663,390) (2,025,527) (6,618,685)
------------ ------------ ------------ ------------
Net loss to common stockholders $ (5,143,449) $ (3,275,911) $(10,304,175) $(11,196,912)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.22) $ (0.26) $ (0.48) $ (0.93)
============ ============ ============ ============
Basic and diluted weighted average shares outstanding 23,455,613 12,803,583 21,652,987 12,051,893
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
December 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(8,278,648) $(4,578,227)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense 295,677 171,991
Amortization of debt discount 782,718 371,000
Loss on disposal of property, plant and equipment 169,715 --
Amortization of deferred rent 144,120 --
Common stock and options issued for compensation 1,051,610 412,871
Changes in operating assets and liabilities:
Accounts receivable - trade 152,286 (669,883)
Inventory -- (27,277)
Other receivables - advances (15,708) (84,686)
Other current assets (133,745) --
Accounts payable - trade (262,175) 894,620
Other accrued expenses 42,715 (72,022)
----------- -----------
Net cash used in operating activities (6,051,435) (3,581,613)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant, and equipment (833,546) (604,238)
----------- -----------
Net cash used in investing activities (833,546) (604,238)
----------- -----------
Cash flows from financing activities:
Net draws (payments) on bank line of credit (200,000) 371,034
Payments on obligations under capital leases (89,814) (60,609)
Payments on notes payable (109,643) (227,515)
Proceeds - notes payable 1,907,830 --
Proceeds - private placement of preferred stock, net of offering costs 526,800 3,764,116
Proceeds - exercise of warrants 210,865 333,900
Proceeds - issuance of common stock 4,859,175 53,000
----------- -----------
Net provided by financing activities 7,105,213 4,233,926
----------- -----------
Net change in cash 220,232 48,075
Cash at beginning of period 8,471 25,786
----------- -----------
Cash at end of period $ 228,703 $ 73,861
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
December 31,
1999 1998
------------ ------------
<S> <C> <C>
Supplemental disclosure:
Cash paid during the period for:
Interest $ 237,597 $ 41,035
============ ============
Supplemental schedule of non-cash investing and financing activities;
Preferred stock issued for:
Placement agent fees $ -- $ 215,410
Stock options or warrants issued for:
Placement agent fees 236,400 1,359,883
Debt issuance fees 937,657 --
Common stock issued for:
Compensation 1,051,610 152,906
Preferred stock dividends 81,339 263,562
Discount on preferred and common stock issued 1,944,188 6,355,123
Purchase of equipment with long-term leases 586,418 254,562
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MSI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
DECEMBER 31, 1999 (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, as amended. In
the opinion of management all adjustments, consisting of normal recurring
adjustments, necessary for the fair presentation of financial position and
results of operations for the interim periods presented have been reflected
herein. The results of operations 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, 1999, as reported in the Form 10-KSB as
amended have been omitted.
GOING CONCERN:
As shown in the accompanying consolidated financial statements, the Company has
incurred a net loss of $8,278,648 for the nine months ended December 31, 1999.
The ability of the Company to continue as a going concern is dependent on the
Company obtaining additional financing to fund operations, data center
expansion, and capital acquisitions.
During the last four months of calendar 1999, the Company completed the private
sale of 401,250 shares of common stock at a price of $3.35 per share. The
Company also issued warrants to purchase two shares of common stock for each one
share of common stock sold in the offering, at an exercise price of $4.40 per
share. Also during the last four months of calendar 1999, the Company completed
a private debt placement of approximately $2.1 million initial principal amount
of Promissory Notes, together with warrants to purchase up to 213,650 shares of
common stock at an exercise price of $0.10 per share. The outstanding principal
amounts of the Promissory Notes bear interest at 8.25% per annum and mature in
March, April and May of 2000 or upon consummation of a secondary public
offering, whichever is sooner. The warrants issued in each of these offerings
contain customary anti-dilution protection for stock dividends, stock splits,
recapitalizations and similar transactions. Each of the warrants is exercisable
for a four-year period from the date of issuance.
In January 2000, the Company announced that it intends to conduct a private
placement of its common stock. MSI desires to raise up to $40 million in gross
proceeds in the offering. The Company intends to use the net proceeds of the
offering to build out additional data centers, implement a sales and marketing
campaign, hire additional sales and marketing personnel, repay indebtedness and
for general corporate purposes.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
COMPREHENSIVE INCOME:
There were no differences between net loss and comprehensive loss for the
periods presented.
NOTE 2 - NOTES PAYABLE
During the nine months ended December 31, 1999, the Company received a total of
$2,136,500 in bridge loans from thirty-seven accredited individuals. These
promissory notes bear interest of 8.25% per annum and mature in March, April and
May of 2000 or upon consummation of a public offering by our Company, whichever
is sooner. In connection with these loans, warrants were issued to purchase an
aggregate of 213,650 shares of our common stock with an exercise price of $0.10
per share. The Company paid $228,670 in cash for debt issuance costs.
The Company was in violation of debt covenants on certain notes payable as of
December 31, 1999 concerning liquidity ratios and reporting requirements.
Amounts outstanding related to these notes have been classified as current
liabilities.
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NOTE 3 - STOCKHOLDERS' EQUITY
During the nine months ended December 31, 1999, the Company received gross
proceeds of $600,000 from the private placement of 20,000 shares of Series E 6%
Cumulative Convertible Non-Voting Preferred Stock, Stated value $30.00 per
share. The Company paid $73,200 in cash for payment of commission fees of the
private placement. Each share of Series E Preferred Stock is initially
convertible into ten shares of the Company's Common Stock.
At the time of issuance the Series E Preferred Stock was convertible to Common
Stock at an amount that was "in-the-money". This beneficial conversion feature
was limited to the proceeds of the offering and was accounted for as an increase
to additional paid in capital and an in-substance dividend to the related
preferred stockholders. The beneficial conversion feature resulted in the
recognition of a discount of $600,000 in the quarter ended June 30, 1999, which
is equivalent to the gross proceeds of the offering.
During the nine months ended December 31, 1999, 399,995 shares of Series B,
177,335 shares of Series D, and 140,247 shares of Series E Preferred Stock were
collectively converted to 7,175,770 shares of Common Stock.
During the nine months ended December 31, 1999, the Company issued 1,598,011
shares of Common Stock in a private placement resulting in net proceeds of
$4,859,175.
During the nine months ended December 31, 1999, 183,000 shares of common stock
were issued for compensation and were recorded as professional fees in the
amount of $1,051,610.
During the nine months ended December 31, 1999, 16,654 shares of common stock
were issued as preferred stock dividends and were recorded as an increase in
retained deficit in the amount of $81,339.
During the nine months ended December 31, 1999, the Company issued 251,650
shares of common stock and received proceeds of $210,865 from the exercise of
251,650 common stock warrants.
NOTE 4 - CONTINGENCIES AND LEGAL MATTERS
On December 20, 1999, the Company settled a previously disclosed business
obligation regarding a consulting agreement with Dr. Davinder Sethi, a director,
and MMH Investments, Inc., a company that is principally owned and controlled by
Robert Hersch, our vice president of corporate finance. Pursuant to the
settlement, the Company issued 150,000 shares of common stock to MMH
Investments, Inc., and agreed to immediately register the shares for resale on
Form S-3.
On November 19, 1999, the Company received a letter from Ernesto Chavarria, a
director, demanding payment of approximately $63,000 of past due board of
directors' fees and the issuance of options to acquire 45,000 shares of common
stock. The Company believes that it owes Mr. Chavarria his annual grant of
options to acquire 25,000 shares of common stock and his $1,000 per meeting
board fees for recent meetings, representing an aggregate of $9,000 as of
December 31, 1999. The Company believes that it does not owe Mr. Chavarria any
other amounts.
NOTE 5 - SUBSEQUENT EVENTS
During January 2000, the Company received a total of $150,000 in bridge loans
from two accredited individuals. These promissory notes bear interest of 8.25%
per annum and mature in July 2000 or upon consummation of a public offering by
our Company, whichever is sooner. In connection with these loans, stock warrants
were issued to purchase an aggregate of 15,000 shares of the Company's common
stock with an exercise price of $0.10 per share. These funds have been used to
retire debt, decrease past due accounts payable and pay operating expenses.
During January 2000, the Company received $2,000,000 in a secured bridge loan
from TSG Financial Limited Partnership. The promissory note bears interest at
prime (8.25% at December 31, 1999) and matures on June 30, 2000 or upon the
consummation of an equity or debt financing with gross proceeds of at least $5
million to the Company, whichever is sooner. Upon the consummation of any such
financing, the outstanding principal and interest under the note is convertible
at TSG's option into the securities issued in such financing at the lowest sale
price for such securities. In connection with this loan, stock warrants were
issued to purchase an aggregate of 200,000 shares of our common stock with an
exercise price of $0.10 per share.
During January 2000, the Company issued 2,520,000 shares of common stock and
received proceeds of $3,780,000 from the exercise of 2,520,000 common stock
warrants.
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In October 1999, the Company was approved for an initial $1,200,000 in lease
financing with Cisco Systems Capital Corporation. In January 2000 the Company
was approved for an additional $8,000,000 in lease financing through Cisco
Systems Capital Corporation. This financing will be used to purchase equipment
for the data center expansion plans of the Company.
On February 1, 2000, the Company entered into an agreement with Equity Services,
LTD, ("ESL") the placement agent for our prior private placements of equity
securities, and ESL's affiliate, Entrepreneurial Investors, Ltd. ("EIL"). The
agreement becomes effective upon the proposed private placement during February
2000. Pursuant to the agreement, EIL and ESL facilitated the conversion of all
of the Company's outstanding preferred stock into shares of common stock, and
the Company issued to EIL a warrant to purchase 500,000 shares of common stock
at an exercise price of $12 per share. The issuance of the warrants to EIL will
result in an expense to the Company of approximately $2.4 million in February
2000, as an arrangement fee to EIL for services.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This quarterly report on Form 10-QSB contains forward-looking statements, which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated. Words used in this report such as
"believe", "anticipate", "expect", "may", "will" and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying such statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. The Company does not undertake any
obligation to update or revise these forward-looking statements to reflect any
future events or circumstances. Readers are urged to carefully review and
consider the various disclosures made by the Company in this report, including
those under the section entitled "OTHER FACTORS THAT MAY AFFECT OPERATING
RESULTS," which consist primarily of a brief discussion of certain risks which
are in their entirety forward-looking statements, and those included in the
Company's other reports previously filed with the commission, including the
disclosures in the "RISK FACTORS" section appearing in the Form 10-KSB, as
amended, for the fiscal year ended March 31, 1999.
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with (i) the financial
statements and accompanying notes appearing in this Quarterly Report, and (ii)
the Company's financial statements and accompanying notes appearing in the
Company's Form 10-KSB, as amended, for the fiscal year ended March 31, 1999, as
filed with the Commission.
RESULTS OF OPERATIONS
The focus of our business has changed. During the fiscal year, we recruited a
new senior management team and changed the focus of our business from providing
hardware and systems integration services to providing a suite of high-speed
Internet access, data transport and networking services, co-location services
and web site hosting services which are grouped under Broadband Internet
services on our statement of operations. We received our final revenues from
providing hardware and systems integration services in September 1999. Aggregate
revenues from providing hardware and systems integration services were $795,276
for the nine months ended December 31, 1999. We do not expect to receive any
future revenue from providing hardware and systems integration services.
Revenues from Broadband Internet services aggregate $373,182 for the nine months
ended December 31, 1999. These revenues have increased each quarter since June
1999 when our Austin data center began operations as follows:
<TABLE>
<S> <C>
Broadband Internet Revenues by quarter:
Quarter ended June 30, 1999 $ 9,077
Quarter ended September 30, 1999 85,650
Quarter ended December 31, 1999 278,455
-------------
$ 373,182
=============
</TABLE>
To date, we have had limited revenues and have not shown a profit in our new
operations. As of December 31, 1999, our accumulated deficit was approximately
$32.2 million. Approximately $19.8 million of the deficit relates to losses from
operations, while the remaining $12.4 million relates to losses incurred due to
discounts recorded on issuances and conversions of common and preferred stock.
Description of New Operations:
We provide our Broadband Internet Services from our 40,000 square foot data
center located in Austin, Texas, which is directly connected to GTE's Global
Network Infrastructure ("GNI") point-of-presence. The GNI is one of the largest
and most technologically sophisticated fiber optic Internet backbones in the
United States. We leverage GTE's proprietary network routing protocols to
optimize the efficiency and reliability of our DOCC infrastructure.
Our objective is to be a leading broadband Internet Infrastructure Provider
("IIP") to businesses with significant Internet applications and to Internet
service providers ("ISPs") and application service providers ("ASPs"). Our focus
is to provide a complete infrastructure solution set to the mid-market designed
to optimize the performance of next generation bandwidth intensive multimedia
content.
The transition of end user access from narrow band to broadband Internet access
using, xDSL and Cable modems is driving the demand for bandwidth intensive
multi-media content and applications. This demand in turn is creating the need
for the next generation of Web server Internet connectivity and backbone routing
infrastructure.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has a critical need for additional working capital to finance the
transformation of the business from providing hardware and system integration
services to providing a suite of high-speed Internet access data transport and
networking services, co-location services and web site hosting services.
Significant funds will be needed to hire additional technical and professional
staff, construct additional data centers, implement a sales and marketing
campaign and repay current indebtedness. Management believes that its
relationship with GTE along with the construction of additional data centers has
the potential to increase our revenues if sufficient working capital is
obtained.
As of December 31, 1999, the Company had a working capital deficit of
$2,904,169. This was a decrease of $1,154,233 from the working capital deficit
of $1,749,936 on March 31, 1999. Short-term notes payable increased $1,689,020
as a result of bridge financing.
During the quarter ended December 31, 1999, the Company received a total of
$886,500 in bridge loans from thirty-seven accredited individuals. These
promissory notes bear interest of 8.25% per annum and mature in March, April and
May of 2000 or upon consummation of a secondary public offering, whichever is
sooner. In connection with these loans, stock warrants were issued to purchase
an aggregate of 88,650 shares of our common stock with an exercise price of
$0.10 per share. These funds have been used to retire debt, decrease past due
accounts payable and pay operating expenses.
During January 2000, the Company received a total of $150,000 in bridge loans
from two accredited individuals. These promissory notes bear interest of 8.25%
per annum and mature in July 2000 or upon consummation of a secondary public
offering, whichever is sooner. In connection with these loans, stock warrants
were issued to purchase an aggregate of 15,000 shares of the Company's common
stock with an exercise price of $0.10 per share. These funds have been used to
retire debt, decrease past due accounts payable and pay operating expenses.
During January 2000, the Company received $2,000,000 in a secured bridge loan
from TSG Financial Limited Partnership. The promissory note bears interest at
8.25% per annum and matures on June 30, 2000 or upon the consummation of an
equity or debt financing with gross proceeds of at least $5 million to the
Company, whichever is sooner. Upon the consummation of any stock financing, the
outstanding principal and interest under the note is convertible at TSG's option
into the securities issued in such financing at the lowest sale price for such
securities. In connection with this loan, stock warrants were issued to purchase
an aggregate of 200,000 shares of our common stock with an exercise price of
$0.10 per share.
During January 2000, the Company issued 2,520,000 shares of common stock and
received proceeds of $3,780,000 from the exercise of 2,520,000 common stock
warrants.
During January 2000, the Company announced that it intends to conduct a private
placement of its common stock. The Company desires to raise up to $55 million in
gross proceeds in the offering. The Company intends to use the net proceeds of
the offering to build out additional data centers, implement a sales and
marketing campaign, hire additional sales and marketing personnel, repay
indebtedness and for general corporate purposes. We believe that our projected
revenues and the net proceeds of the anticipated private placement will be
sufficient to finance our current and anticipated operations until March 31,
2001. Management is consulting with investment bankers concerning the Company's
additional financing alternatives.
The auditors' reports relating to our audited balance sheets as of March 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended each
contain an explanatory paragraph as to our ability to continue as a going
concern. Such going concern explanation relates only to our financial statements
covered by the auditors' report.
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PART II: OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
For a discussion of Changes in Securities and Use of Proceeds, refer to Note 3,
Stockholders' Equity, in the Notes to Consolidated Financial Statements in Part
I, Item 1.
ITEM 5. OTHER INFORMATION
ADDITIONAL FACILITIES:
The Company has executed five additional leases to construct new data centers in
Atlanta, Dallas, Denver, Phoenix, and Tampa. Phase I of the data center
construction in Dallas and Tampa is scheduled for completion by March 31, 2000.
Additional phases will be completed in Dallas and Tampa as needed. Phase I
construction of data centers in Atlanta, Denver, and Phoenix is being scheduled
at this time. The Phase II expansion of the Austin data center is also scheduled
for completion by March 31, 2000.
CONNECTIVITY AGREEMENTS:
During the quarter ended December 31, 1999, the Company signed 3-year agreements
with GTE Internetworking for their Internet Advantage connectivity service for
the cities of Atlanta, Austin, Chicago, Dallas, Denver, Los Angeles,
Philadelphia, Phoenix, Reno, San Francisco and Tampa. This will provide the
Company with direct connections to the GTE POP in each of the above cities when
the Company completes its construction of new data centers within those cities.
LOCATION CHANGE OF CORPORATE OFFICE:
The Company relocated its corporate headquarters to 1121 East 7th Street,
Austin, Texas 78702 on February 7, 2000.
Item 6. Exhibits and Reports on Form 8-K
(A) EXHIBITS
10.1 MMH Investments, Inc. settlement and release agreement
10.2 Entrepreneurial Investors, Ltd. and Equity Services, LTD
settlement agreement
10.3 Cisco Systems Capital Corporation master agreement to lease
equipment
10.4 Robert Hersch employment agreement
10.5 Robert Gibbs employment agreement
10.6 Form of GTE Internetworking direct connect agreement
10.7 Form of bridge financing promissory note
10.8 Form of bridge financing warrant to purchase common stock
10.9 Form of private equity unit financing registration rights
agreement
10.10 Form of private equity financing warrant to purchase common stock
10.11 TSG Financial Limited Partnership secured convertible promissory
note
10.12 TSG Financial Limited Partnership security agreement
10.13 TSG Financial Limited Partnership warrant to purchase common
stock
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
Form 8-K filed with the Commission on January 10, 2000 with reference to a press
release dated January 10, 2000 announcing that the Company intends to conduct a
private placement of its common stock to raise $40 million in gross proceeds.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MSI HOLDINGS, INC.
Date: February 11, 2000 By: /s/ Robert Gibbs
---------------------------
Robert Gibbs, President and
Chief Executive Officer
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 Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen J. Metzger Director February 7, 2000
- ------------------------
Stephen J. Metzger
/s/ Davinder Sethi Director February 7, 2000
- ------------------------
Davinder Sethi
Director February , 2000
- ------------------------
Ernesto Chavarria
Director February , 2000
- ------------------------
Blandina Cardenas
/s/ Daniel Dornier Director February 7, 2000
- ------------------------
Daniel Dornier
/s/ Humbert Powell, III Director February 7, 2000
- ------------------------
Humbert Powell, III
/s/ Chris Brickler Director February 7, 2000
- ------------------------
Chris Brickler
/s/ Robert Gibbs President and
- ------------------------ Chief Executive Officer February 7, 2000
Robert Gibbs
/s/ Douglas W. Banister Chief Financial Officer February 7, 2000
- ------------------------
Douglas W. Banister
/s/ Stephen Hoelscher Secretary, Controller February 7, 2000
- ------------------------
Stephen Hoelscher
</TABLE>
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 MMH Investments, Inc. settlement and release agreement
10.2 Entrepreneurial Investors, Ltd. and Equity Services, LTD
settlement agreement
10.3 Cisco Systems Capital Corporation master agreement to lease
equipment
10.4 Robert Hersch employment agreement
10.5 Robert Gibbs employment agreement
10.6 Form of GTE Internetworking direct connect agreement
10.7 Form of bridge financing promissory note
10.8 Form of bridge financing warrant to purchase common stock
10.9 Form of private equity unit financing registration rights
agreement
10.10 Form of private equity financing warrant to purchase common stock
10.11 TSG Financial Limited Partnership secured convertible promissory
note
10.12 TSG Financial Limited Partnership security agreement
10.13 TSG Financial Limited Partnership warrant to purchase common
stock
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
SETTLEMENT AND RELEASE AGREEMENT
This Settlement and Release Agreement ("Agreement") is entered into
effective the 15th day of October, 1999 by and between MSI Holdings, Inc., a
Utah corporation ("Company") as the first party and MMH Investments, Inc., a
North Carolina corporation and Dr. Davinder Sethi ("Consultant") as the second
party (Company and Consultant collectively referred to herein as "Parties").
WHEREAS, the Consultant believes that the Parties entered into a Consulting
Agreement effective the first day of March, 1999 by which the Consultant was to
provide various services to the Company ("Consulting Agreement") and the Company
disputes that the Consulting Agreement was properly executed by its prior
management; and
WHEREAS, the Parties hereto desire to terminate the Consulting Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other valuable consideration of which the Parties
acknowledge receipt, the Parties agree as follows:
1. Effective upon the signing of this Agreement, the Consulting Agreement
is terminated in all respects.
2. As partial consideration for the termination of the Consulting
Agreement, and upon the execution of this Agreement, the Company will issue to
the Consultant, and the Consultant acknowledges receipt of a stock certificate
representing 150,000 shares of the Company's common stock ("Consultant Shares"),
which such shares are restricted pursuant to Rule 144 of the Securities and
Exchange Commission, which such shares are non-qualified, but
SETTLEMENT RELEASE AGREEMENT - PAGE 1
<PAGE> 2
which such shares will be immediately registered by the Company as a part of its
current S-3 filing with the Securities and Exchange Commission. Consultant
agrees to execute a Lock-up Agreement for the Consultant Shares in the form
attached hereto as Exhibit "___".
3. For the value consideration exchanged between the Parties, except to the
performance of the terms and conditions of this Agreement (including the
surviving paragraphs of the Consulting Agreement) the Parties, each to the other
including the released party's predecessors, successors, assigns, agents,
employees, representatives, officers, directors, attorneys and affiliates hereby
release any and all claims, demands, losses, liabilities and causes of action
existing, arising or accruing on or before the date of execution of this
Agreement by the Parties whether known or unknown.
4. Representation and Warranties of the Company. In order to induce
Consultant to enter into this Agreement, the Company hereby makes the following
representation and warranties to Consultant:
1. The Company is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its formation and has all requisite
corporate power of authority to conduct business which it conducts and proposes
to conduct.
2. All corporate action on the Part of the Company necessary for the
authorization, execution, delivery and performance of this Agreement and the
issuance of the Shares, and the consummation of the transactions contemplated
hereby, has been properly taken and obtained in compliance with the terms of the
Company's Articles of Incorporation and By-Laws and applicable law, and this
Agreement constitutes a valid and legally binding obligation of the Company,
enforceable in accordance with its terms.
SETTLEMENT RELEASE AGREEMENT - PAGE 2
<PAGE> 3
3. No consent, approval, order, authorization, registration,
qualification, license, permit, designation or declaration of, or other filing
with or notification to any governmental body, authority or agency or other
third party is required in connection with the authorization, execution,
delivery and performance of this Agreement, or the Consummation of the
transactions contemplated hereby.
4. The authority, execution, delivery and performance of this Agreement
will not violate or be in conflict with any agreement, instrument, judicial or
other order, Judgment or decree to which the Company is a party not will it
violate or contravene a provision of the Company's Certificate of Incorporation
or By-Laws.
5. The Consultant Shares, when, issued, shall be duly authorized,
validly issued, fully paid, and non-assessable and shall be issued and delivered
to Consultant free and clear of all liens, claims and encumbrances whatsoever
except to the extent otherwise provided herein.
5. Representation and Warranties of the Consultant. In order to induce the
Company to enter into this Agreement, the Consultant hereby makes the following
representation and warranties to the Company:
1. The Consultant is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its information and has all
requisite corporate power of authority to conduct business which it conducts and
proposes to conduct.
2. All corporation action on the part of the Consultant necessary for
the authorization, execution, delivery mid performance of this Agreement and the
Issuance of the Shares, and the consummation of the transaction contemplated
hereby, has been properly taken
SETTLEMENT RELEASE AGREEMENT - PAGE 3
<PAGE> 4
and obtained in compliance with the terms of the Consultant's Certificate of
Incorporation and By-Laws and applicable law, and this Agreement constitutes a
valid and legally binding obligation of the consultant, enforceable in
accordance with its terms.
3. No consent, approval, order, authorization, registration,
qualification, license, permit designation or declaration of, or other filing
with or notification to any government body, authority or agency or other third
party is required in connection with the authorization, execution, delivery and
performance of this Agreement, or the Consummation of the transactions
contemplated hereby.
4. The Consultant's Shares are being purchased for Consultant's (or its
designees) own account and Consultant will not sell or otherwise transfer such
securities unless they are registered under the Securities Act of 1933, as
amended, unless an exemption from such registration is available and any such
sale or transfer shall be subject to the Lockup Agreement referenced above in
paragraph 2.
5. The Consultant has previously been provided with a copy of the
Company's registration on Form SB-2 as declared effective by the Securities
Exchange Commission ("SEC") on January 13, 1999, and that Consultant has
reviewed such registration statement.
6. This Agreement constitutes the sole and entire Agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, representations, warranties, statements, promises,
information, arrangements and understandings, whether oral or written, express
or implied, between the parties hereto with respect to the subject matter hereof
and may not be changed or modified except by an instrument in writing signed by
the party to be bound thereby.
SETTLEMENT RELEASE AGREEMENT - PAGE 4
<PAGE> 5
7. This Agreement has been subject to the mutual consultation, negotiation
and agreement of the parties hereto and shall not be construed for or against
any party hereto on the basis of such party having drafted this Agreement.
8. All notices, consents, requests, demands and other communications
required or permitted to be given under this Agreement shall be in writing and
delivered personally, receipt acknowledged, or mailed by registered or certified
mail, postage prepaid, return receipt requested, addressed to the parties hereto
as follows (or to such other addresses as either of the parties hereto shall
specify by notice given in accordance with this provision):
If to Consultant:
MMH Investments, Inc.
1611 Castle Hayne Road
Building B
Wilmington, North Carolina 28401
and
Robert Hersch
c/o MSI Holdings, Inc.
501 Waller Street
Austin, Texas 78702
Telephone: (512) 476-6925
Facsimile: (512) 476-2371
If to the Company:
MSI Holdings, Inc.
501 Waller
Austin, Texas 78702
Attn: Robert H. Gibbs, CEO
Telephone: (512) 476-6925
Telecopier: (512) 476-2371
SETTLEMENT RELEASE AGREEMENT - PAGE 5
<PAGE> 6
with a copy (which shall, not constitute notice) to:
Kane, Russell, Coleman & Logan, P.C.
3700 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Attn: Kenneth W. Biermacher, Esq.
Telephone: (214) 777-4250
Telecopier: (214) 777-4299
9. All such notices, consents, requests demands and other communications
shall be deemed given when personally delivered as aforesaid or, if mailed as
aforesaid, on the third business day after the mailing thereof or on the day
actually receive, if earlier, except for a notice of a change of address which
shall be effective only upon receipt.
10. No party hereto may assign this Agreement or its or their respective
rights, benefits or obligations hereunder without the written consent of the
other party hereto.
11. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors, and permitted assigns. Nothing contained in
the Agreement is intended to confer upon any person or entity, other than the
parties hereto, or their respective successors or permitted assigns, any rights,
benefits, obligations, remedies, or liabilities under or by reason of the
Agreement.
12. No waiver of any provision of this Agreement or of any breach thereof
shall be effective unless in writing and signed by the party to be bound
thereby. The waiver by either party hereto of a breach of any provision of this
Agreement, or any representation, warranty, obligation or covenant in this
Agreement by the other party harm, shall not be construed as a waiver of any
subsequent breach or of any other provision, representation, warrant, obligation
or covenant of such other party, unless the instrument of waiver expressly so
provides.
SETTLEMENT RELEASE AGREEMENT - PAGE 6
<PAGE> 7
13. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas with respect to contracts made and to be fully
performed therein, without regard to the conflicts of laws principles thereof.
14. Each party hereto represents and warrants the other that it has been
represented by counsel in connection on with the negotiation, preparation, and
consummation of this Agreement, of has had an opportunity to do so. Each of the
parties hereto shall bear all of its respective costs and expenses incurred in
connection with the negotiation, preparation, execution, consummation,
performance and/or enforcement of this Agreement including, without limitation,
the fees and disbursements of their respective counsel. Notwithstanding the
foregoing, in the event any action or proceeding instituted by either party to
enforce the provisions of this Agreement, the prevailing party shall be entitled
to reimbursement of the legal costs and expenses incurred by such party in
connection therewith.
15. This Agreement may be executed in one or more counterparts, each of
which when executed and delivered, shall be deemed an original, but all of which
when taken together, shall constitute on and the same instrument.
16. The Section headings used in this Agreement have been used for
convenience of reference only and am not to be considered in construing or
interpreting this Agreement.
17. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision(s) shall be excluded from
this Agreement and the balance of this Agreement shall remain in full force and
effect.
18. Unless the context of this Agreement clearly requires otherwise, the
plural includes the singular, the singular includes the whole, "including" in
not limiting, and "or" has the inclusive
SETTLEMENT AND RELEASE AGREEMENT - PAGE 7
<PAGE> 8
meaning of the phrase "and/or". The words "hereof", "herein", "hereby",
"hereunder" and other similar terms in this Agreement refer to this Agreement as
a whole and not exclusively to any particular provision of this Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be entered
into and signed as of the date herein above first set forth.
MSI HOLDINGS, INC.
By:
---------------------------------------
Robert H. Gibbs
President and CEO
MMH INVESTMENTS, INC.
By:
---------------------------------------
Robert Hersch
President
------------------------------------------
DR. DAVINDER SETHI
SETTLEMENT AND RELEASE AGREEMENT - PAGE 8
<PAGE> 1
EXHIBIT 10.2
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Agreement"), dated as of February 1, 2000,
is made and entered into by and among Entrepreneurial Investors, Ltd., a Bahamas
company ("EIL"), Equity Services, Ltd., a Nevis company ("ESL"), and MSI
Holdings, Inc., a Utah corporation ("MSI").
RECITALS
This Agreement is entered into with reference to the following facts:
A. ESL has acted as the placement agent for the issuance of shares of four
series of preferred stock, par value $2.00 per share, and shares of common
stock, par value $0.10 per share ("Common Stock"), of MSI pursuant to Placement
Agent Agreements dated as of November 11, 1997, January 31, 1998, April 30,
1998, October 13, 1998, and March 30, 1999 (as amended, each a "Placement
Agreement" and, together, the "Placement Agreements"); and
B. As of the date hereof, five shares of MSI's Series B 5% Cumulative
Non-Voting Preferred Stock ("Series B Preferred Stock"), 19,005 shares of MSI's
Series D 6% Cumulative Non-Voting Preferred Stock ("Series D Preferred Stock")
and 6,005 shares of MSI's Series E 6% Cumulative Non-Voting Preferred Stock
("Series E Preferred Stock") remain issued and outstanding (all such shares,
collectively, the "Preferred Stock").
In consideration of the covenants and promises contained herein and for
other good and valuable consideration, the parties hereto agree as follows:
AGREEMENT
1. RECITALS. The recitals stated above are incorporated herein by reference
as though set forth in full.
2. CONVERSION OF PREFERRED. EIL and ESL have facilitated the conversion by
the holders of record of the Preferred Stock (the "Preferred Holders") of all
outstanding shares of Preferred Stock into shares of Common Stock. Attached
hereto as Annex A are accurate and complete copies of duly executed notices of
conversion of Preferred Stock. Except as set forth in Section 5 hereof, MSI, EIL
and ESL acknowledge and agree that (a) all of the Placement Agreements, together
with each Investor Subscription Agreement executed in connection with the
Placement Agreements, are hereby terminated in all respects and (b) the
compliance with all terms and conditions thereof are hereby irrevocably waived
in all respects. EIL and ESL each acknowledges and agrees that, from and after
the date hereof, MSI shall have no duties, obligations or liabilities under or
arising from such agreements.
3. DIRECTOR DESIGNEE. For a period of one year from the date hereof, MSI
shall, subject to the duties of its directors imposed by applicable law, use
commercially reasonable efforts to promote one person, designated by agreement
of the Preferred Holders holding a majority of the Deemed Preferred Votes, for
election to MSI's board of directors. For purposes hereof, each
1
<PAGE> 2
Preferred Holder shall have one "Deemed Preferred Vote" for each series of
Preferred Stock in which such holder owns shares of record on the date hereof.
For example, if a Preferred Holder owns of record three shares of Series D
Preferred Stock and 1,000 shares of Series E Preferred Stock, then such
Preferred Holder would have two Deemed Preferred Votes, while another Preferred
Holder of 5,000 shares of Series E Preferred Stock would have one Deemed
Preferred Vote. As of the date hereof, there are one Preferred Holder of Series
B Preferred Stock, two Preferred Holders of Series D Preferred Stock, three
Preferred Holders of Series E Preferred Stock and, accordingly, six Deemed
Preferred Votes. No person may assign its right to participate in the
designation of such director, by operation of law or otherwise. MSI shall be
under no obligation under this Section 5 unless and until the holders of a
majority of the Deemed Preferred Votes notify MSI in writing of the identity of
such designee.
4. EIL WARRANT. In consideration for (a) EIL's and ESL's assistance in
facilitating (i) the conversion of the Preferred Stock and (ii) the execution
and delivery of those certain Acknowledgment and Waivers dated February 1, 2000
between MSI and each of the Preferred Holders, and (b) EIL's and ESL's execution
and delivery of this Agreement, MSI is, concurrently with its execution and
delivery hereof, executing and delivery to EIL a warrant to purchase 500,000
shares of Common Stock in the form attached hereto as Annex B.
5. GARDERE & WYNNE. EIL and ESL each hereby agrees that EIL and ESL,
together with their owners, officers, directors, employees, affiliates and
agents, shall not hire or otherwise retain or use the services of the law firm
of Gardere & Wynne, L.L.P. or any attorney who has performed or may in future
perform substantial services for MSI while a partner, of counsel, associate or
employee of Gardere & Wynne, L.L.P., in any litigation, arbitration or other
hearing or adversarial proceeding in which EIL or ESL or any of their respective
owners, officers, directors, employees, affiliates or agents are adverse to MSI
or any of MSI's subsidiaries.
6. GENERAL RELEASE OF CLAIMS. The parties hereto, on their own behalf and
on behalf of their owners, officers, directors, employees, affiliates and
agents, hereby unconditionally release and forever discharge each other, and
their predecessors, successors, assigns, agents, officers, directors,
representatives, attorneys, employees, parent companies, subsidiaries,
affiliates, related entities, owners and all persons acting by, through, under
or in concert with any of them, from any and all liability for any and all
claims, demands, actions, causes of action, debts, liabilities, obligations,
damages, costs and expenses of every kind, known or unknown, suspected or
unsuspected, fixed or contingent, which they now have or claim to have arising
or resulting from the Placement Agreements and the Preferred Stock, all
transactions and agreements contemplated by or entered into in connection with
each of the foregoing, and any other transaction or event occurring prior to the
date hereof; provided, however, that (a) that certain Registration Rights
Agreement dated November 11, 1997 between Micro-Media Solutions, Inc. (the
predecessor to MSI) and EIL and that certain Registration Rights Agreement dated
November 11, 1997 between Micro-Media Solutions, Inc. (the predecessor to MSI)
and ESL shall remain in full force and effect pursuant to their terms and (b)
such release shall not be deemed to be a release of any liability under the
anti-fraud provisions of the Securities Act of 1933.
7. VOLUNTARY AGREEMENT. Each party hereto represents to the other parties
hereto that it has read this Agreement, that it has had an opportunity to
discuss it thoroughly with
2
<PAGE> 3
counsel, that it understands all of its provisions, and that it is entering into
this Agreement voluntarily relying wholly upon its own judgment and any legal
advice received by counsel.
8. BINDING AGREEMENT. The provisions of this Agreement, and all documents
executed or delivered pursuant to it, shall be binding upon and inure to the
benefit of the parties hereto and thereto and their predecessors, successors
(specifically including merging and acquiring companies) and assigns.
9. AMENDMENTS. This Agreement cannot be amended or modified, in any
respect, except by a writing duly executed by the party against whom the
amendment or modification is to be charged. All prior and contemporaneous
agreements and understandings, whether written or oral, are expressly superseded
hereby and are of no further force and effect.
10. NO PRESUMPTION OR INTERPRETATION AGAINST DRAFTER. This Agreement is the
product of negotiation and mutual input by the parties hereto. In the event that
a dispute arises as to any provision of this Agreement, there shall be no
presumption or rule of interpretation applied against either party as the
drafter. Each party is aware that each was free to seek independent professional
guidance or legal counsel with respect to this Agreement. The parties to this
Agreement have either sought such guidance or legal counsel or determined after
reviewing this Agreement carefully that they waive such right.
11. CONSTRUCTION. The headings as set forth herein are inserted for
convenience of reference only and do not define, describe or limit the scope or
intent of this Agreement or any of the terms hereof.
12. ATTORNEYS' FEES. The prevailing party in any action, suit, assertion or
proceeding regarding, arising out of or in connection with this Agreement shall
be entitled to recover reasonable attorneys' fees and expenses incurred in
prosecuting, defending, researching or otherwise responding to such action,
suit, assertion or proceeding.
13. SEVERABILITY. Each provision of this Agreement is to be considered
separable and if for any reason any provision or provisions are determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation of or affect those portions of this Agreement which are
valid.
14. NO THIRD PARTIES ARE BENEFICIARIES. This Agreement is not intended to,
and does not, confer upon any third party any rights either to seek to enforce
this Agreement or to bring any claim under this Agreement.
15. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent by facsimile,
mailed by registered or certified mail (return receipt requested) or sent by
overnight courier to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
3
<PAGE> 4
(a) If to MSI, to:
MSI Holdings, Inc.
1121 East 7th Street
Austin, Texas 78702
Attn: Robert J. Gibbs
Facsimile: (512) 473-2371
with a copy to:
Kane, Russell, Coleman & Logan
3700 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Attn: Kenneth W. Biermacher
Facsimile: (214)777-4299
(b) If to EIL or ESL, to:
EIL ESL
Citibank Building, 2nd Floor St. Andrews Court
East Mall Drive Frederick Street Steps
P.O. Box 40643 P.O. Box N-4805
Freeport, G.B., BAHAMAS Nassau, N.P., BAHAMAS
Attn: Robert E. Cordes Attn: Lynn Turnquest
Facsimile: (242) 352-3932 Facsimile: (242) 352-3932
with a copy to:
Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201-4761
Attention: I. Bobby Majumder
Facsimile: (214) 999-3268
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed given (i) on the date of delivery,
if hand delivered, (ii) on the date of receipt, if sent by facsimile, (iii)
three days after the date of mailing, if mailed by registered or certified mail,
return receipt requested, and (iv) one day after the date of sending, if sent by
Federal Express or other recognized overnight courier.
16. COOPERATION. The parties to this Agreement shall cooperate fully in the
execution of any and all other documents and in the completion of any additional
actions that may be
4
<PAGE> 5
necessary or appropriate to give full force and effect to the transactions
contemplated by this Agreement.
17. GOVERNING LAW. This Agreement and the interpretation hereof is governed
by and shall be construed under the laws of the state of Texas, without
application of the conflict of laws principles thereof.
18. CONSENT TO JURISDICTION AND VENUE. Each party hereto expressly consents
to the personal jurisdiction of the state and federal courts located in Travis
County in the State of Texas and agrees that any action relating to or arising
out of this Agreement shall be instituted and prosecuted only in such courts,
except that actions to enforce any judgment or writ of attachment shall be
prosecuted through the courts of the county and state in which the assets
subject to such enforcement action are located. Each party hereto waives any
right to a change of the aforesaid venue and any and all objections to the
jurisdiction of such courts over the parties hereto.
19. EFFECTIVENESS. This Agreement shall only become effective upon the
consummation of a sale of the common stock of MSI in a private placement through
Janney Montgomery Scott, LLC and/or Tejas Securities Group, Inc., which private
placement results in the receipt by MSI of at least $25,000,000 in gross
proceeds following the date hereof and on or prior to March 31, 2000 (the
"Private Placement"). If the Private Placement is not consummated on or before
March 31, 2000, this Agreement shall be of no force or effect.
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby,
have duly executed this Agreement as of the date first above written.
MSI HOLDINGS, INC.
---------------------------------------------
By: Douglas W. Banister
Chief Financial Officer
ENTREPRENEURIAL INVESTORS, LTD.
---------------------------------------------
By: Robert E. Cordes
Its: President
EQUITY SERVICES, LTD.
---------------------------------------------
By: Lynn Turnquest
Its: Director
6
<PAGE> 7
ANNEX A
CONVERSION LETTER
January 14, 2000
MSI Holdings, Inc.
1121 East 7th Street
Austin, Texas 78702
Dear Sirs:
The undersigned hereby converts all shares of preferred stock, par value
$2.00 per share ("Preferred Stock"), of MSI Holdings, Inc., a Utah corporation
(the "Company"), held beneficially or of record by the undersigned into shares
of common stock, par value $0.10 per share ("Common Stock"), of the Company.
Enclosed with this letter are certificates representing all such shares of
Preferred Stock, duly endorsed in blank for exchange and conversion.
The undersigned hereby acknowledges and agrees that (a) upon the conversion
of such shares of Preferred Stock all rights of the undersigned as a holder of
Preferred Stock and all agreements in connection therewith, including without
limitation each Investor Subscription Agreement and Placement Agent Agreement to
which the undersigned or the Company is a party, are hereby terminated in all
respects and (b) compliance with all terms and conditions thereof are hereby
irrevocably waived in all respects (provided, however, that notwithstanding the
foregoing, the Registration Rights Agreement relating to the Common Stock into
which the Preferred Stock is hereby converted shall continue in full force and
effect).
This Letter Agreement shall be binding on the undersigned and the
respective successors, heirs, personal representatives and assigns of the
undersigned.
DANIEL DORNIER
<PAGE> 8
ANNEX A
CONVERSION LETTER
January 14, 2000
MSI Holdings, Inc.
1121 East 7th Street
Austin, Texas 78702
Dear Sirs:
The undersigned hereby converts all shares of preferred stock, par value
$2.00 per share ("Preferred Stock"), of MSI Holdings, Inc., a Utah corporation
(the "Company"), held beneficially or of record by the undersigned into shares
of common stock, par value $0.10 per share ("Common Stock"), of the Company.
Enclosed with this letter are certificates representing all such shares of
Preferred Stock, duly endorsed in blank for exchange and conversion.
The undersigned hereby acknowledges and agrees that (a) upon the conversion
of such shares of Preferred Stock all rights of the undersigned as a holder of
Preferred Stock and all agreements in connection therewith, including without
limitation each Investor Subscription Agreement and Placement Agent Agreement to
which the undersigned or the Company is a party, are hereby terminated in all
respects and (b) compliance with all terms and conditions thereof are hereby
irrevocably waived in all respects (provided, however, that notwithstanding the
foregoing, the Registration Rights Agreement relating to the Common Stock into
which the Preferred Stock is hereby converted shall continue in full force and
effect).
This Letter Agreement shall be binding on the undersigned and the
respective successors, heirs, personal representatives and assigns of the
undersigned.
ENTREPRENEURIAL INVESTORS, LTD.
<PAGE> 9
ANNEX A
CONVERSION LETTER
January 14, 2000
MSI Holdings, Inc.
1121 East 7th Street
Austin, Texas 78702
Dear Sirs:
The undersigned hereby converts all shares of preferred stock, par value
$2.00 per share ("Preferred Stock"), of MSI Holdings, Inc., a Utah corporation
(the "Company"), held beneficially or of record by the undersigned into shares
of common stock, par value $0.10 per share ("Common Stock"), of the Company.
Enclosed with this letter are certificates representing all such shares of
Preferred Stock, duly endorsed in blank for exchange and conversion.
The undersigned hereby acknowledges and agrees that (a) upon the conversion
of such shares of Preferred Stock all rights of the undersigned as a holder of
Preferred Stock and all agreements in connection therewith, including without
limitation each Investor Subscription Agreement and Placement Agent Agreement to
which the undersigned or the Company is a party, are hereby terminated in all
respects and (b) compliance with all terms and conditions thereof are hereby
irrevocably waived in all respects (provided, however, that notwithstanding the
foregoing, the Registration Rights Agreement relating to the Common Stock into
which the Preferred Stock is hereby converted shall continue in full force and
effect).
This Letter Agreement shall be binding on the undersigned and the
respective successors, heirs, personal representatives and assigns of the
undersigned.
HERMAN EBEL
<PAGE> 10
ANNEX A
CONVERSION LETTER
January 14, 2000
MSI Holdings, Inc.
1121 East 7th Street
Austin, Texas 78702
Dear Sirs:
The undersigned hereby converts all shares of preferred stock, par value
$2.00 per share ("Preferred Stock"), of MSI Holdings, Inc., a Utah corporation
(the "Company"), held beneficially or of record by the undersigned into shares
of common stock, par value $0.10 per share ("Common Stock"), of the Company.
Enclosed with this letter are certificates representing all such shares of
Preferred Stock, duly endorsed in blank for exchange and conversion.
The undersigned hereby acknowledges and agrees that (a) upon the conversion
of such shares of Preferred Stock all rights of the undersigned as a holder of
Preferred Stock and all agreements in connection therewith, including without
limitation each Investor Subscription Agreement and Placement Agent Agreement to
which the undersigned or the Company is a party, are hereby terminated in all
respects and (b) compliance with all terms and conditions thereof are hereby
irrevocably waived in all respects (provided, however, that notwithstanding the
foregoing, the Registration Rights Agreement relating to the Common Stock into
which the Preferred Stock is hereby converted shall continue in full force and
effect).
This Letter Agreement shall be binding on the undersigned and the
respective successors, heirs, personal representatives and assigns of the
undersigned.
WILL HOUSTON
<PAGE> 11
ANNEX A
CONVERSION LETTER
January 14, 2000
MSI Holdings, Inc.
1121 East 7th Street
Austin, Texas 78702
Dear Sirs:
The undersigned hereby converts all shares of preferred stock, par value
$2.00 per share ("Preferred Stock"), of MSI Holdings, Inc., a Utah corporation
(the "Company"), held beneficially or of record by the undersigned into shares
of common stock, par value $0.10 per share ("Common Stock"), of the Company.
Enclosed with this letter are certificates representing all such shares of
Preferred Stock, duly endorsed in blank for exchange and conversion.
The undersigned hereby acknowledges and agrees that (a) upon the conversion
of such shares of Preferred Stock all rights of the undersigned as a holder of
Preferred Stock and all agreements in connection therewith, including without
limitation each Investor Subscription Agreement and Placement Agent Agreement to
which the undersigned or the Company is a party, are hereby terminated in all
respects and (b) compliance with all terms and conditions thereof are hereby
irrevocably waived in all respects (provided, however, that notwithstanding the
foregoing, the Registration Rights Agreement relating to the Common Stock into
which the Preferred Stock is hereby converted shall continue in full force and
effect).
This Letter Agreement shall be binding on the undersigned and the
respective successors, heirs, personal representatives and assigns of the
undersigned.
JAMES THORP
<PAGE> 12
ANNEX B
FORM OF WARRANT
MSI HOLDINGS, INC.
(A UTAH CORPORATION)
=======================
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
=======================
Dated February 1, 2000
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT (1) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, OR (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
UNDER THE SECURITIES ACT (IF AVAILABLE), AND IN EACH CASE IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR
OTHER JURISDICTION.
THIS CERTIFIES THAT, for value received, Entrepreneurial Investors, Ltd., a
Bahamas company, or its registered assigns ("Holder"), is entitled to purchase,
subject to the conditions set forth below, at any time or from time to time
during the Exercise Period (as defined in subsection 1.2, below), Five Hundred
Thousand (500,000) shares ("Shares") of fully paid and non-assessable Common
Stock, par value $0.10 per share ("Common Stock"), of MSI HOLDINGS, INC., a Utah
corporation (the "Company"), at the per share purchase price (the "Warrant
Price") set forth in subsection 1.1, subject to the further provisions of this
Warrant. The term "Warrants" as used herein shall mean this Warrant and all
instruments issued by the Company which are substantially identical to this
Warrant (except for the name of the holder and the number of securities
purchasable by the holder).
1. EXERCISE OF WARRANT
The terms and conditions upon which this Warrant may be exercised, and the
Common Stock covered hereby may be purchased, are as follows:
1.1 Warrant Price. The Warrant Price shall be equal to $12 per share,
subject to adjustment as provided in Section 4 below.
<PAGE> 13
1.2 Method Of Exercise. The holder of this Warrant may at any time
beginning on the date this Warrant becomes effective pursuant to Section 12
below and ending on January 30, 2002 (the "Exercise Period"), exercise in whole
or in part the purchase rights evidenced by this Warrant. Such exercise shall be
effected by:
(a) the surrender of the Warrant, together with a duly executed copy of the
form of subscription attached hereto, to the Secretary of the Company at its
principal offices;
(b) the payment to the Company, by cash, check payable to its order or wire
transfer, of an amount equal to the aggregate Warrant Price for the number of
Shares for which the purchase rights hereunder are being exercised; and
(c) the delivery to the Company, if necessary, to assure compliance with
federal and state securities laws, of an instrument executed by the holder
certifying that the Shares are being acquired for the sole account of the holder
and not with a view to any resale or distribution.
1.3 Satisfaction with Requirements of Securities Act of 1933.
Notwithstanding the provisions of subsection 1.2(c) and Section 7, each and
every exercise of this Warrant is contingent upon the Company's satisfaction
that the issuance of Common Stock upon the exercise is exempt from the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and all applicable state securities laws. The holder of this Warrant agrees to
execute any and all documents deemed necessary by the Company to effect the
exercise of this Warrant.
1.4 Issuance Of Shares and New Warrant. In the event the purchase rights
evidenced by this Warrant are exercised in whole or in part, one or more
certificates for the purchased Shares shall be issued as soon as practicable
thereafter to the person exercising such rights. Such holder shall also be
issued at such time a new Warrant representing the number of Shares (if any) for
which the purchase rights under this Warrant remain unexercised and continuing
in force and effect.
1.5 Payment with Sales Proceeds. If the Common Stock is traded in the
over-the-counter market or upon any securities exchange, the Company may permit
the Holder, to the extent permitted by applicable law, to exercise this Warrant
by delivering to the Company a properly executed exercise notice together with
irrevocable instructions to a securities broker to sell that number of Shares
necessary to pay, and to promptly deliver to the Company cash or a check (or a
combination of cash or check) payable and acceptable to the Company to pay, the
Warrant Price; provided that the Holder and the broker shall comply with such
procedures, and enter into such agreements of indemnity and other agreements, as
the Company shall prescribe as a condition of such payment procedure.
2. TRANSFERS
2.1 Transfers. Subject to Section 7 hereof, this Warrant and all rights
hereunder are transferable in whole or in part by the holder. The transfer shall
be recorded on the books of the Company upon the surrender of this Warrant,
properly endorsed, to the Secretary of the Company at its principal offices and
the payment to the Company of all transfer taxes and other governmental charges
imposed on such transfer. In the event of a partial transfer, the Company shall
issue to the several holders one or more appropriate new Warrants, as
appropriate.
<PAGE> 14
2.2 Registered Holder. Each holder agrees that until such time as any
transfer pursuant to subsection 2.1 is recorded on the books of the Company, the
Company may treat the registered holder of this Warrant as the absolute owner;
provided that nothing herein affects any requirement that transfer of any
Warrant or share of Common Stock issued or issuable upon the exercise thereof be
subject to compliance with the Securities Act and all applicable state
securities laws.
2.3 Form Of New Warrants. All Warrants issued in connection with transfers
of this Warrant shall bear the same date as this Warrant and shall be
substantially identical in form and provision to this Warrant except for the
number of Shares purchasable thereunder.
3. FRACTIONAL SHARES
Notwithstanding that the number of Shares purchasable upon the exercise of
this Warrant may have been adjusted pursuant to the terms hereof, the Company
shall nonetheless not be required to issue fractions of Shares upon exercise of
this Warrant or to distribute certificates that evidence fractional shares nor
shall the Company be required to make any cash payments in lieu thereof upon
exercise of this Warrant. Holder hereby waives any right to receive fractional
Shares.
4. ANTIDILUTION PROVISIONS
4.1 Stock Splits And Combinations. If the Company shall at any time
subdivide or combine its outstanding shares of Common Stock, this Warrant shall,
after that subdivision or combination, evidence the right to purchase the number
of shares of Common Stock that would have been issuable as a result of that
subdivision or combination with respect to the Shares of Common Stock that were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this section shall become effective at the close of
business on the date the subdivision or combination becomes effective.
4.2 Reclassification, Exchange and Substitution. If the Common Stock
issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other class or classes of stock, whether by
capital reorganization, reclassification, or otherwise (other than a subdivision
or combination of shares provided for above), the holder of this Warrant shall,
on its exercise, be entitled to purchase for the same aggregate consideration,
in lieu of the Common Stock that the holder would have become entitled to
purchase but for such change, a number of shares of such other class or classes
of stock equivalent to the number of shares of Common Stock that would have been
subject to purchase by the holder on exercise of this Warrant immediately before
that change.
4.3 Reorganizations, Mergers, Consolidations Or Sale Of Assets. If at any
time there shall be a capital reorganization of the Company's Common Stock
(other than a stock split, combination, reclassification, exchange, or
subdivision of shares provided for elsewhere above) or
<PAGE> 15
merger or consolidation of the Company with or into another corporation, then,
as a part of such reorganization, merger or consolidation, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified in this
Warrant and upon payment of the Warrant Price then in effect, the number of
shares of Common Stock or other securities or property of the Company, or of the
successor corporation resulting from such merger or consolidation, to which a
holder of the Common Stock deliverable upon exercise of this Warrant would have
been entitled in such capital reorganization, merger or consolidation if this
Warrant had been exercised immediately before that capital reorganization,
merger or consolidation. In any such case, appropriate adjustment (as determined
in good faith by the Company's Board of Directors) shall be made in the
application of the provisions of this Warrant with respect to the rights and
interests of the holder of this Warrant after the reorganization, merger or
consolidation to the end that the provisions of this Warrant (including
adjustment of the Warrant Price then in effect and number of Shares purchasable
upon exercise of this Warrant) shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant. The Company shall, within thirty (30)
days after making such adjustment, give written notice (by first class mail,
postage prepaid) to the registered holder of this Warrant at the address of that
holder shown on the Company's books. That notice shall set forth, in reasonable
detail, the event requiring the adjustment and the method by which the
adjustment was calculated and specify the Warrant Price then in effect after the
adjustment and the increased or decreased number of Shares purchasable upon
exercise of this Warrant. When appropriate, that notice may be given in advance
and be included as part of the notice required under other provisions of this
Warrant.
4.4 Common Stock Dividends; Distributions. In the event the Company should
at any time prior to the expiration of this Warrant fix a record date for the
determination of the holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock (hereinafter
referred to as the "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common Stock or Common
Stock Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such distribution, split or subdivision if no record date is fixed), the Warrant
Price shall be appropriately decreased and the number of shares of Common Stock
issuable upon exercise of the Warrant shall be appropriately increased in
proportion to such increase of outstanding shares.
4.5 Adjustments of Other Distributions. In the event the Company shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4.4, then, in each
such case for the purpose of this subsection 4.5, upon exercise of this Warrant
the holder hereof shall be entitled to a proportionate share of any such
distribution as though such holder was the holder of the number of shares of
Common Stock of the Company into which this Warrant may be exercised as of the
record date fixed for the determination of the holders of Common Stock of the
Company entitled to receive such distribution.
4.6 Certificate as to Adjustments. In the case of each adjustment or
readjustment of the Warrant Price pursuant to this Section 4, the Company will
promptly compute such adjustment or
<PAGE> 16
readjustment in accordance with the terms hereof and cause a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based, to be delivered to the holder of this
Warrant. The Company will, upon the written request at any time of the holder of
this Warrant, furnish or cause to be furnished to such holder a certificate
setting forth:
(a) Such adjustments and readjustments;
(b) The purchase price at the time in effect; and
(c) The number of shares of Common Stock issuable upon exercise of the
Warrant and the amount, if any, of other property at the time receivable upon
the exercise of the Warrant.
4.7 Reservation of Stock Issuable Upon Exercise. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock solely for the purpose of effecting the exercise of this Warrant
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, in addition to such other remedies as shall
be available to the holder of this Warrant, the Company will use its best
efforts to take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.
5. RIGHTS PRIOR TO EXERCISE OF WARRANT
This Warrant does not entitle the holder to any of the rights of a
stockholder of the Company, including without limitation, the right to receive
dividends or other distributions, to exercise any preemptive rights, to vote, or
to consent or to receive notice as a stockholder of the Company. If, however, at
any time prior to the expiration of this Warrant and prior to its exercise, any
of the following events shall occur:
(a) the Company shall declare any dividend payable in any securities upon
its shares of Common Stock or make any distribution (other than a regular cash
dividend) to the holders of its shares of Common Stock; or
(b) the Company shall offer to the holders of its shares of Common Stock
any additional shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock or any right to subscribe for or
purchase any thereof; or
(c) a dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation, merger, sale, transfer or lease of all or
substantially all of its property, assets, and business as an entirety) shall be
proposed and action by the Company with respect thereto has been approved by the
Company's Board of Directors,
then in any one or more of said events the Company shall give notice in writing
of such event to the holder at his last address as it shall appear on the
Company's records at least twenty (20) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of
<PAGE> 17
the stockholders entitled to such dividends, distribution, or subscription
rights, or for the determination of stockholders entitled to vote on such
proposed dissolution, liquidation or winding up. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to publish, mail or receive such notice or any defect therein or in the
publication or mailing thereof shall not affect the validity of any action taken
in connection with such dividend, distribution or subscription rights, or such
proposed dissolution, liquidation or winding up. Each person in whose name any
certificate for shares of Common Stock is to be issued shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
this instrument was surrendered and payment of the Warrant Price was made,
irrespective of the date of delivery of such stock certificate, except that, if
the date of such surrender and payment is a date when the stock transfer books
of the Company are closed, such person shall be deemed to have become the holder
of such shares of Common Stock at the close of business on the next succeeding
date on which the stock transfer books are open.
6. SUCCESSORS AND ASSIGNS
The terms and provisions of this Warrant shall inure to the benefit of, and
be binding upon, the Company and the holder thereof and their respective
successors and permitted assigns.
7. RESTRICTED SECURITIES
In order to enable the Company to comply with the Securities Act and
applicable state laws, the Company may require the holder as a condition of the
transfer or exercise of this Warrant, to give written assurance satisfactory to
the Company that the Warrant, or in the case of an exercise hereof the Shares
subject to this Warrant, are being acquired for his own account, for investment
only, with no view to the distribution of the same, and that any disposition of
all or any portion of this Warrant or the Shares issuable upon the due exercise
of this Warrant shall not be made, unless and until:
(a) There is then in effect a registration statement under the Securities
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) The holder has notified the Company of the proposed disposition and
shall have furnished the Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (ii) the holder has furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such securities under the
Securities Act and applicable state law.
The holder acknowledges that this Warrant is, and each of the shares of
Common Stock issuable upon the due exercise hereof will be, a restricted
security, that he understands the provisions of Rule 144 of the Securities and
Exchange Commission, and that the certificate or certificates evidencing such
shares of Common Stock will bear a legend substantially similar to the
following:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, or under the securities laws of any
state. They may not be sold, transferred or otherwise disposed of in the
absence of an effective registration statement covering these securities
under the said Act or laws, or an
<PAGE> 18
opinion of counsel satisfactory to the Company and its counsel that
registration is not required thereunder."
8. LOSS OR MUTILATION
Upon receipt by the Company of satisfactory evidence of the ownership of
and the loss, theft, destruction, or mutilation of any Warrant, and (i) in the
case of loss, theft, or destruction, upon receipt by the Company of indemnity
satisfactory to it, or (ii) in the case of mutilation, upon receipt of such
Warrant and upon surrender and cancellation of such Warrant, the Company shall
execute and deliver in lieu thereof a new Warrant representing the right to
purchase an equal number of shares of Common Stock.
90 ACCREDITED INVESTOR
The Holder hereby represents and warrants that he is an "accredited
investor" as that term is defined in Regulation D promulgated pursuant to the
Securities Act. Holder hereby acknowledges that but for the aforesaid
representation the Company would not issue this Warrant to Holder.
100 NOTICES
All notices, requests, demands and other communications under this Warrant
shall be in writing and shall be deemed to have been duly given on the date of
service if served personally on the party to whom notice is to be given, or on
the date of mailing if mailed to the party to whom notice is to be given, by
first class mail, registered or certified, postage prepaid, and properly
addressed as follows: if to the holder, at his address as shown in the Company
records; and if to the Company, at its principal office. Any party may change
its address for purposes of this subsection by giving the other party written
notice of the new address in the manner set forth above.
110 GOVERNING LAW
This Warrant and any dispute, disagreement or issue of construction or
interpretation arising hereunder whether relating to its execution, its
validity, the obligations provided herein or performance shall be governed or
interpreted according to the laws of the State of Texas without regard to
conflicts of law.
120 EFFECTIVENESS
This Warrant shall only become effective upon the consummation of a sale of
the common stock of MSI in a private placement through Janney Montgomery Scott,
LLC and/or Tejas Securities Group, Inc., which private placement results in the
receipt by MSI of at least $25,000,000 in gross proceeds following the date
hereof and on or prior to March 31, 2000 (the "Private Placement"). If the
Private Placement is not consummated on or before March 31, 2000, this Warrant
shall be of no force or effect.
<PAGE> 19
DATED AS OF February 1, 2000.
MSI HOLDINGS, INC.
By:
--------------------------------
Douglas W. Banister
Chief Financial Officer
<PAGE> 20
SUBSCRIPTION
MSI Holdings, Inc.
1121 East 7th Street
Austin, Texas 78702
Gentlemen:
The undersigned, _______________________, hereby elects to purchase, pursuant to
the provisions to the foregoing Warrant held by the undersigned,
______________________ (________) shares of the Common Stock, $0.10 par value
("Common Stock"), of MSI Holdings, Inc.
Payment of the purchase price per Share required under such Warrant accompanies
this subscription.
The undersigned hereby represents and warrants that absent an effective
registration statement covering the Warrants, the undersigned is acquiring such
stock for the account of the undersigned and not for resale or with a view to
distribution of such Common Stock or any part hereof; that the undersigned is
fully aware of the transfer restrictions affecting restricted securities under
the pertinent securities laws and the undersigned understands that the shares
purchased hereby are restricted securities and that the certificate or
certificates evidencing the same will bear a legend to that effect.
DATED: .
--------------
Signature:
------------------------------
<PAGE> 1
EXHIBIT 10.3
MASTER AGREEMENT TO LEASE EQUIPMENT
THIS MASTER AGREEMENT TO LEASE EQUIPMENT (together with the Appendix
hereto, this "AGREEMENT") is entered into as of January 24, 2000 by and between
CISCO SYSTEMS CAPITAL CORPORATION ("LESSOR"), having its principal place of
business at 170 West Tasman Drive, Mailstop SJC2, 3rd Floor, San Jose,
California 95134 and MSI HOLDINGS, INC., a Utah corporation ("LESSEE"), having
its principal place of business at 501 Waller Street, Austin, Texas 78702.
I. THE LEASE
1.1 LEASE OF EQUIPMENT. In accordance with the terms and conditions of this
Agreement, Lessor shall lease to Lessee, and Lessee shall lease from Lessor, the
personal property described in the lease schedule(s) (each, a "SCHEDULE") to be
entered into from time to time into which this Agreement is incorporated (each
Schedule, together with this Agreement, a "LEASE"), together with all
substitutions, replacements, repairs, parts and attachments, improvements and
accessions thereto (the "EQUIPMENT"). Capitalized terms not otherwise defined in
this Agreement have the meanings specified in the applicable Schedule. Each
Lease shall constitute a separate, distinct, and independent lease and
contractual obligation of Lessee. Except as expressly set forth in any Lease,
Lessor shall at all times retain the full legal title to the Equipment, it being
expressly agreed by both parties that each Lease is an agreement of lease only.
1.2 TERM OF LEASE. The Original Term of each Lease shall begin on the
Commencement Date as specified in the applicable Schedule and, subject to
Sections 3.5 and 4.2, shall terminate on the date specified in the applicable
Schedule. If so provided in the applicable Schedule, the Original Term for any
Lease may be succeeded by one or more Extended Terms. Subject to Sections 3.5
and 4.2 and any express provisions of the Schedule, no Lease may be terminated
by Lessor or Lessee, for any reason whatsoever, prior to the end of the Original
Term or any pending Extended Term.
1.3 RENTAL PAYMENTS. Lessee shall pay Lessor Rent for the Equipment in the
amounts and at the times specified in the applicable Schedule. All Rent and
other amounts payable by Lessee to Lessor hereunder shall be paid to Lessor at
the address specified above, or at such other place as Lessor may designate in
writing to Lessee from time to time.
1.4 RETURN OF EQUIPMENT. Upon expiration of the Lease Term, Lessee shall
immediately return the Equipment to Lessor in the condition and at the place
provided in Section 3.3.
1.
<PAGE> 2
II. DISCLAIMERS AND WARRANTIES; INTELLECTUAL PROPERTY
2.1 DISCLAIMERS; WARRANTIES. Lessee represents and acknowledges that the
Equipment is of a size, design, capacity and manufacture selected by it, and
that it is satisfied that the Equipment is suitable for its purposes. LESSEE
LEASES THE EQUIPMENT AS IS, AND, NOT BEING THE MANUFACTURER OF THE EQUIPMENT,
THE MANUFACTURER'S AGENT OR THE SELLER'S AGENT, LESSOR MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY, FITNESS FOR ANY
PARTICULAR PURPOSE, DESIGN OR CONDITION OF THE EQUIPMENT. LESSOR SHALL NOT BE
RESPONSIBLE FOR ANY LOSS OR DAMAGE RESULTING FROM THE INSTALLATION, OPERATION OR
OTHER USE, OR DEINSTALLATION OF THE EQUIPMENT, INCLUDING ANY DIRECT, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOSS. Lessee shall look solely to the
manufacturer or the supplier of the Equipment for correction of any problems
that may arise with respect thereto, and all transferable manufacturer and
supplier warranty rights are, to the extent such rights have been transferred to
Lessor, hereby assigned without representation or warranty by Lessor to Lessee
for the Lease Term, which warranties Lessee is authorized to enforce if and when
there exists no Event of Default. Any such enforcement shall be at Lessee's sole
cost and expense.
2.2 INTELLECTUAL PROPERTY. Lessee acknowledges that neither this Agreement
nor any Lease conveys any explicit or implicit license for the use of software
or other intellectual property of Cisco Systems, Inc. or its affiliates relating
to the Equipment and that such license rights, to the extent they exist, are
contained in separate documentation entered into between Lessee and Cisco
Systems, Inc. or other persons. LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS
WHATSOEVER WITH RESPECT TO THE INTELLECTUAL PROPERTY RIGHTS, INCLUDING ANY
PATENT, COPYRIGHT AND TRADEMARK RIGHTS, OF ANY THIRD PARTY WITH RESPECT TO THE
EQUIPMENT, WHETHER RELATING TO INFRINGEMENT OR OTHERWISE. Lessor shall, when
reasonably requested in writing by Lessee, provided there exists no Event of
Default and an indemnity satisfactory to Lessor is delivered by Lessee, and at
Lessee's cost and expense, enforce rights of indemnification, if any, for
patent, copyright or other intellectual property infringement obtained from the
manufacturer under any agreement for purchase of the Equipment. If notified
promptly in writing of any action brought against Lessee based on a claim that
the Equipment infringes a United States patent, copyright or other intellectual
property right, Lessor shall promptly notify the manufacturer thereof for
purposes of exercising, for the benefit of Lessee, Lessor's rights with respect
to such claim under any such agreement.
III. LESSEE OBLIGATIONS
3.1 NET LEASE; PAYMENTS UNCONDITIONAL. EACH LEASE IS A NET LEASE, AND ALL
COSTS, EXPENSES AND LIABILITIES RELATING TO THE EQUIPMENT, INCLUDING IN RESPECT
OF TAXES, INSURANCE AND MAINTENANCE, SHALL BE BORNE SOLELY BY LESSEE. LESSEE'S
OBLIGATION TO PAY ALL RENT AND OTHER SUMS THEREUNDER, AND THE RIGHTS OF LESSOR
IN AND TO SUCH PAYMENTS, SHALL BE ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE
SUBJECT TO ANY ABATEMENT, REDUCTION, SETOFF, DEFENSE, COUNTERCLAIM,
INTERRUPTION, DEFERMENT OR RECOUPMENT, FOR ANY REASON WHATSOEVER.
2.
<PAGE> 3
3.2 USE OF EQUIPMENT. Lessee shall use the Equipment solely in the conduct
of its business, in a manner and for the use contemplated by the manufacturer
thereof, and in compliance with all Requirements of Law of every Governmental
Authority having jurisdiction over the Equipment or Lessee and with the
provisions of all policies of insurance carried by Lessee pursuant to Section
3.6.
3.3 DELIVERY; INSTALLATION; RETURN; MAINTENANCE AND REPAIR; INSPECTION.
Lessee shall be solely responsible, at its own expense, for (a) the delivery of
the Equipment to Lessee, (b) the packing, rigging and delivery of the Equipment
back to Lessor, upon expiration or termination of the Lease Term, in good
repair, condition and working order, ordinary wear and tear excepted, at the
location(s) within the continental United States specified by Lessor, and (c)
the installation, de-installation, maintenance and repair of the Equipment.
During the Lease Term, Lessee shall ensure that the Equipment is covered by a
maintenance agreement, to the extent available, with the manufacturer of the
Equipment or other party reasonably acceptable to Lessor. Lessee shall, at its
expense, keep the Equipment in good repair, condition and working order,
ordinary wear and tear excepted, and at the expiration or termination of the
Lease Term with respect to any of the Equipment, have such Equipment inspected
and certified acceptable for maintenance service by the manufacturer. If any of
the Equipment, upon its return to Lessor, is not in good repair, condition and
working order, ordinary wear and tear excepted, and so inspected and certified,
Lessee shall be obligated to pay Lessor for the out-of-pocket expenses Lessor
incurs in bringing such Equipment up to such status, but not in excess of the
Casualty Value for such Equipment, promptly after its receipt of an invoice for
such expenses. Lessor shall be entitled to inspect the Equipment at reasonable
times.
3.4 TAXES. Lessee shall pay, and hereby indemnifies Lessor on a net,
after-tax basis, against, and shall hold it harmless from, all license fees,
assessments, and sales, use, property, excise and other taxes and charges, other
than those measured by Lessor's net income, now and hereafter imposed by any
Governmental Authority upon or with respect to any of the Equipment, or the
possession, ownership, use or operation thereof, or any Lease, or the
consummation of the transactions contemplated by any Lease. Notwithstanding the
foregoing, to the extent required of it by applicable law and in reliance upon
Lessee's disclosure of the location of such Equipment, Lessor shall file
personal property tax returns, and shall pay personal property taxes payable
with respect to the Equipment. Lessee shall pay to Lessor the amount of all such
personal property taxes within 15 days of its receipt of an invoice for such
taxes. For any Lease that is specified as an FMV Lease in the applicable
Schedule, Lessee acknowledges that it is the intent of Lessor, and a material
inducement to Lessor to enter into such Lease, to obtain all state and Federal
income tax benefits of ownership with respect to the Equipment under such Lease,
including entitlement to annual accelerated cost recovery deductions.
3.5 LOSS OF EQUIPMENT. Lessee assumes the risk that, and shall promptly
notify Lessor in writing if, any item of Equipment becomes lost, stolen,
damaged, destroyed or otherwise unfit or unavailable for use from any cause
whatsoever (an "EVENT OF LOSS") after it has been delivered to a common carrier
for shipment to Lessee. Unless the item is damaged and is reparable within a
reasonable period of time in the judgment of Lessor (in which event Lessee
3.
<PAGE> 4
shall promptly cause such item to be repaired and restored to the condition and
value it had prior to such Event of Loss, at its own cost and expense), Lessee
shall pay to Lessor on the Rent payment date following Lessor's receipt of such
notice (or, if none, 30 days after such Event of Loss), an amount equal to the
Rent payment or payments due and payable with respect to such Equipment on or
prior to such date, plus a sum equal to the Casualty Value of such Equipment as
of such date. Upon making such payment, the Rent for such Equipment shall cease
to accrue, the term of the Lease as to such Equipment shall terminate and
(except in the case of loss, unrecovered theft or complete destruction) Lessor
shall be entitled to recover possession of such Equipment in accordance with the
provisions of Section 3.3 above. If Lessor has received the foregoing amount,
Lessee shall be entitled to the proceeds of any recovery in respect of such
Equipment from insurance or otherwise, provided that if the Equipment is subject
to an FMV Lease, Lessee shall be entitled to receive such proceeds only up to
the Casualty Value therefor, any excess amount to be paid to Lessor.
3.6 INSURANCE. Lessee shall obtain and maintain for the Lease Term at its
own expense, property damage and liability insurance and insurance against loss
or damage to the Equipment as a result of fire, explosion, theft, vandalism and
such other risks of loss as are normally maintained on equipment of the type
leased hereunder by companies carrying on the business in which Lessee is
engaged, in such amounts, in such form and with such insurers as shall be
satisfactory to Lessor. Each insurance policy shall name Lessee as insured and
Lessor and its assignees as additional insureds and loss payees thereof as their
interest may appear, and shall provide that it may not be cancelled or altered
without at least 30 days' prior written notice thereof being given to Lessor (or
10 days', in the event of non-payment of premium).
3.7 INDEMNITY. Except with respect to the gross negligence or willful
misconduct of Lessor, Lessee hereby indemnifies, protects, defends and holds
harmless Lessor from and against any and all claims, liabilities (including
negligence, tort and strict liability), demands, actions, suits, and
proceedings, losses, costs, expenses and damages, including reasonable
attorneys' fees and costs (collectively, "CLAIMS"), arising out of, connected
with, or resulting from any Lease or any of the Equipment, or any ancillary or
related software or other intangibles, whether arising before, during or after
the Lease Term (but not Claims relating to events occurring after Lessee has
returned the Equipment to Lessor in accordance with Section 3.3), including
Claims relating to the manufacture, selection, purchase, delivery, possession,
condition, use, operation, return or other disposition of the Equipment. Each of
the parties shall give the other prompt written notice of any Claim of which it
becomes aware.
3.8 LESSEE NEGATIVE COVENANTS. Without the prior written consent of Lessor,
which consent as it pertains to clauses (b) and (d) below shall not be
unreasonably withheld, Lessee shall not: (a) assign, transfer, or otherwise
dispose of any Equipment, the Lease or any rights or obligations thereunder; (b)
sublease any of the Equipment or permit the Equipment to be controlled by any
other person; (c) create or incur, or permit to exist, any Lien with respect to
any of the Equipment; (d) cause or permit any of the Equipment to be moved from
the location specified in the applicable Schedule; or (e) cause or permit any of
the Equipment to be moved outside the United States.
4.
<PAGE> 5
3.9 IDENTIFICATION. Lessee shall place and maintain permanent markings
provided by Lessor on the Equipment evidencing ownership, security and other
interests therein, as specified from time to time by Lessor.
3.10 ALTERATIONS AND MODIFICATIONS. Lessee shall not make any additions,
attachments, alterations or improvements to the Equipment without the prior
written consent of Lessor, not to be unreasonably withheld. Any addition,
attachment, alteration or improvement to any item of Equipment shall belong to
and become the property of Lessor unless, at the request of Lessor, it is
removed prior to the return of such item of Equipment by Lessee. Lessee shall be
responsible for all costs relating to such removal and shall restore such item
of Equipment to the condition and value otherwise required hereunder.
3.11 PERSONAL PROPERTY. Lessee acknowledges and represents that the
Equipment shall be and remain personal property, notwithstanding the manner by
which it may be attached or affixed to realty, and Lessee shall do all acts and
enter into all agreements necessary to ensure that the Equipment remains
personal property. If requested by Lessor with respect to any item of Equipment,
Lessee shall obtain and deliver to Lessor equipment access agreements,
satisfactory to Lessor, from all persons claiming any interest in the real
property on which such item of Equipment is installed or located.
3.12 FINANCIAL STATEMENTS. Subject to the term of any Schedule, Lessee
shall promptly furnish to Lessor such financial or other statements regarding
the condition and operations of Lessee and any Guarantor, and information
regarding the Equipment, as Lessor may from time to time reasonably request.
3.13 LESSEE REPRESENTATIONS. Lessee hereby represents and warrants as of
the date hereof and of each Schedule entered into hereunder, as follows:
(a) With respect to this Agreement, and each Schedule, certificate
evidencing acceptance of equipment, assignment of purchase order, insurance
letter, proposal letter, UCC financing statement, or other document now or
hereafter executed by Lessee in connection with any Lease (collectively, "LEASE
DOCUMENTS"), (i) the execution, delivery and performance thereof by Lessee or
its attorney-in-fact have been duly authorized by all necessary corporate,
partnership or company action; (ii) the person executing such documents is duly
authorized to do so; and (iii) such documents constitute legal, valid and
binding obligations of Lessee, enforceable in accordance with their terms.
(b) There are no actions, suits or proceedings pending or, to the best
of Lessee's knowledge, threatened, against or affecting Lessee or any of its
Subsidiaries before any Governmental Authority or arbitrator which (i) purport
to affect or pertain to this Agreement or any Lease, or (ii) if determined
adversely to Lessee or any such Subsidiary, would result in a Material Adverse
Change.
(c) Lessee and its Subsidiaries possess all approvals, authorizations,
permits, franchises, licenses, patents, trademarks, trade names, service marks,
and copyrights, free from burdensome restrictions, that are reasonably necessary
for the ownership, maintenance and operation of their respective businesses and
the maintenance and operation of the Equipment,
5.
<PAGE> 6
and neither Lessee nor any of its Subsidiaries is in material violation of any
right of others with respect to the foregoing.
(d) Lessee and its Subsidiaries have filed all federal and other
material tax returns and reports required to be filed and have paid all federal
and other material taxes, assessments, fees and other governmental charges
levied or imposed upon them or their properties, income or assets and otherwise
due and payable, except those which are being or will be contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. Lessee has not received any notice of any proposed tax
assessment against Lessee or any of its Subsidiaries that would, if made, have a
Material Adverse Effect.
(e) There exists no Default or Event of Default hereunder.
IV. DEFAULT AND REMEDIES
4.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "EVENT OF DEFAULT" hereunder and under each Lease: (a) Lessee
fails to pay any Rent or other amount due under any Lease within five days after
it becomes due and payable; (b) any representation or warranty of Lessee made in
any Lease Document proves to have been false or misleading in any material
respect as of the date when it was made; (c) Lessee fails to maintain insurance
as required herein or breaches any of clauses (a), (b) or (e) of Section 3.8;
(d) Lessee fails to perform any other covenant, condition or agreement made by
it under any Lease, and such failure continues for 20 days; (e) bankruptcy,
receivership, insolvency, reorganization, dissolution, liquidation or other
similar proceedings are instituted by or against Lessee, any Guarantor or any
partner of a partnership Lessee or Guarantor, or all or any part of such
person's property, under the Bankruptcy Code or other law of the United States
or of any other competent jurisdiction, and, if such proceeding is brought
against such person, it consents thereto or fails to cause the same to be
discharged within 45 days after it is filed; (f) Lessee materially defaults
under any agreement with respect to the purchase or installation of any of the
Equipment; or (g) Lessee or any guarantor of any Lease, or any of their
respective Subsidiaries or other Affiliates, defaults under any other instrument
or agreement with Lessor or Cisco Systems, Inc.
4.2 REMEDIES. If an Event of Default exists, Lessor may exercise any one or
more of the following remedies, in addition to those arising under applicable
law: (a) proceed, by appropriate court action, to enforce performance by Lessee
of the applicable covenants of any or all of the Leases; (b) terminate any or
all Leases by notice to Lessee and take possession of any or all of the
Equipment and, for such purpose, enter upon any premises where the Equipment is
located with or without notice or process of law and free from all claims by
Lessee or any other person, or require Lessee to assemble the Equipment and
deliver it to Lessor in accordance with Section 3.3; (c) recover any and all
direct, incidental and consequential damages, including all accrued and unpaid
Rent and other amounts owing under any Lease, and (i) for any Lease that is an
FMV Lease, the Equipment for which has not been returned to Lessor in the
condition required hereunder, an amount equal to the Casualty Value thereof; or
(ii) for any Lease that is an FMV Lease, the Equipment for which has been so
returned to Lessor, such amounts as are
6.
<PAGE> 7
provided for the lessee breach of a personal property lease under the Uniform
Commercial Code of the jurisdiction specified in Section 5.11 (the "CODE"),
using the Discount Rate to calculate present values for such purpose; or (iii)
for any Lease that is not an FMV Lease, an amount equal to the present value,
discounted at the Discount Rate, of the sum of all Rent and other payments
remaining to be paid under such Lease through the Lease Term plus the applicable
purchase option amount specified in Paragraph 7 of the Schedule; and (d) sell or
re-lease any or all of the Equipment, through public or private sale or lease
transactions, and apply the proceeds thereof to Lessee's obligations under such
Leases or otherwise seek recovery in accordance with applicable provisions of
the Code. Lessee shall remain liable for any resulting deficiency and Lessor may
retain any surplus it may realize in connection with an FMV Lease. The "DISCOUNT
RATE" shall be the rate for U.S. Treasury obligations having a constant maturity
of three months, as specified in the Federal Reserve Statistical Release H.15
(or replacement publication) issued most recently prior to the date of
termination of the Lease. Lessee shall pay all costs and expenses (including
reasonable attorneys' fees) incurred by Lessor in retaking possession of, and
removing, storing, repairing, refurbishing and selling or leasing such Equipment
and enforcing any obligations of Lessee pursuant to any Lease.
V. MISCELLANEOUS
5.1 PERFORMANCE OF LESSEE'S OBLIGATIONS. Upon Lessee's failure to pay any
amount or perform any obligation under any Lease when due, Lessor shall have the
right, but shall not be obligated, to pay such sum or perform such obligation,
whereupon such sum or cost of such performance shall immediately become due and
payable thereunder, with interest thereon at the Default Rate from the date such
payment or performance was made.
5.2 RIGHT TO USE. So long as no Event of Default exists, neither Lessor nor
its assignee shall interfere with Lessee's right to use the Equipment under any
Lease.
5.3 ASSIGNMENT BY LESSOR. Lessor may assign or transfer any or all of
Lessor's interest in this Agreement, any Lease, any Equipment or Rents, without
notice to Lessee. Any assignee of Lessor shall have all of the rights, but none
of the obligations (unless otherwise provided in the applicable assignment), of
a "Lessor" under this Agreement and the applicable Lease, and Lessee agrees that
it will not assert against any assignee any defense, counterclaim or offset that
Lessee may have against Lessor or any preceding assignee, and that upon notice
of such assignment or transfer, it will pay all Rent and other sums due under
this Agreement and the applicable Lease to such assignee or transferee. Lessee
acknowledges that any assignment or transfer by Lessor shall not materially
change Lessee's duties or obligations under this Agreement or any Lease, nor
materially increase the burdens or risks imposed on Lessee.
5.4 FURTHER ASSURANCES. Upon the request of Lessor from time to time,
Lessee shall execute and deliver such further documents and do such further acts
as Lessor may reasonably request in order fully to effect the purposes of this
Agreement or any Lease. Lessee hereby appoints Lessor its attorney in fact,
coupled with an interest, authorized, without any obligation to do so, (a) to
sign on Lessee's behalf and file, record and register financing statements, and
amendments and continuations thereof, and any other documents relating to liens,
security interests or property rights of Lessor, Lessee or any third person with
respect to any Equipment and ancillary property, in accordance with any Uniform
Commercial Code or other code or
7.
<PAGE> 8
statute, and (b) to enforce, in its own name or in the name of Lessee, claims
relating to any Equipment against insurers, manufacturers or other persons, and
to make, adjust, settle, compromise and receive payments as to such claims.
5.5 RIGHTS AND REMEDIES. Each right and remedy granted to Lessor under any
Lease shall be cumulative and in addition to any other right or remedy existing
in equity, at law, by virtue of statute or otherwise, and may be exercised by
Lessor from time to time concurrently or independently and as often and in such
order as Lessor may elect. Any failure or delay on the part of Lessor in
exercising any such right or remedy shall not operate as a waiver thereof.
5.6 NOTICES. Any notice, request, demand, consent, approval or other
communication provided for or permitted in relation to any Lease shall be in
writing and shall be conclusively deemed to have been received by a party hereto
on the day it is delivered to such party at its address, or received by the
party at such facsimile number, as is set forth in such Lease (or at such other
addresses or fax numbers such party shall specify to the other party in
writing), or if sent by registered or certified mail, return receipt requested,
on the fifth day after the day on which it is mailed, postage prepaid, addressed
to such party.
5.7 SECTION HEADINGS; INTERPRETATION. Section headings are inserted for
convenience of reference only and shall not affect any construction or
interpretation of any Lease Document. In interpreting the provisions of any
Lease Document, (a) the term "including" is not limiting; (b) references to
"person" include individuals, corporations and other legal persons and entities;
(c) the singular of defined terms includes the plural and vice-versa; and (d)
section and paragraph references are to the document in which such reference
appears, unless the context otherwise requires.
5.8 ENTIRE LEASE. This Agreement, together with the other Lease Documents,
constitute the entire agreement between Lessor and Lessee with respect to the
lease of the Equipment. No waiver or amendment of, or any consent with respect
to, any provision of any Lease Document shall bind either party unless set forth
in a writing, specifying such waiver, consent, or amendment, signed by both
parties. TO THE EXTENT PERMITTED BY APPLICABLE LAW AND NOT OTHERWISE
SPECIFICALLY GRANTED TO LESSEE IN ANY LEASE DOCUMENT, LESSEE HEREBY WAIVES ANY
AND ALL RIGHTS OR REMEDIES CONFERRED UPON A LESSEE UNDER THE CODE OR ANY OTHER
APPLICABLE LAW OR STATUTE, WITH RESPECT TO A DEFAULT BY LESSOR UNDER THIS
AGREEMENT OR ANY LEASE. Each FMV Lease is intended by the parties as a "finance
lease" under the Code.
5.9 SEVERABILITY. Should any provision of any Lease Document be or become
invalid, illegal, or unenforceable under applicable law, the other provisions of
such Lease Document shall not be affected and shall remain in full force and
effect.
5.10 ATTORNEYS' FEES; DEFAULT INTEREST; MAXIMUM RATES. Lessee shall
reimburse Lessor for all reasonable charges, costs, expenses and attorney's fees
incurred by Lessor (a) in defending or protecting its interests in the
Equipment, (b) in the enforcement of this Agreement or any Lease, and (c) in any
lawsuit or other legal proceeding to which this Agreement or any Lease gives
rise. Any nonpayment of Rent or other amount payable under any Lease shall
result
8.
<PAGE> 9
in Lessee's obligation to promptly pay Lessor on such overdue payment, for the
period of time during which it is overdue (including during any grace period),
interest at a rate ("DEFAULT RATE") equal to fourteen percent (14%) per annum.
To the extent that any payment of interest (including any amount deemed imputed
interest for purposes of applicable law) under any Lease Document would
otherwise exceed provisions of any law limiting the highest rate of interest
that may be lawfully contracted for, charged or received by Lessor, such payment
amount shall be deemed reduced to such amount as is equal to or consistent with
the highest rate permitted by applicable law.
5.11 GOVERNING LAW AND JURISDICTION. THIS AGREEMENT AND THE OTHER LEASE
DOCUMENTS SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF
CALIFORNIA. LESSOR AND LESSEE WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
LITIGATION ARISING FROM ANY LEASE DOCUMENT. LESSEE CONSENTS TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE COURTS OF CALIFORNIA, AND THE FEDERAL COURTS SITTING
IN THE STATE OF CALIFORNIA, FOR THE RESOLUTION OF ANY DISPUTES UNDER ANY LEASE
DOCUMENT.
5.12 SURVIVAL. All obligations of Lessee to make payments to Lessor under
any Lease or to indemnify Lessor, including pursuant to Section 3.4 or 3.7
above, with respect to a Lease, and all rights of Lessor hereunder with respect
to a Lease, shall survive the termination of such Lease and the return of the
Equipment.
5.13 SECURITY. To secure the payment and performance by Lessee of all
obligations under each Lease, and in addition to any other security granted
under other agreements, Lessee hereby grants Lessor a security interest in
Lessee's right, title and interest, now existing and hereafter arising, in and
to, (a) all Equipment subject to such Lease, (b) all insurance, warranty, rental
and other claims and rights to payment and chattel paper arising out of such
Equipment, (c) all rights to Cisco Systems, Inc. software or software financed
by Lessor, in either case used or usable in connection with the Equipment, and
(d) all books, records and proceeds relating to the foregoing. Notwithstanding
the foregoing, the security interest granted herein shall not extend to any
software license to the extent that: (i) such software license is not assignable
or capable of being encumbered as a matter of law or under the terms of such
license, without the consent of the licensor thereof, and (ii) such consent has
not been obtained; provided, however, that upon the obtaining of such consent
the security interest shall extend thereto.
5.14 COUNTERPARTS; CHATTEL PAPER. Each Lease Document may be executed in
counterparts, and when so executed each counterpart shall be deemed to be an
original, and such counterparts together shall constitute one and the same
instrument. The original of each Schedule shall constitute chattel paper for
purposes of the Code. If there exist multiple originals of a Schedule, the one
marked "Lessor's Copy" or words of similar import, shall be the only chattel
paper.
5.15 APPENDIX. The Appendix is a part of and incorporated into this
Agreement by this reference.
9.
<PAGE> 10
LESSEE, BY THE SIGNATURE BELOW OF ITS AUTHORIZED REPRESENTATIVE, ACKNOWLEDGES
THAT IT HAS READ THIS AGREEMENT, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS
TERMS AND CONDITIONS. EACH PERSON SIGNING BELOW ON BEHALF OF LESSEE REPRESENTS
THAT HE OR SHE IS AUTHORIZED TO EXECUTE AND DELIVER THIS AGREEMENT ON BEHALF OF
LESSEE.
LESSOR: LESSEE:
CISCO SYSTEMS CAPITAL MSI HOLDINGS, INC.
CORPORATION
By:
By: -------------------------------
----------------------------------- (Authorized Signature)
(Authorized Signature)
----------------------------------
- -------------------------------------- (Name/Title)
(Name/Title)
10.
<PAGE> 11
APPENDIX
TO MASTER AGREEMENT TO LEASE EQUIPMENT NO._______
THIS APPENDIX TO MASTER AGREEMENT TO LEASE EQUIPMENT NO._______ dated January
24, 2000 (this "Appendix") is entered into by and between CISCO SYSTEMS CAPITAL
CORPORATION ("LESSOR"), and MSI Holdings, Inc. ("LESSEE") and supplements and
shall be deemed incorporated into that certain Master Agreement to Lease
Equipment between Lessor and Lessee dated as of January 24, 2000 (the
"AGREEMENT").
VI. CERTAIN Definitions. The following terms shall have the following
meanings:
"Bankruptcy Code" means Title 11 of the United States Code, entitled
"Bankruptcy".
"Default" means an Event of Default or an event or condition which
with notice or lapse of time or both would constitute an Event of
Default.
"GAAP" means generally accepted accounting principles as in effect
from time to time.
"Governmental Authority" means any national government, or any state,
province or other political subdivision thereof or therein, or any
governmental ministry, department, body, commission, board, bureau,
agency, central bank, court, tribunal or other instrumentality or
authority exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guarantor" means any person executing a Guaranty.
"Guaranty" means any guaranty, indemnity or other third-party support
agreement executed in favor of Lessor in connection with Lessee's
obligations under any lease Documents.
"Lien" means any mortgage, pledge, security interest, assignment,
deposit arrangement, charge or encumbrance, lien or other type of
preferential arrangement (other than a financing statement filed by a
lessor in respect of an operating lease not intended as security).
"Loan Documents" means the $2,000,000 Secured Promissory Note dated as
of January 24, 2000 by Lessee in favor of Lessor, any warrant issued
by Lessee in connection therewith, and all other contracts,
instruments, addenda and documents executed in connection therewith.
"Material Adverse Change" means (i) a material adverse change in the
business, operations or financial condition of Lessee and its
Subsidiaries taken as a whole or any Guarantor and its Subsidiaries
taken as a whole, or (ii) any event, matter, condition or circumstance
which (A) would materially impair the ability of Lessee, any Guarantor
or any other Person to perform or observe its obligations under or in
respect of the Lease
11.
<PAGE> 12
Documents or any Guaranty, or (B) affects the legality, validity,
binding effect or enforceability of any of the Lease Documents or any
Guaranty.
"Requirement of Law" means, as to any person, any law, treaty, rule or
regulation or determination of an arbitrator or of a Governmental
Authority, in each case applicable to or binding upon the person or
any of its property or to which the person or any of its property is
subject.
"Subsidiary" means any corporation, association, partnership, joint
venture or other business entity of which more than 50% of the voting
stock or other equity interest is owned directly or indirectly by any
person or one or more of the other Subsidiaries of such person or a
combination thereof.
VII. FURTHER LESSEE COVENANTS. LESSEE AGREES AS FOLLOWS:
7.1 NEGATIVE COVENANTS. Lessee shall not:
(a) Engage in any material line of business substantially
different from those lines of business carried on by it on the date of this
Agreement;
(b) Permit any of its Subsidiaries to merge with or consolidate
into, or acquire all or substantially all of the assets of, any other
corporation or entity, or sell, transfer, lease or otherwise dispose of all or
substantially all of its assets, except that (A) any of Lessee's wholly owned
Subsidiaries may merge with, consolidate into or transfer all or substantially
all of its assets to another of Lessee's wholly owned Subsidiaries, or to
Lessee, and in connection therewith, such Subsidiary may be liquidated or
dissolved, and (B) Lessee or any of its Subsidiaries may sell or dispose of
assets in the ordinary course of business, provided such transaction could not
reasonably be expected to result in a Material Adverse Change;
(c) Declare or pay any dividends in respect of Lessee's capital
stock, or purchase, redeem, retire or otherwise acquire for value any of its
capital stock now or hereafter outstanding, return any capital to its
shareholders as such, or make any distribution of assets to its shareholders as
such, or permit any of its Subsidiaries to purchase, redeem, retire or otherwise
acquire for value any stock of Lessee, except that Lessee may (A) declare and
deliver dividends and distributions payable only in common stock of Lessee, and
(B) purchase, redeem, retire or otherwise acquire shares of its capital stock
with the proceeds received from a substantially concurrent issue of new shares
of its capital stock; or
(d) Create or incur any debt for borrowed money, or become
liable as a surety, guarantor, accommodation party or otherwise, for or upon the
obligation of any other person, corporation or other entity, except that Lessee
may (A) acquire goods, supplies and services on normal trade credit and (B)
endorse negotiable instruments received in the ordinary course of business as
presently conducted.
7.2 AFFIRMATIVE COVENANTS. Lessee shall, and shall cause each of its
Subsidiaries to:
(a) Maintain and preserve (A) its corporate existence, and (B)
all material copyrights, patents, trademarks, trade names and service marks and
other intellectual property
12.
<PAGE> 13
rights, and all other material rights, qualifications, permits, licenses,
franchises and privileges, necessary or desirable in the ordinary course of
business and operations and the ownership of its properties, except as
prohibited by clause 2(a) hereof;
(b) Obtain and maintain all licenses, authorizations, consents,
filings, exemptions, registrations and other governmental approvals of any
Governmental Authority necessary or desirable (A) in connection with the
execution, delivery and performance of the Lease Documents and the Loan
Documents and the leasing of the Equipment and borrowing of money as
contemplated thereby, or (B) in the ordinary course of its business and
operations and the ownership of its properties, except, in the case of this
clause (B), to the extent that the failure to do so could not reasonably be
expected to result in a Material Adverse Change;
(c) Comply in all material respects with all Requirements of
Law of any Governmental Authority having jurisdiction over it or its business,
except as may be contested in good faith, or as to which a bona fide dispute may
exist, or where non-compliance could not reasonably be expected to result in a
Material Adverse Change; and
(d) Deliver to Lessor, as soon as available, but in any event
within ninety (90) days after the end of each fiscal year of Lessee, and
forty-five (45) days after the end of each of the first three fiscal quarters of
Lessee, a consolidated balance sheet of Lessee and its Subsidiaries as at such
quarter or year-end date, and the related consolidated statements of income and
cash flows for such period, all in reasonable detail and, in the case of the
year-end financials, audited by an independent certified public accountant,
which statements shall be prepared in accordance with GAAP and, in the case of
the year-end financials, shall not be subject to any qualifications or
exceptions as to the scope of the audit, nor to any qualifications or exceptions
not reasonably acceptable to Lessor.
VIII. FURTHER EVENTS OF DEFAULT. THE FOLLOWING SHALL BE ADDITIONAL EVENTS OF
DEFAULT UNDER THE AGREEMENT:
8.1 Lessee or any Guarantor, or any of their respective Subsidiaries,
defaults under any obligation to repay borrowed money, or under any lease
obligation, with any other lender or lessor, and such default continues after
the expiration of any applicable grace period;
8.2 There occurs any Material Adverse Change; or,
8.3 There occurs any transaction as a result of which more than 25% of any
class of Lessee's or any Guarantor's outstanding common stock is held or
controlled, directly or indirectly, by a person, or affiliated group of persons,
whose ownership interests in such class of stock in the Lessee or Guarantor did
not exceed 5% as of the date of this Agreement.
13.
<PAGE> 14
IN WITNESS WHEREOF, Lessor and Lessee have caused this Appendix to be duly
executed by their authorized representatives as of the date of the Agreement.
CISCO SYSTEMS CAPITAL MSI HOLDINGS, INC.,
CORPORATION, Lessee
Lessor
By:
--------------------------------
By: Title:
-------------------------------- -----------------------------
Title:
-----------------------------
14.
<PAGE> 1
EXHIBIT 10.4
October 1, 1999
Mr. Robert Hersch
Re: Employment of Robert Hersch by MSI Holdings, Inc.
Dear Robert:
I am pleased to offer you the position of Vice President - Corporate
Finance. The purpose of this letter is to outline and confirm the issues
discussed earlier, so both you and I have a point of reference as we move
forward. This offer is contingent upon passing MSI's drug test and a
satisfactory background check.
1. START DATE: Your employment is deemed to have commenced August 1, 1999.
2. PERFORMANCE: You agree to devote your full time, energy, and attention
during working hours to the performance of your duties as Vice President -
Corporate Investor Relations.
3. COMPENSATION: Robert, as discussed, MSI will pay you a targeted base
salary amount equal to One Hundred Thousand Dollars ($100,000.00) calculated on
an annualized basis. The targeted base salary will be paid in equal installments
twice monthly less appropriate withholding.
4. SIGNING BONUS: In further consideration of your employment and your
willingness to move to Austin, Texas, MSI grants to you 10,000 shares of the
company's Common Stock.
5. ANNUAL BONUS OPPORTUNITY: You will have an annual bonus opportunity in
an amount likely to equal 25%, but not to exceed 50%, of your targeted base
salary, based on goals to be determined by us jointly.
6. STOCK OPTIONS: You will be granted 150,000 stock options upon hire. Of
this amount 100,000 options will be priced at the closing price on August 1,
1999, 50,000 of which will become vested after 6 months of hire, 25,000 will
become vested after 12 months, and 25,000 will become vested after 18 months.
The additional 50,000 options will be priced at $10 each and will vest at such
time as the closing price of MSI stock is $10 or greater for a thirty (30)
consecutive trading day period. MSI's Employee Stock Option Plan shall otherwise
govern the issuance and exercise of these 100,000 stock options. The strike
price date is August 1, 1999. The additional 50,000 stock options shall vest at
such time as the Company's stock closing price equals or exceeds an average of
$10 for a consecutive thirty (30) day trading period, the strike price being $10
per share.
7. BENEFITS: We will provide you with our standard company benefits. Group
health, dental, and life insurance will begin the first day of the month
following the date of your employment.
<PAGE> 2
MSI is willing to reimburse you for Cobra payments for a maximum period of 30
days to help bridge insurance coverage until you can actually come into MSI's
health plans. Participation in MSI's 401(k) savings and retirement program will
be in accordance with MSI's current plans and restrictions.
8. VACATION: As a key member of management, you will have 15 days of paid
vacation available during each twelve months of employment with MSI. This
vacation time will be in addition to any other paid time off as applicable under
MSI's paid time off policy.
9. EXPENSE REIMBURSEMENT: You will be reimbursed for all reasonable,
ordinary and necessary business expenses submitted by you and paid by MSI in
accordance with MSI's policies, practices, and procedures.
10. SEVERANCE BENEFITS: In the event MSI terminates your employment prior
to July 31, 2000, without cause, MSI will pay you $48,000.00, payable in 12
equal installments, less all ordinary withholdings over a 6 month period
following termination. The severance payments are conditioned upon MSI's receipt
of an executed Settlement Agreement, General Release, and Covenant Not to Sue, a
copy of which is attached hereto as Exhibit "1".
MSI is an equal opportunity employer and maintains a drug free
workplace. All employment is "AT WILL", meaning that you may resign at any time
and that MSI may discharge you at any time with or without cause.
Robert, let me say again that I am delighted you have decided to make a
career move to MSI and believe this is an outstanding opportunity for both of
us. Please indicate your acceptance of this at-will employment offer in the
signature block below and return one copy to me.
Sincerely,
Robert Gibbs
President & CEO
At-Will Employment Offer Acceptance
as stated above:
- --------------------------------
Robert Hersch
- --------------------------------
Date
<PAGE> 3
EXHIBIT "1"
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 Vice President -
Corporate Investor Relations;
WHEREAS, Employee's employment with the Company 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 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:
1. Employee, for himself 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,
<PAGE> 4
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 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 any of its obligations under this Agreement or any Claim not
connected with or related to the employment of Employee by the Company, or
the cessation or termination thereof.
2. Employee, for himself and on behalf of his 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. The Severance Payments equal Forty-Eight Thousand
Dollars ($48,000.00), payable in twelve (12) equal installments, less all
ordinary withholdings over a six (6) month period following the effective
date of termination.
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
<PAGE> 5
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.
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. 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 constitutes 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. This Agreement cannot be changed or terminated without the
express written consent of the parties.
<PAGE> 6
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.
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.
<PAGE> 7
GIVEN UNDER MY HAND AND SEAL OF OFFICE this__________day of ______________,
___________.
------------------------------------
Notary Public, State of
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]
<PAGE> 8
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 ______________, 1999, and that the Agreement and 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> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), effective as of June 29, 1999 (the
"Effective Date"), is between MSI HOLDINGS, INC., a Utah corporation (the
"Company"), and ROBERT J. GIBBS ("Gibbs"). The Company and Gibbs are
collectively referred to in this Agreement as the "Parties."
Background
The Company wishes to employ Gibbs as its President and Chief Executive Officer,
and the Parties desire to provide for the employment of Gibbs commencing on the
Effective Date in accordance with the terms of this Agreement.
Terms of Agreement
The Parties agree as follows:
1. EMPLOYMENT. The Company hereby employs Gibbs to devote his personal
services to the business and affairs of the Company, and Gibbs hereby accepts
such employment, on the terms and conditions stated in this Agreement.
1.1. Duties. Gibbs' title and position shall be President and Chief
Executive Officer of the Company. Gibbs' duties will be those customarily
performed by persons acting in that capacity and those that may be
designated by the Board of Directors of the Company consistent with the
titles and positions of President and Chief Executive Officer of the
Company. Gibbs shall report directly to the Board of Directors of the
Company. Gibbs shall also serve, upon request and without additional
compensation, as a director of the Company or 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. Gibbs 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.
2. TERM. The term of Gibbs' employment under this Agreement (the "Term") shall
be as follows:
2.1. Initial Term. The initial term shall commence on the date of this
Agreement and shall expire at 11:59:59 p.m., Central Time, on the day
preceding the second anniversary of the date of this Agreement, unless
terminated earlier pursuant to Article 5.
2.2. Extended Term. At or about the date that is six (6) months before the
end of the two (2) year term described in Article 2.1, the Parties shall
meet to determine whether
EMPLOYMENT AGREEMENT - ROBERT J. GIBBS Page 1
<PAGE> 2
Gibbs' employment under this Agreement shall be extended for an additional
two (2)-year period. If the Parties are unable to agree on provisions for
such an extension of the Term, then the Term shall expire in accordance
with Article 2.1. If the Parties are able to agree on provisions for such
an extension of the Term, the Term will not extend beyond 11:59:59 p.m.,
Central Time, on the day preceding the fourth anniversary of the date of
this Agreement.
3. COMPENSATION. As compensation for the services rendered by Gibbs under this
Agreement, the Company shall, during the Term, pay or provide Gibbs during the
Term the following:
3.1. Base Salary. The Company shall pay Gibbs during the Term an annual
base salary equal to One Hundred Fifty Thousand Dollars ($150,000.00)
during the first year of the Term and equal to Two Hundred Forty Thousand
Dollars ($240,000.00) during the second year of the Term (beginning on the
first anniversary of the Effective Date) and (if the Term is extended)
during each subsequent year, unless the Parties otherwise agree. The annual
amount of base salary in effect at the time (depending on the year of the
Term) is referred to in this Agreement as "Base Salary." The 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. The Base Salary shall be prorated (on a
daily basis) for any partial payroll period of employment under this
Agreement.
3.2. Annual Bonus Opportunity. During the Term, Gibbs shall be eligible to
earn and receive from the Company an annual incentive bonus based upon
satisfaction of the performance or financial goals stated below, or as
otherwise described below, in this Article 3.2. During the first year of
the Term, the bonus opportunity will be an amount equal to 1.5% of the net
proceeds actually received by the Company resulting from any amount raised
as equity in the Company with a maximum bonus of One Hundred Seventy
Thousand Dollars ($170,000.00). The bonus payable to Gibbs for an Offering
(if any) shall be paid by the Company within ten (10) business days after
the Company's actual receipt of the net proceeds during the first year.
Provided, however that Gibbs will not be entitled to a bonus as a result of
proceeds received from the Company through the exercise of warrants or
options to purchase securities of the Company outstanding as of the
Effective Date. Gibbs shall also be eligible to earn during the first year
of the Term an additional bonus of up to Fifty Thousand Dollars
($50,000.00) at the discretion of the Board of Directors of the Company
(the "Board"); the Board's evaluation based upon Gibbs' best efforts to
effectuate a public secondary equity offering. During the second year of
the Term, the bonus opportunity will be equal to a percentage of Base
Salary, where the percentage is equal to the result (expressed as a
percentage) of the excess, if any, of the dollar amount of the average
daily total market capitalization of outstanding shares of Common and
Preferred Stock during the last thirty (30) trading days in the second year
of the Term minus Five Hundred Million Dollars ($500,000,000)(the "Base
Capitalization"), divided by the Base Capitalization. Such bonus would be
payable to
EMPLOYMENT AGREEMENT - ROBERT J. GIBBS Page 2
<PAGE> 3
Gibbs within thirty (30) days after the end of the second year of the Term.
Unless otherwise determined by the Compensation Committee of the Board, no
annual incentive bonus shall be payable to Gibbs unless he is employed by
the Company under this Agreement on the last day of the bonus period (or if
the bonus is based on an Offering, on the date on which the Company
receives the net proceeds of that Offering) except that if the Company
terminates Gibbs' employment without cause, the bonus for the second year
of the Term shall be determined on a pro rata basis for that amount of time
Gibbs was employed during the second year of employment, the same to be
paid to Gibbs within thirty (30) days after the end of the second year. In
the event Gibbs is terminated without cause during the second year, the
thirty (30) trading days immediately prior to the date of termination will
be used to determine the pro-rata bonus paid.
3.3. Stock Option. Gibbs 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 Company's 1998 Incentive Stock Option Plan (the
"Option Plan"). Except as described in the next sentence, the extent to
which Gibbs shall participate in any such plan will be determined by the
Board or the Compensation Committee of the Board. On or as of the Effective
Date, Gibbs shall receive a non-qualified stock option granting Gibbs the
right to purchase up to One Million Three Hundred Sixty-Two Thousand Nine
Hundred Fifty (1,362,950) shares of Common Stock in accordance with the
Option Plan and the Stock Option Agreement attached hereto as Exhibit "A".
3.4. Savings and Retirement Plans. Gibbs shall be eligible to participate
in any long-term bonus, savings, deferred compensation, retirement or
pension, or death benefit plan adopted by the Company for its employees
generally in effect during the Term.
3.5. Welfare Benefit Plans. Gibbs 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.
3.6. Vacation. Gibbs shall be entitled to fifteen (15) days of paid
vacation per fiscal year. Such vacation time shall, however, be prorated in
any fiscal year during which Gibbs 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 Gibbs is so employed. Such vacation time
shall be in addition to any paid time off ("PTO") to which Gibbs may be
entitled under the Company's PTO policy in effect during the Term.
3.7. Transportation Allowance. During the Term, the Company shall pay Gibbs
a transportation allowance equal to Eight Hundred Dollars ($800.00) per
month ("Transportation Allowance"). The Transportation Allowance shall be
payable in equal installments together with the payments of Base Salary.
EMPLOYMENT AGREEMENT - ROBERT J. GIBBS Page 3
<PAGE> 4
3.8. Loan. On the Effective Date, the Company shall make a personal loan to
Gibbs in the amount of One Hundred Thousand Dollars ($100,000.00)(the
"Loan"). The Loan shall bear interest at the prime rate as stated in the
"Money Rates" section (or any successor section) of The Wall Street Journal
on the date of the Loan. Gibbs' obligation to repay the Loan, with
interest, shall be in accordance with and evidenced by a promissory note in
favor of the Company in the form of Exhibit "B" to this Agreement (the
"Note").
3.9. Tax Withholding. The Company may deduct from any compensation or other
amount payable to Gibbs 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. The Company will consult with Gibbs as to amounts to be withheld
in this regard.
3.10. Participation in Compensation and Benefit Plans. Gibbs' participation
during the Term in any or all of the plans or programs adopted by the
Company described in Articles 3.4 through 3.6 ("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 Gibbs 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 Gibbs.
4. EXPENSE REIMBURSEMENT. During the Term, Gibbs may incur, and shall be
reimbursed by the Company for, reasonable, ordinary and necessary, and
documented business expenses to the extent that Gibbs complies with, and
reimbursement is permitted by, the Company's policies, practices, and
procedures.
5. EMPLOYMENT TERMINATION. Either Party may terminate Gibbs' 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 Gibbs'
employment under this Agreement are as follows:
5.1. Termination Generally. Upon any termination of Gibbs' employment under
this Agreement, the Company shall pay or provide Gibbs the following:
5.1.a. Any amount of Base Salary and Transportation Allowance
earned by, but not yet paid to, Gibbs through the effective date of
termination of employment, as further described below (the
"Termination Date");
EMPLOYMENT AGREEMENT - ROBERT J. GIBBS Page 4
<PAGE> 5
5.1.b. All benefits that have been earned by or vested in, and
are payable to, Gibbs under, and subject to the terms (including all
eligibility requirements) of, the Compensation and Benefit Plans in
which Gibbs participated through the Termination Date;
5.1.c. All reimbursable expenses due, but not yet paid, to Gibbs
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 Gibbs; 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 Gibbs 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 Gibbs' employment, Gibbs shall be deemed to have
resigned from any position as a director of the Company or 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 Gibbs 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 Gibbs'
death, (ii) the third business day after the date on which the Company
gives notice of termination because of 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 Gibbs' 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. Gibbs 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.
EMPLOYMENT AGREEMENT - ROBERT J. GIBBS Page 5
<PAGE> 6
In this Agreement, "Cause" means any of the following: (i) Gibbs' 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) Gibbs' 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) Gibbs' performance of
any act or omission constituting dishonesty that results, directly or
indirectly, in significant gain or enrichment of Gibbs or his family or
affiliates at the expense of the Company; or (iv) any breach by Gibbs 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 Gibbs 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, Gibbs 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 Gibbs' 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 Gibbs of that belief, and that notice shall constitute
immediate termination of Gibbs' employment.
Gibbs may voluntarily terminate his employment under this Agreement only by
giving at least thirty (30) days' prior written notice to the Company.
Gibbs 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 Gibbs'
employment is terminated by death or by the Company because of Disability
or without Cause, Gibbs (or his legal representative, estate, or heirs)
shall be entitled to receive from the Company (except if waived by Gibbs in
accordance with Article 7), as liquidated damages:
5.2.a. The payment of a total Two Hundred Forty Thousand Dollars
($240,000.00), in twenty-four (24) equal installments, and
Transportation Allowance for twelve (12) consecutive months following
the Termination Date, except that if any such termination described
above in this Article 5.2 occurs during the first ninety (90) days of
his employment under this Agreement (the "Probationary Period"), those
payments shall be only until the day preceding the first anniversary
of the date of this Agreement (such payments, regardless of time, the
"Severance Payments"); and
5.2.b. if Gibbs 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 (or if the
termination is during the Probationary Period, for as long as the day
preceding the first anniversary of the date of this Agreement),
EMPLOYMENT AGREEMENT - ROBERT J. GIBBS Page 6
<PAGE> 7
payments in an amount equal to the difference between (i) the premiums
paid or payable by Gibbs 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 Gibbs' becoming eligible for
coverage under another employer's plan or policy.
In addition, if the termination described above is effective before the
Loan must be repaid in accordance with the Note, then (unless waived by
Gibbs in accordance with Article 7) the Company shall forgive the
indebtedness evidenced by the Note and shall mark the Note paid and deliver
it to Gibbs (or his legal representative, estate, or heirs). The Severance
Payments (if not waived) shall be paid at the dates on which 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 (if not waived) 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 Gibbs (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 Gibbs under COBRA. The Severance Payments and the
Insurance Payments, and (if applicable) the forgiveness of the indebtedness
evidenced by the Note, shall be in addition to the amounts or benefits to
which Gibbs 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 Gibbs' employment for any purpose.
5.3. Conditions to Severance Benefits. 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 Gibbs (including by
self-employment), and Gibbs shall have no duty to mitigate his damages. The
Severance Payments and the Insurance Payments, and (if applicable) the
forgiveness of the indebtedness evidenced by the Note, 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 Gibbs (or his legal representative, estate, or heirs) in
substantially the form of Exhibit "C" to this Agreement (the
"Release Agreement"); and
5.3.b. the compliance by Gibbs (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), and (if the indebtedness evidenced by the Note has been
forgiven) may reinstate the indebtedness evidenced by the Note with the
same effect as if it had not been forgiven,
EMPLOYMENT AGREEMENT - ROBERT J. GIBBS Page 7
<PAGE> 8
if, and shall be entitled to payment under the Note to the extent that,
there is or has been any material violation by Gibbs (or his legal
representatives, estate, or heirs) of any of Articles 6, 7, 8, and 9 or of
the Release Agreement. Upon such event, Gibbs shall be released from any
obligations pursuant to Article 7.
5.4. Termination for Cause or by Gibbs. If Gibbs' employment is terminated
by the Company for Cause or is voluntarily terminated by Gibbs, then Gibbs
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, except that
if Gibbs voluntarily terminates during the Probationary Period, the Company
shall also forgive the indebtedness evidenced by the Note and shall mark
the Note paid and deliver it to Gibbs.
5.5 Failure to Extend Beyond Two Years. If the Parties cannot agree on
provisions for an extension of the Term beyond the two (2)-year period
mentioned in Article 2.1, then Gibbs shall continue to perform under this
Agreement until the expiration of the Term and shall then be entitled to
continued payment of the Base Salary then in effect for an additional six
(6) months after the expiration date. The obligation of the Company to make
such payments under this Article 5.5 shall be subject to the same
conditions, and shall have the same effect, as Severance Payments under
this Agreement.
5.6. Post-Termination Survival. The provisions of this Article 5 shall
survive the termination of Gibbs' employment by the Company and its
subsidiaries to the extent necessary to effect the post-termination
payments or benefits to which Gibbs is entitled under the terms of this
Article 5.
6. CONFIDENTIAL INFORMATION. The Company shall provide to Gibbs, 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. Gibbs 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 Gibbs from the
use or disclosure of information generally known to the public or not considered
confidential by the
EMPLOYMENT AGREEMENT - ROBERT J. GIBBS Page 8
<PAGE> 9
Company or from any disclosure to the extent required by law or court order
(though Gibbs 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 Gibbs 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 Gibbs' performance of his duties under this Agreement, and (in any event)
shall be promptly returned or delivered to the Company (without Gibbs' retaining
any copies) upon the termination of employment under this Agreement.
7. NONCOMPETITION. Gibbs 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, Gibbs 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 Gibbs'
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. (Gibbs 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.) Gibbs 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 Gibbs and that,
in order to induce the Company to enter into this Agreement (which contains
various benefits to Gibbs and obligations of the Company with respect to Gibbs'
employment), Gibbs 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
EMPLOYMENT AGREEMENT - ROBERT J. GIBBS Page 9
<PAGE> 10
those restrictions is unenforceable, that restriction shall not thereby be
terminated, but shall be deemed amended to the extent required to render it
enforceable. The post-Termination Date restrictions in this Article 7 will not
apply, however, if Gibbs' employment is terminated by the Company without Cause
under Article 5.2. Except further, that in the event Gibbs' employment is
terminated by the Company without cause, Gibbs shall not be bound to the
restrictions stated within this Article if he waives all right to the remaining
severance benefits provided within this Agreement, and he repays the amount of
money equivalent to the loan forgiveness (including interest up to the date of
termination).
8. NONSOLICITATION. Gibbs shall not, at any time within the twelve (12)
consecutive months immediately after the Termination Date, either directly or
indirectly:
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. Gibbs 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 Gibbs, 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, Gibbs' 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").
Gibbs 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. Gibbs 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
EMPLOYMENT AGREEMENT - ROBERT J. GIBBS Page 10
<PAGE> 11
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
Gibbs for all reasonable expenses incurred by him in complying with this Article
9.
10. INDEMNIFICATION. To the extent Gibbs is an officer or director of the
Company, the Company shall include Gibbs 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 Gibbs to the fullest extent permitted by the laws of the Company's
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 Gibbs.
11. CERTAIN REMEDIES. Any breach or violation by Gibbs 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 Gibbs' 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
Gibbs 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 Gibbs' 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 Gibbs' 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 Gibbs 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 Gibbs, to assign its rights, benefits, remedies, and obligations
under this Agreement to one or more other persons. The rights, benefits,
remedies, and obligations of Gibbs under this Agreement are personal to Gibbs,
however, and may not be assigned or delegated by him; except that this shall not
preclude (i) Gibbs from designating one or more beneficiaries to receive any
amount or benefit that may be paid or provided after Gibbs' death or (ii) the
legal representative of Gibbs' estate from assigning any right or benefit under
this Agreement to the person or persons entitled thereto under Gibbs' will or
the laws of intestacy applicable to Gibbs' 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
EMPLOYMENT AGREEMENT - ROBERT J. GIBBS Page 11
<PAGE> 12
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:
To the Company: MSI Holdings, Inc.
501 Waller Street
Austin, Texas 78702
Facsimile: (512) 473-2371
Attention: Chairman of the Board
with a copy (which shall not constitute notice) to:
Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201-4761
Facsimile: (214) 999-4667
Attention: I. Bobby Majumder, Esq.
To Gibbs: Robert J. Gibbs
-----------------------
-----------------------
-----------------------
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
EMPLOYMENT AGREEMENT - ROBERT J. GIBBS Page 12
<PAGE> 13
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 Gibbs for employment or compensation for
that period.
16. ENTIRE AGREEMENT. This Agreement, with Exhibits "A", "B" and "C",
constitutes the entire agreement between the Company and Gibbs with respect to
the subject matter hereof and supersedes any prior agreement between the Company
and Gibbs with respect to the same subject matter.
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 - ROBERT J. GIBBS Page 13
<PAGE> 14
The Parties have executed this Agreement to be effective as of the date stated
in the first paragraph.
THE COMPANY:
MSI HOLDINGS, INC.,
a Utah corporation
By:
----------------------------------
----------------------
EMPLOYMENT AGREEMENT - ROBERT J. GIBBS Page 14
<PAGE> 15
EXHIBIT "A"
Stock Option Agreement
<PAGE> 16
EXHIBIT "B"
Promissory Note
<PAGE> 17
EXHIBIT "C"
Settlement Agreement, General Release, and Covenant Not to Sue
<PAGE> 1
EXHIBIT 10.6
[GTE INTERNETWORKING LETTERHEAD]
SERVICE QUOTATION AND ORDER FORM
- --------------------------------------------------------------------------------
TO: MICRO-MEDIA SOLUTIONS INC. Quote Date: 02/02/2000
Attn: Cliff Luckey Quote Valid To: 03/03/2000
501 Waller St.
Austin, TX 78702 Quote Number: 197451
Customer Reference #: 8797
This pricing is based on purchasing 3 Full OC-3's at a time to a total of 13
over the course of the next 12 months
SERVICES OFFERED: INTERNET ADVANTAGE 7.1 Based on the Purchase of 3 circuits
at a
Service Period: 3 Years
The Service Period shall commence upon GTE Internetworking's provisioning of the
Service listed on this Service Quotation and Order Form ("Quotation").
PRODUCT DESCRIPTION AND
<TABLE>
<CAPTION>
LINE ITEMS WITH ONE-TIME FEES PRICE DISCOUNTED DISCOUNT PRICE ONE-TIME PRICE
- ----------------------------- -------------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
BGP4 Routing Setup $ 1,000.00 100 % $ 0.00 $ 0.00
Activation, OC3 $ 6,000.00 100 % $ 0.00 $ 0.00
Leased Circuit Installation Fee $ 2,500.00 $ 2,500.00
-------------- -------------
Total One-Time Charges: $ 2,500.00
</TABLE>
<TABLE>
<CAPTION>
MONTHLY
LINE ITEMS WITH MONTHLY RECURRING FEES MONTHLY PRICE DISCOUNTED DISCOUNT PRICE ANNUAL PRICE
-------------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
Frac OC3 Bronze Service Fee, 155Mbps $ 170,500.00 50 % $ 85,250.00 $1,023,000.00
Leased Circuit Monthly Recurring $ 2,000.00 $ 24,000.00
-------------- -------------
Total Monthly Charges: $ 87,250.00 Total Annual Charges: $1,047,000.00
</TABLE>
<PAGE> 2
GTE Internetworking Service Quotation 197451 for Micro-Media Solutions Inc.
- --------------------------------------------------------------------------------
TO INITIATE THIS CONTRACT
1. Read the Service Descriptions and the Agreements presented by your Sales
Representative.
2. Initial the Agreements section indicating that you have received and read
the indicated documents and that you agree that these documents are
incorporated herein by reference.
3. If you have previously agreed to applicable agreement(s) for the Service(s)
being ordered under this Service Quotation and Order Form it will be
indicated as "On File" below and your initials are not required. You agree
that the Services quoted herein shall be provided pursuant to these terms
and conditions.
AGREEMENTS INITIALS
On File Master Agreement On File
Service Schedules
Internet Advantage 7.1 Service Sched v.12.99
---------------
Copies of documents previously agreed upon by you and indicated as "On
File" above may be obtained from your Sales Representative.
TERMS
- -----
Quotation This Quotation will expire on the "Valid To" date noted above.
Payment Terms: Payment is due no later than thirty (30) days after the
date of the GTE Internetworking invoice. GTE Internetworking
may, in its sole discretion, require alternative payment terms
(i.e., advance payment or letter of credit) if GTE
Internetworking determines your credit standing does not meet
the criteria set forth in GTE Internetworking's Customer Credit
Policy.
Telco Charges: Any telco-related fees are estimates only. Whether or not
complete activation of Services has occurred, in all cases you
will be responsible for actual incurred telco charges.
The terms and conditions of this Quotation, as well as all documents
incorporated by reference as set forth above, constitute the complete and
exclusive statement of the agreement between GTE Internetworking and you with
respect to the purchase of the Service(s) noted, and supercedes all previous
representations, understandings, or agreements pertaining to the Service(s), and
shall prevail over any conflicting provisions of any purchase order or any other
instrument issued by you, it being understood that any purchase order issued by
you shall be for your convenience only.
Modifications to the terms and conditions contained in this Agreement including
any documents incorporated by reference are not permitted and shall not be
valid, unless specifically agreed to in writing by an authorized GTE
Internetworking contracts representative. Our commencement of any Services to
you as described in this Quotation shall constitute GTE Internetworking's
acceptance of this Quotation. By signing below, you are authorizing GTE
Internetworking to provision and commence the Services as listed above pursuant
to the above fees and terms and conditions and you agree that you are
responsible for payment whether or not you have issued a purchase order to GTE
Internetworking. You acknowledge that you have reviewed the terms and conditions
of all documents that are part of this Agreement and agree to be legally bound
by same.
<PAGE> 3
GTE Internetworking Service Quotation 197451 for Micro-Media Solutions Inc.
- --------------------------------------------------------------------------------
4. Complete and sign the section below.
--------------------------------------------------------------------
ACCEPTED AND AGREED BY:
Company Name (Type or Print Full Legal Name):
-----------------------
Signature: Date:
----------------------------- ----------------------
Print Name: Title:
---------------------------- ---------------------
--------------------------------------------------------------------
5. If there is a purchase order associated with this order, please indicate
the purchase order number and submit it to your GTE Internetworking Sales
Representative.
Purchase Order
------------------------------------
6. Please submit a signed copy of this document to Gregg Smith at (214)
800-5848.
Should you have any questions about this Service Quotation and Order Form,
please contact Gregg Smith by phone at (214) 800-5830 or send
e-mail to [email protected].
<PAGE> 1
EXHIBIT 10.7
PROMISSORY NOTE
Austin, Texas
----------------------
MSI Holdings, Inc., a Utah corporation (the "Maker"), for value
received, hereby promises to pay to the order of _______________________
(together with any successors or assigns, the "Payee"), at the time and in the
manner hereinafter provided, the principal sum of ______________________
together with interest computed thereon at the rate hereinafter provided. This
Note shall be payable at the office of the Payee at __________________________
or at such other address as the holder of this Note shall from time to time
designate.
The outstanding principal amount of this Note shall bear interest from
the date hereof until the due date at the rate of eight and one quarter percent
(8.25%) per annum. The principal amount of this Note and the interest thereon
shall be due and payable on _______________, 2000, or on such later date as may
be agreed to in writing by Payee.
All sums of principal and interest past due under the terms of this
Note shall bear interest at a per annum interest rate equal to the lesser of
twelve percent (12%) per annum or the maximum rate allowed by law from the due
date thereof until paid.
In the event of default hereunder and this Note is placed in the hands
of an attorney for collection (whether or not suit is filed), or if this Note is
collected by suit or legal proceedings or through bankruptcy proceedings, the
Maker agrees to pay in addition to all sums then due hereon, including principal
and interest, all expenses of collection, including, without limitation,
reasonable attorneys' fees.
This Note may be prepaid in whole or in part from time to time, without
premium or penalty. Each prepayment of principal shall be accompanied by an
amount equal to the accrued interest on the principal amount prepaid to the date
of such prepayment.
The Payee shall be entitled to accelerate this Note and declare all
sums due hereunder immediately due and payable upon the successful completion of
a public underwritten offering, for the account of Maker, of the Maker's
securities.
The Maker and any and all sureties, guarantors and endorsers of this
Note and all other parties now or hereafter liable hereon, severally waive
grace, demand, presentment for payment, notice of dishonor, protest and notice
of protest, notice of intention to accelerate, notice of acceleration, any other
notice and diligence in collecting and bringing suit against any party hereto
and agree (i) to all extensions and partial payments, with or without notice,
before or after maturity, (ii) to any substitution, exchange or release of any
security now or hereafter given for this Note, (iii) to the release of any party
primarily or secondarily liable hereon, and (iv) that it will not be necessary
for the holder hereof, in order to enforce payment of this Note, to first
institute or exhaust such holder's remedies against the Maker or any other party
liable therefor or against any security for this Note. No delay on the part of
the Payee in exercising any power or
<PAGE> 2
right under this Note shall operate as a waiver of such power or right, nor
shall any single or partial exercise of any power of right preclude further
exercise of that power or right.
All agreements between the Maker and the holder hereof, whether now
existing or hereafter arising and whether written or oral, are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of the maturity hereof, or otherwise, shall the amount paid, or
agreed to be paid, to the holder hereof for the use, forbearance or detention of
the funds advanced pursuant to this Note, or otherwise, or for the payment or
performance of any covenant or obligation contained herein or in any other
document or instrument evidencing, securing or pertaining to this Note exceed
the maximum amount permissible under applicable law. If from any circumstances
whatsoever fulfillment of any provision hereof or any other document or
instrument exceeds the maximum amount of interest prescribed by law, then ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if from any such circumstances the holder hereof shall ever
receive anything of value deemed interest by applicable law, which would exceed
interest at the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the unpaid principal balance of
this Note or on account of any other principal indebtedness of the Maker to the
holder hereof, and not to the payment of interest, or if such excessive interest
exceeds the unpaid principal balance of this Note and such other indebtedness,
such excess shall be refunded to the Maker. All sums paid, or agreed to be paid,
by the Maker for the use, forbearance or detention of the indebtedness of the
Maker to the holder of this Note shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
such indebtedness until payment in full so that the actual rate of interest on
account of such indebtedness is uniform throughout the term hereof. The terms
and provisions of this paragraph shall control and supersede every other
provision of all agreements between the Maker and the holder hereof.
This Note shall be governed by and construed in accordance with the
laws of the State of Texas.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
2
<PAGE> 3
All references to the Maker herein shall, and shall be deemed to,
include its successors and assigns, and all covenants, stipulations, promises
and agreements contained herein by or on behalf of the Maker shall be binding
upon its successors and assigns, whether so expressed or not.
MAKER
MSI HOLDINGS, INC.,
A Utah corporation
By:
---------------------------------------
ROBERT J. GIBBS, President and
Chief Executive Officer
3
<PAGE> 1
EXHIBIT 10.8
MSI HOLDINGS, INC.
(A UTAH CORPORATION)
===================
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
===================
Effective
----------------
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT
OR BENEFIT OF, U.S. PERSONS EXCEPT (1) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, OR (2) PURSUANT TO AN EXEMPTION FROM
REGISTRATION PROVIDED UNDER THE SECURITIES ACT (IF AVAILABLE),
AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION.
THIS CERTIFIES THAT, for value received, _____________________________
or registered assigns ("Holder"), is entitled to purchase, subject to the
conditions set forth below, at any time or from time to time during the Exercise
Period (as defined in subsection 1.2, below), _____________ shares ("Shares") of
fully paid and non-assessable Common Stock, $0.10 par value ("Common Stock"), of
MSI HOLDINGS, INC., a Utah corporation (the "Company"), at the per share
purchase price (the "Warrant Price") set forth in subsection 1.1, subject to the
further provisions of this Warrant. The term "Warrants" as used herein shall
mean this Warrant and all instruments issued by the Company which are
substantially identical to this Warrant (except for the name of the holder and
the number of securities purchasable by the holder).
1. EXERCISE OF WARRANT
The terms and conditions upon which this Warrant may be exercised, and
the Common Stock covered hereby may be purchased, are as follows:
1.1 Warrant Price. The Warrant Price shall be equal to $0.10 per share,
subject to adjustment as provided in Section 4, below.
1.2 Method Of Exercise. The holder of this Warrant, may at any time
beginning _____________, 1999, and prior to ____________________, 2000, or such
later date as the Company may in its sole discretion determine (the "Exercise
Period"), exercise in whole or in part the purchase rights evidenced by this
Warrant. Such exercise shall be effected by:
<PAGE> 2
(a) the surrender of the Warrant, together with a duly executed copy of
the form of subscription attached hereto, to the Secretary of the Company at its
principal offices;
(b) the payment to the Company, by cash, check payable to its order or
wire transfer, of an amount equal to the aggregate Warrant Price for the number
of Shares for which the purchase rights hereunder are being exercised; and
(c) the delivery to the Company, if necessary, to assure compliance
with federal and state securities laws, of an instrument executed by the holder
certifying that the Shares are being acquired for the sole account of the holder
and not with a view to any resale or distribution.
1.3 Satisfaction with Requirements of Securities Act of 1933.
Notwithstanding the provisions of subsection 1.2(c) and Section 7, each and
every exercise of this Warrant is contingent upon the Company's satisfaction
that the issuance of Common Stock upon the exercise is exempt from the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and all applicable state securities laws. The holder of this Warrant agrees to
execute any and all documents deemed necessary by the Company to effect the
exercise of this Warrant.
1.4 Issuance Of Shares and New Warrant. In the event the purchase
rights evidenced by this Warrant are exercised in whole or in part, one or more
certificates for the purchased Shares shall be issued as soon as practicable
thereafter to the person exercising such rights. Such holder shall also be
issued at such time a new Warrant representing the number of Shares (if any) for
which the purchase rights under this Warrant remain unexercised and continuing
in force and effect.
2. TRANSFERS
2.1 Transfers. Subject to Section 7 hereof, this Warrant and all rights
hereunder are transferable in whole or in part by the holder. The transfer shall
be recorded on the books of the Company upon the surrender of this Warrant,
properly endorsed, to the Secretary of the Company at its principal offices and
the payment to the Company of all transfer taxes and other governmental charges
imposed on such transfer. In the event of a partial transfer, the Company shall
issue to the several holders one or more appropriate new Warrants.
2.2 Registered Holder. Each holder agrees that until such time as any
transfer pursuant to subsection 2.1 is recorded on the books of the Company, the
Company may treat the registered holder of this Warrant as the absolute owner;
provided that nothing herein affects any requirement that transfer of any
Warrant or share of Common Stock issued or issuable upon the exercise thereof be
subject to compliance with the Securities Act and all applicable state
securities laws.
2.3 Form Of New Warrants. All Warrants issued in connection with
transfers of this Warrant shall bear the same date as this Warrant and shall be
substantially identical in form and provision to this Warrant except for the
number of Shares purchasable thereunder.
-2-
<PAGE> 3
3. FRACTIONAL SHARES
Notwithstanding that the number of Shares purchasable upon the exercise
of this Warrant may have been adjusted pursuant to the terms hereof, the Company
shall nonetheless not be required to issue fractions of Shares upon exercise of
this Warrant or to distribute certificates that evidence fractional shares nor
shall the Company be required to make any cash payments in lieu thereof upon
exercise of this Warrant. Holder hereby waives any right to receive fractional
Shares.
4. ANTIDILUTION PROVISIONS
4.1 Stock Splits And Combinations. If the Company shall at any time
subdivide or combine its outstanding shares of Common Stock, this Warrant shall,
after that subdivision or combination, evidence the right to purchase the number
of shares of Common Stock that would have been issuable as a result of that
change with respect to the Shares of Common Stock that were purchasable under
this Warrant immediately before that subdivision or combination. If the Company
shall at any time subdivide the outstanding shares of Common Stock, the Warrant
Price then in effect immediately before that subdivision shall be
proportionately decreased, and, if the Company shall at any time combine the
outstanding shares of Common Stock, the Warrant Price then in effect immediately
before that combination shall be proportionately increased. Any adjustment under
this section shall become effective at the close of business on the date the
subdivision or combination becomes effective.
4.2 Reclassification, Exchange and Substitution. If the Common Stock
issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other class or classes of stock, whether by
capital reorganization, reclassification, or otherwise (other than a subdivision
or combination of shares provided for above), the holder of this Warrant shall,
on its exercise, be entitled to purchase for the same aggregate consideration,
in lieu of the Common Stock that the holder would have become entitled to
purchase but for such change, a number of shares of such other class or classes
of stock equivalent to the number of shares of Common Stock that would have been
subject to purchase by the holder on exercise of this Warrant immediately before
that change.
4.3 Reorganizations, Mergers, Consolidations Or Sale Of Assets. If at
any time there shall be a capital reorganization of the Company's Common Stock
(other than a stock split, combination, reclassification, exchange, or
subdivision of shares provided for elsewhere above) or merger or consolidation
of the Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, merger, consolidation or sale, lawful
provision shall be made so that the holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
in this Warrant and upon payment of the Warrant Price then in effect, the number
of shares of Common Stock or other securities or property of the Company, or of
the successor corporation resulting from such merger or consolidation, to which
a holder of the Common Stock deliverable upon exercise of this Warrant would
have been entitled in such capital reorganization, merger or consolidation or
sale if this Warrant had been exercised immediately before that capital
reorganization, merger or consolidation or sale. In any such case, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the holder of this Warrant after the
reorganization, merger, consolidation, or sale to the end that the provisions of
this Warrant (including adjustment of the Warrant Price then in effect and
number of Shares purchasable upon exercise of this Warrant) shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon exercise of this Warrant. The
Company shall, within thirty (30) days after making such adjustment, give
written notice (by first class mail, postage prepaid) to the registered holder
of this Warrant
-3-
<PAGE> 4
at the address of that holder shown on the Company's books. That notice shall
set forth, in reasonable detail, the event requiring the adjustment and the
method by which the adjustment was calculated and specify the Warrant Price then
in effect after the adjustment and the increased or decreased number of Shares
purchasable upon exercise of this Warrant. When appropriate, that notice may be
given in advance and be included as part of the notice required under other
provisions of this Warrant.
4.4 Common Stock Dividends; Distributions. In the event the Company
should at any time prior to the expiration of this Warrant fix a record date for
the determination of the holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock (hereinafter
referred to as the "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common Stock or Common
Stock Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such distribution, split or subdivision if no record date is fixed), the Warrant
Price shall be appropriately decreased and the number of shares of Common Stock
issuable upon exercise of the Warrant shall be appropriately increased in
proportion to such increase of outstanding shares.
4.5 Adjustments of Other Distributions. In the event the Company shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4.4, then, in each
such case for the purpose of this subsection 4.5, upon exercise of this Warrant
the holder hereof shall be entitled to a proportionate share of any such
distribution as though such holder was the holder of the number of shares of
Common Stock of the Company into which this Warrant may be exercised as of the
record date fixed for the determination of the holders of Common Stock of the
Company entitled to receive such distribution.
4.6 Certificate as to Adjustments. In the case of each adjustment or
readjustment of the Warrant Price pursuant to this Section 4, the Company will
promptly compute such adjustment or readjustment in accordance with the terms
hereof and cause a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based,
to be delivered to the holder of this Warrant. The Company will, upon the
written request at any time of the holder of this Warrant, furnish or cause to
be furnished to such holder a certificate setting forth:
(a) Such adjustments and readjustments;
(b) The purchase price at the time in effect; and
(c) The number of shares of Common Stock issuable upon exercise of
the Warrant and the amount, if any, of other property at the
time receivable upon the exercise of the Warrant.
4.7 Reservation of Stock Issuable Upon Exercise. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock solely for the purpose of effecting the exercise of this Warrant
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, in addition to such other remedies as shall
be available to the holder of this Warrant, the Company will use its best
efforts to take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.
-4-
<PAGE> 5
5. RIGHTS PRIOR TO EXERCISE OF WARRANT
This Warrant does not entitle the holder to any of the rights of a
stockholder of the Company, including without limitation, the right to receive
dividends or other distributions, to exercise any preemptive rights, to vote, or
to consent or to receive notice as a stockholder of the Company. If, however, at
any time prior to the expiration of this Warrant and prior to its exercise, any
of the following events shall occur:
(a) the Company shall declare any dividend payable in any securities
upon its shares of Common Stock or make any distribution (other than a regular
cash dividend) to the holders of its shares of Common Stock; or
(b) the Company shall offer to the holders of its shares of Common
Stock any additional shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock or any right to subscribe for or
purchase any thereof; or
(c) a dissolution, liquidation or winding up of the Company (other than
in connection with a consolidation, merger, sale, transfer or lease of all or
substantially all of its property, assets, and business as an entirety) shall be
proposed and action by the Company with respect thereto has been approved by the
Company's Board of Directors,
Then in any one or more of said events the Company shall give notice in writing
of such event to the holder at his last address as it shall appear on the
Company's records at least twenty (20) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividends, distribution, or subscription rights,
or for the determination of stockholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
publish, mail or receive such notice or any defect therein or in the publication
or mailing thereof shall not affect the validity of any action taken in
connection with such dividend, distribution or subscription rights, or such
proposed dissolution, liquidation or winding up. Each person in whose name any
certificate for shares of Common Stock is to be issued shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
this instrument was surrendered and payment of the Warrant Price was made,
irrespective of the date of delivery of such stock certificate, except that, if
the date of such surrender and payment is a date when the stock transfer books
of the Company are closed, such person shall be deemed to have become the holder
of such shares of Common Stock at the close of business on the next succeeding
date on which the stock transfer books are open.
6. SUCCESSORS AND ASSIGNS
The terms and provisions of this Warrant shall inure to the benefit of,
and be binding upon, the Company and the holder thereof and their respective
successors and permitted assigns.
7. RESTRICTED SECURITIES
In order to enable the Company to comply with the Securities Act and
applicable state laws, the Company may require the holder as a condition of the
transfer or exercise of this Warrant, to give written assurance satisfactory to
the Company that the Warrant, or in the case of an exercise hereof the shares
subject to this Warrant, are being acquired for his own account, for investment
only, with no view to the distribution of the same, and that any disposition of
all or any portion of this Warrant or the Shares issuable upon the due exercise
of this Warrant shall not be made, unless and until:
-5-
<PAGE> 6
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b)(i) The holder has notified the Company of the proposed disposition
and shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and (ii) the holder has
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such securities
under the Securities Act and applicable state law.
The holder acknowledges that this Warrant is, and each of the shares of
Common Stock issuable upon the due exercise hereof will be, a restricted
security, that he understands the provisions of Rule 144 of the Securities and
Exchange Commission, and that the certificate or certificates evidencing such
shares of Common Stock will bear a legend substantially similar to the
following:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under the securities
laws of any state. They may not be sold, transferred or otherwise
disposed of in the absence of an effective registration statement
covering these securities under the said Act or laws, or an opinion of
counsel satisfactory to the Company and its counsel that registration
is not required thereunder."
8. LOSS OR MUTILATION
Upon receipt by the Company of satisfactory evidence of the ownership
of and the loss, theft, destruction, or mutilation of any Warrant, and (i) in
the case of loss, theft, or destruction, upon receipt by the Company of
indemnity satisfactory to it, or (ii) in the case of mutilation, upon receipt of
such Warrant and upon surrender and cancellation of such Warrant, the Company
shall execute and deliver in lieu thereof a new Warrant representing the right
to purchase an equal number of shares of Common Stock.
9. ACCREDITED INVESTOR
The Holder hereby represents and warrants that he is an "accredited
investor" as that term is defined in Regulation D promulgated pursuant to the
Securities Act. Holder hereby acknowledges that but for the aforesaid
representation the Company would not issue this Warrant to Holder.
10. NOTICES
All notices, requests, demands and other communications under this
Warrant shall be in writing and shall be deemed to have been duly given on the
date of service if served personally on the party to whom notice is to be given,
or on the date of mailing if mailed to the party to whom notice is to be given,
by first class mail, registered or certified, postage prepaid, and properly
addressed as follows: if to the holder, at his address as shown in the Company
records; and if to the Company, at its principal office. Any party may change
its address for purposes of this subsection by giving the other party written
notice of the new address in the manner set forth above.
11. GOVERNING LAW
This Warrant and any dispute, disagreement or issue of construction or
interpretation arising hereunder whether relating to its execution, its
validity, the obligations provided herein or performance shall be governed or
interpreted according to the laws of the State of Texas without regard to
conflicts of law.
-6-
<PAGE> 7
DATED AS OF _________________, 1999.
MSI HOLDINGS, INC.
By:
----------------------------------
ROBERT J. GIBBS, President and CEO
-7-
<PAGE> 8
SUBSCRIPTION
MSI Holdings, Inc.
501 Waller
Austin, Texas 78702
Gentlemen:
The undersigned, ______________________ hereby elects to purchase, pursuant to
the provisions to the foregoing Warrant held by the undersigned, _____________
shares of the Common Stock, $0.10 par value ("Common Stock"), of MSI Holdings,
Inc.
Payment of the purchase price per Share required under such Warrant accompanies
this subscription.
The undersigned hereby represents and warrants that absent an effective
registration statement covering the Warrants, the undersigned is acquiring such
stock for the account of the undersigned and not for resale or with a view to
distribution of such Common Stock or any part hereof; that the undersigned is
fully aware of the transfer restrictions affecting restricted securities under
the pertinent securities laws and the undersigned understands that the shares
purchased hereby are restricted securities and that the certificate or
certificates evidencing the same will bear a legend to that effect.
DATED:
-------------------------
Signature:
-------------------------
Address:
-------------------------
-------------------------
-8-
<PAGE> 1
EXHIBIT 10.9
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of the ___ day of ___________, 1999 by and between MSI HOLDINGS,
INC., a Utah corporation (the "Company") and
(the "Purchaser").
R E C I T A L S:
WHEREAS, the Company is offering Four Hundred Fifty Thousand (450,000)
units (the "Units"), each Unit consisting of one share of the common stock, $.10
par value, of the Company (the "Common Stock") and warrants (the "Warrants")
entitling the holder to purchase 2 shares of Common Stock of the Company at Four
Dollars and Forty Cents ($4.40) per share (the "Offering") pursuant to the terms
and conditions of that certain letter from the Company dated ______________ ___,
1999 (the "Unit Offering Letter").
WHEREAS, the Purchaser is acquiring ________ (____) Units pursuant to
that certain investment letter from the Purchaser dated ___________ __, 1999,
and accepted by the Company (the "Investment Letter"); and
WHEREAS, the Company desires to grant to the Purchaser certain
registration rights relating to the shares of Common Stock underlying the
Warrants and the shares of Common Stock comprising the Unit(s) issuable to the
Purchaser pursuant to the Offering and the Investment Letter (collectively, the
"Shares"); and the Purchaser desires to obtain such registration rights, subject
to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual premises,
representations, warranties and conditions set forth in this Agreement, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions and References. For purposes of this Agreement, in
addition to the definitions set forth above and elsewhere herein, the following
terms shall have the following meanings:
(a) The term "Commission" shall mean the Securities and
Exchange Commission and any successor agency.
(b) The terms "register", "registered" and "registration"
shall refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the 1933
Act (as herein defined) and the declaration or ordering of
effectiveness of such registration statement or document.
(c) For purposes of this Agreement, the term "Registrable
Stock" shall mean any shares of Common Stock issuable upon: (i) the
purchase of a Unit; (ii) the exercise of the Warrants; (iii) the
issuance of any shares of Common Stock by way of a stock split,
<PAGE> 2
reorganization, merger or consolidation, and (iv) the issuance of any
Common Stock as a dividend on the Shares.
(d) For purposes of this Agreement, any Registrable Stock
shall cease to be Registrable Stock when (i) a registration statement
covering such Registrable Stock has been declared effective and such
Registrable Stock has been disposed of pursuant to such effective
registration statement, (ii) such Registrable Stock is sold pursuant to
Rule 144 (or any similar provision then in force) under the 1933 Act,
(iii) such Registrable Stock is eligible to be sold pursuant to Rule
144(k) under the 1933 Act, (iv) such Registrable Stock has been
otherwise transferred, no stop transfer order affecting such stock is
in effect and the Company has delivered new certificates or other
evidences of ownership for such Registrable Stock not bearing any
legend indicating that such shares have not been registered under the
1933 Act, or (v) such Registrable Stock is sold by a person in a
transaction in which the rights under the provisions of this Agreement
are not assigned.
(e) The term "Holder" shall mean the Purchaser or any
transferee or assignee thereof to whom the rights under this Agreement
are assigned in accordance with Section 10 hereof, provided that the
Purchaser or such transferee or assignee shall then own the Registrable
Stock.
(f) The term "1933 Act" shall mean the Securities Act of 1933,
as amended.
(g) An "affiliate of such Holder" shall mean a person who
controls, is controlled by or is under common control with a Holder, or
the spouse or children (or a trust exclusively for the benefit of the
spouse and/or children) of a Holder, or, in the case of a Holder that
is a partnership, its partners.
(h) The term "Person" shall mean an individual, corporation,
partnership, trust, limited liability company, unincorporated
organization or association or other entity, including any governmental
entity.
(i) The term "Requesting Holder" shall mean a Holder or
Holders of in the aggregate at least a majority of the Registrable
Stock.
(j) References in this Agreement to any rules, regulations or
forms promulgated by the Commission shall include rules, regulations
and forms succeeding to the functions thereof, whether or not bearing
the same designation.
2. Demand Registration.
(a) If the Company is eligible to file a registration
statement under the 1933 Act on Form S-3 (or a similar document
intended to replace Form S-3 pursuant to any
REGISTRATION RIGHTS AGREEMENT PAGE 2 OF 14
<PAGE> 3
other statute then in effect corresponding to the 1933 Act), commencing
twelve (12) months after the Offering's termination date (as described
in the Unit Offering Letter), any Requesting Holders may make a written
request to the Company (specifying that it is being made pursuant to
this Section 2) that the Company file a registration statement under
the 1933 Act on Form S-3 (or a similar document intended to replace
Form S-3 pursuant to any other statute then in effect corresponding to
the 1933 Act) covering the registration of Registrable Stock. In such
event, the Company shall (x) within ten (10) days thereafter notify in
writing all other Holders of Registrable Stock of such request, and (y)
use its best efforts to cause to be registered under the 1933 Act all
Registrable Stock that the Requesting Holders and such other Holders
have, within forty-five (45) days after the Company has given such
notice, requested be registered.
(b) If the Requesting Holders intend to distribute the
Registrable Stock covered by their request by means of an underwritten
offering, they shall so advise the Company as a part of their request
pursuant to Section 2.(a) above, and the Company shall include such
information in the written notice referred to in clause (x) of Section
2.(a) above. In such event, the Holder's right to include its
Registrable Stock in such registration shall be conditioned upon such
Holder's participation in such underwritten offering and the inclusion
of such Holder's Registrable Stock in the underwritten offering to the
extent provided in this Section 2. All Holders proposing to distribute
Registrable Stock through such underwritten offering shall enter into
an underwriting agreement in customary form with the underwriter or
underwriters. Such underwriter or underwriters shall be selected by a
majority in interest of the Requesting Holders and shall be approved by
the Company, which approval shall not be unreasonably withheld;
provided, that all of the representations and warranties by, and the
other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such
Holders and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement
shall be conditions precedent to the obligations of such Holders; and
provided further, that no Holder shall be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements
regarding such Holder, the Registrable Stock of such Holder and such
Holder's intended method of distribution and any other representation
required by law or reasonably required by the underwriter.
(c) Notwithstanding any other provision of this Section 2 to
the contrary, if the managing underwriter of an underwritten offering
of the Registrable Stock requested to be registered pursuant to this
Section 2 advises the Requesting Holders in writing that in its opinion
marketing factors require a limitation of the number of shares to be
underwritten, the Requesting Holders shall so advise all Holders of
Registrable Stock that would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Stock that may be included in
such underwritten offering shall be allocated among all such Holders,
including the Requesting Holders, in proportion (as nearly as
practicable) to the amount of Registrable Stock requested to be
included in such registration by each Holder
REGISTRATION RIGHTS AGREEMENT PAGE 3 OF 14
<PAGE> 4
at the time of filing the registration statement; provided, that in the
event of such limitation of the number of shares of Registrable Stock
to be underwritten, the Holders shall be entitled to an additional
demand registration pursuant to this Section 2. If any Holder of
Registrable Stock disapproves of the terms of the underwriting, such
Holder may elect to withdraw by written notice to the Company, the
managing underwriter and the Requesting Holders. The securities so
withdrawn shall also be withdrawn from registration.
(d) Notwithstanding any provision of this Agreement to the
contrary, the Company shall not be required to effect a registration
pursuant to this Section 2 during the period starting with the
fourteenth (14th) day immediately preceding the date of an anticipated
filing by the Company of, and ending on a date ninety (90) days
following the effective date of, a registration statement pertaining to
a public offering of securities for the account of the Company;
provided, that the Company shall actively employ in good faith all
reasonable efforts to cause such registration statement to become
effective; and provided further, that the Company's estimate of the
date of filing such registration statement shall be made in good faith.
(e) The Company shall be obligated to effect and pay for a
total of only two (2) registrations pursuant to this Section 2, unless
increased pursuant to Section 2.(c) hereof; provided, that a
registration requested pursuant to this Section 2 shall not be deemed
to have been effected for purposes of this Section 2.(e), unless (i) it
has been declared effective by the Commission, (ii) if it is a shelf
registration, it has remained effective for the period set forth in
Section 3.(b), (iii) the offering of Registrable Stock pursuant to such
registration is not subject to any stop order, injunction or other
order or requirement of the Commission (other than any such action
prompted by any act or omission of the Holders), and (iv) no limitation
of the number of shares of Registrable Stock to be underwritten has
been required pursuant to Section 2.(c) hereof.
3. Obligations of the Company. Whenever required under Section 2 to use
its best efforts to effect the registration of any Registrable Stock, the
Company shall, as expeditiously as possible:
(a) prepare and file with the Commission, not later than
ninety (90) days after receipt of a request to file a registration
statement with respect to such Registrable Stock, a registration
statement on any form for which the Company then qualifies or which
counsel for the Company shall deem appropriate and which form shall be
available for the sale of such issue of Registrable Stock in accordance
with the intended method of distribution thereof, and use its best
efforts to cause such registration statement to become effective as
promptly as practicable thereafter; provided that before filing a
registration statement or prospectus or any amendments or supplements
thereto, the Company will (i) furnish to one (1) counsel selected by
the Requesting Holders copies of all such documents proposed to be
filed, and (ii) notify each such Holder of any stop order issued or
REGISTRATION RIGHTS AGREEMENT PAGE 4 OF 14
<PAGE> 5
threatened by the Commission and take all reasonable actions required
to prevent the entry of such stop order or to remove it if entered;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for such period of time as would satisfy the
holding period requirements of Rule 144(k) promulgated by the
Commission with respect to the Shares or such shorter period which will
terminate when all Registrable Stock covered by such registration
statement has been sold (but not before the expiration of the forty
(40) or ninety (90) day period referred to in Section 10(3) of the 1933
Act and Rule 174 thereunder, if applicable), and comply with the
provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(c) furnish to each Holder and any underwriter of Registrable
Stock to be included in a registration statement copies of such
registration statement as filed and each amendment and supplement
thereto (in each case including all exhibits thereto), the prospectus
included in such registration statement (including each preliminary
prospectus) and such other documents as such Holder may reasonably
request in order to facilitate the disposition of the Registrable Stock
owned by such Holder;
(d) use its best efforts to register or qualify such
Registrable Stock under such other securities or blue sky laws of such
jurisdictions as any selling Holder or any underwriter of Registrable
Stock reasonably requests, and do any and all other acts which may be
reasonably necessary or advisable to enable such Holder to consummate
the disposition in such jurisdictions of the Registrable Stock owned by
such Holder; provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3.(d) hereof,
(ii) subject itself to taxation in any such jurisdiction, or (iii)
consent to general service of process in any such jurisdiction;
(e) use its best efforts to cause the Registrable Stock
covered by such registration statement to be registered with or
approved by such other governmental agencies or other authorities as
may be necessary by virtue of the business and operations of the
Company to enable the selling Holders thereof to consummate the
disposition of such Registrable Stock;
(f) notify each selling Holder of such Registrable Stock and
any underwriter thereof, at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act (even if such time is
after the period referred to in Section 3.(b)), of the happening of any
event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits to
state any material fact
REGISTRATION RIGHTS AGREEMENT PAGE 5 OF 14
<PAGE> 6
required to be stated therein or necessary to make the statements
therein in light of the circumstances being made not misleading, and
prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Stock, such
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances
being made not misleading;
(g) make available for inspection by any selling Holder, any
underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records"),
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Inspector, as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, in connection with such registration statement. Records
or other information which the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of
such Records or other information is necessary to avoid or correct a
misstatement or omission in the registration statement, or (ii) the
release of such Records or other information is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction. Each
selling Holder shall, upon learning that disclosure of such Records or
other information is sought in a court of competent jurisdiction, give
notice to the Company and allow the Company, at the Company's expense,
to undertake appropriate action to prevent disclosure of the Records or
other information deemed confidential;
(h) furnish, at the request of any Requesting Holder, on the
date that such shares of Registrable Stock are delivered to the
underwriters for sale pursuant to such registration or, if such
Registrable Stock is not being sold through underwriters, on the date
that the registration statement with respect to such shares of
Registrable Stock becomes effective, (1) a signed opinion, dated such
date, of the legal counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and if such
Registrable Stock is not being sold through underwriters, then to the
Requesting Holders as to such matters as such underwriters or the
Requesting Holders, as the case may be, may reasonably request and as
would be customary in such a transaction; and (2) a letter dated such
date, from the independent certified public accountants of the Company,
addressed to the underwriters, if any, and if such Registrable Stock is
not being sold through underwriters, then to the Requesting Holders
and, if such accountants refuse to deliver such letter to such Holder,
then to the Company (i) stating that they are independent certified
public accountants within the meaning of the 1933 Act and that, in the
opinion of such accountants, the financial statements and other
financial data of the Company included in the registration statement or
the prospectus, or any amendment or supplement thereto, comply as to
form in all material respects with the applicable accounting
requirements of the 1933 Act, and (ii) covering such other financial
matters
REGISTRATION RIGHTS AGREEMENT PAGE 6 OF 14
<PAGE> 7
(including information as to the period ending not more than five (5)
business days prior to the date of such letter) with respect to the
registration in respect of which such letter is being given as the
Requesting Holders may reasonably request and as would be customary in
such a transaction;
(i) enter into customary agreements (including if the method
of distribution is by means of an underwriting, an underwriting
agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition
of the Registrable Stock to be so included in the registration
statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, but not
later than eighteen (18) months after the effective date of the
registration statement, an earnings statement covering the period of at
least twelve (12) months beginning with the first full month after the
effective date of such registration statement, which earnings
statements shall satisfy the provisions of Section 11(a) of the 1933
Act; and
(k) use its best efforts to cause all such Registrable Stock
to be listed on The Nasdaq Small Cap Market and/or any other securities
exchange on which similar securities issued by the Company are then
listed or traded.
The Company may require each selling Holder of Registrable Stock as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such Registrable Stock as the Company
may from time to time reasonably request in writing.
Each Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3.(f) hereof, such
Holder will forthwith discontinue disposition of Registrable Stock pursuant to
the registration statement covering such Registrable Stock until such Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 3.(f) hereof, and, if so directed by the Company, such Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Stock current at the time of receipt of such notice.
In the event the Company shall give any such notice, the Company shall extend
the period during which such registration statement shall be maintained
effective pursuant to this Agreement (including the period referred to in
Section 3.(b)) by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 3.(f) hereof to and
including the date when each selling Holder of Registrable Stock covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 3.(f) hereof.
4. Incidental Registration. Commencing twelve (12) months after the
Offering's termination date (as described in the Unit Offering Letter), if the
Company determines that it will file a registration statement under the 1933 Act
(other than a registration statement on a Form S-4
REGISTRATION RIGHTS AGREEMENT PAGE 7 OF 14
<PAGE> 8
or S-8 or filed in connection with an exchange offer or an offering of
securities solely to the Company's existing stockholders) on any form that would
also permit the registration of the Registrable Stock and such filing is to be
on its behalf and/or on behalf of selling holders of its securities for the
general registration of its Common Stock to be sold for cash, at each such time
the Company shall promptly give each Holder written notice of such determination
setting forth the date on which the Company proposes to file such registration
statement, which date shall be no earlier than thirty (30) days from the date of
such notice, and advising each Holder of its right to have Registrable Stock
included in such registration. Upon the written request of any Holder received
by the Company no later than twenty (20) days after the date of the Company's
notice, the Company shall use its best efforts to cause to be registered under
the 1933 Act all of the Registrable Stock that each such Holder has so requested
to be registered. If, in the written opinion of the managing underwriter or
underwriters (or, in the case of a non-underwritten offering, in the written
opinion of the placement agent, or if there is none, the Company), the total
amount of such securities to be so registered, including such Registrable Stock,
will exceed the maximum amount of the Company's securities which can be marketed
(i) at a price reasonably related to the then current market value of such
securities, or (ii) without otherwise materially and adversely affecting the
entire offering, then the amount of Registrable Stock to be offered for the
accounts of Holders shall be reduced pro rata to the extent necessary to reduce
the total amount of securities to be included in such offering to the
recommended amount.
5. Holdback Agreement - Restrictions on Public Sale by Holder.
(a) To the extent not inconsistent with applicable law, each
Holder whose Registrable Stock is included in a registration statement
agrees not to effect any public sale or distribution of the issue being
registered or a similar security of the Company, or any securities
convertible into or exchangeable or exercisable for such securities,
including a sale pursuant to Rule 144 under the 1933 Act, during the
fourteen (14) days prior to, and during the ninety (90) day period
beginning on, the effective date of such registration statement (except
as part of the registration), if and to the extent requested by the
Company in the case of a nonunderwritten public offering or if and to
the extent requested by the managing underwriter or underwriters in the
case of an underwritten public offering.
(b) Restrictions on Public Sale by the Company and Others. The
Company agrees (i) not to effect any public sale or distribution of any
securities similar to those being registered, or any securities
convertible into or exchangeable or exercisable for such securities,
during the fourteen (14) days prior to, and during the ninety (90) day
period beginning on, the effective date of any registration statement
in which Holders are participating (except as part of such
registration), if and to the extent requested by the Holders in the
case of a non-underwritten public offering or if and to the extent
requested by the managing underwriter or underwriters in the case of an
underwritten public offering; and (ii) that any agreement entered into
after the date of this Agreement pursuant to which the Company issues
or agrees to issue any securities convertible into or
REGISTRATION RIGHTS AGREEMENT PAGE 8 OF 14
<PAGE> 9
exchangeable or exercisable for such securities (other than pursuant to
an effective registration statement) shall contain a provision under
which holders of such securities agree not to effect any public sale or
distribution of any such securities during the periods described in (i)
above, in each case including a sale pursuant to Rule 144 under the
1933 Act.
6. Expenses of Registration. The Company shall bear all expenses
incurred in connection with each registration pursuant to Sections 2 and 4 of
this Agreement, excluding underwriters' discounts and commissions, but
including, without limitation, all registration, filing and qualification fees,
word processing, duplicating, printers' and accounting fees (including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance), exchange listing fees or National
Association of Securities Dealers fees, messenger and delivery expenses, all
fees and expenses of complying with securities or blue sky laws, fees and
disbursements of counsel for the Company. The selling Holders shall bear and pay
the underwriting commissions and discounts applicable to the Registrable Stock
offered for their account in connection with any registrations, filings and
qualifications made pursuant to this Agreement.
7. Indemnification and Contribution.
(a) Indemnification by the Company. The Company agrees to
indemnify, to the full extent permitted by law, each Holder, its
officers, directors and agents and each Person who controls such Holder
(within the meaning of the 1933 Act) against all losses, claims,
damages, liabilities and expenses caused by any untrue or alleged
untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statement therein (in case of a
prospectus or preliminary prospectus, in the light of the circumstances
under which they were made) not misleading. The Company will also
indemnify any underwriters of the Registrable Stock, their officers and
directors and each Person who controls such underwriters (within the
meaning of the 1933 Act) to the same extent as provided above with
respect to the indemnification of the selling Holders.
(b) Indemnification by Holders. In connection with any
registration statement in which a Holder is participating, each such
Holder will furnish to the Company in writing such information with
respect to such Holder as the Company reasonably requests for use in
connection with any such registration statement or prospectus and
agrees to indemnify, to the extent permitted by law, the Company, its
directors and officers and each Person who controls the Company (within
the meaning of the 1933 Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement,
prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein
REGISTRATION RIGHTS AGREEMENT PAGE 9 OF 14
<PAGE> 10
(in the case of a prospectus or preliminary prospectus, in the light of
the circumstances under which they were made) not misleading, to the
extent, but only to the extent, that such untrue statement or omission
is contained in any information with respect to such Holder so
furnished in writing by such Holder. Notwithstanding the foregoing, the
liability of each such Holder under this Section 7.(b) shall be limited
to an amount equal to the initial public offering price of the
Registrable Stock sold by such Holder, unless such liability arises out
of or is based on willful misconduct of such Holder.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder agrees to give prompt written
notice to the indemnifying party after the receipt by such Person of
any written notice of the commencement of any action, suit, proceeding
or investigation or threat thereof made in writing for which such
Person will claim indemnification or contribution pursuant to this
Agreement and, unless in the reasonable judgment of such indemnified
party, a conflict of interest may exist between such indemnified party
and the indemnifying party with respect to such claim, permit the
indemnifying party to assume the defense of such claims with counsel
reasonably satisfactory to such indemnified party. Whether or not such
defense is assumed by the indemnifying party, the indemnifying party
will not be subject to any liability for any settlement made without
its consent (but such consent will not be unreasonably withheld).
Failure by such Person to provide said notice to the indemnifying party
shall itself not create liability except to the extent of any injury
caused thereby. No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect of
such claim or litigation. If the indemnifying party is not entitled to,
or elects not to, assume the defense of a claim, it will not be
obligated to pay the fees and expenses of more than one (1) counsel
with respect to such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between such
indemnified party and any other such indemnified parties with respect
to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of such additional counsel or counsels.
(d) Contribution. If for any reason the indemnity provided for
in this Section 7 is unavailable to, or is insufficient to hold
harmless, an indemnified party, then the indemnifying party shall
contribute to the amount paid or payable by the indemnified party as a
result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits
received by the indemnifying party on the one hand and the indemnified
party on the other, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, or provides a lesser sum to
the indemnified party than the amount hereinafter calculated, in such
proportion as is appropriate to reflect not only the relative benefits
received by the indemnifying party on the one hand and the indemnified
party on the other but also the relative fault of the indemnifying
party and the indemnified party as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to,
REGISTRATION RIGHTS AGREEMENT PAGE 10 OF 14
<PAGE> 11
among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact, has been made by, or relates
to information supplied by, such indemnifying party or indemnified
parties; and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The
amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 7.(c), any
legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7.(d) were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to
in the immediately preceding paragraph. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.
If indemnification is available under this Section 7, the
indemnifying parties shall indemnify each indemnified party to the full
extent provided in Sections 7.(a) and 7.(b) without regard to the
relative fault of said indemnifying party or indemnified party or any
other equitable consideration provided for in this Section 7.
8. Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's securities on the basis provided in any
underwriting arrangements approved by the Holders entitled hereunder to approve
such arrangements, and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
9. Rule 144. The Company covenants that it will file the reports
required to be filed by it under the 1933 Act and the Securities Exchange Act of
1934, as amended, and the rules and regulations adopted by the Commission
thereunder; and it will take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Stock without registration under the 1933 Act within the
limitation of the exemptions provided by (a) Rule 144 under the 1933 Act, as
such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
10. Transfer of Registration Rights. The registration rights of any
Holder under this Agreement with respect to any Registrable Stock may be
transferred to any transferee of such Registrable Stock; provided that such
transfer may otherwise be effected in accordance with applicable securities
laws; provided further, that the transferring Holder shall give the Company
REGISTRATION RIGHTS AGREEMENT PAGE 11 OF 14
<PAGE> 12
written notice at or prior to the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Agreement are being transferred; provided further, that
such transferee shall agree in writing, in form and substance satisfactory to
the Company, to be bound as a Holder by the provisions of this Agreement; and
provided further, that such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by such
transferee is restricted under the 1933 Act. Except as set forth in this Section
10, no transfer of Registrable Stock shall cause such Registrable Stock to lose
such status.
11. Mergers, Etc. The Company shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company under this Agreement, and for that purpose
references hereunder to "Registrable Stock" shall be deemed to be references to
the securities which the Holders would be entitled to receive in exchange for
Registrable Stock under any such merger, consolidation or reorganization;
provided, however, that the provisions of this Section 11 shall not apply in the
event of any merger, consolidation or reorganization in which the Company is not
the surviving corporation if each Holder is entitled to receive in exchange for
its Registrable Stock consideration consisting solely of (i) cash, (ii)
securities of the acquiring corporation which may be immediately sold to the
public without registration under the 1933 Act, or (iii) securities of the
acquiring corporation that the acquiring corporation has agreed to register
within ninety (90) days of completion of the transaction for resale to the
public pursuant to the 1933 Act.
12. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Holders in this Agreement.
(b) Remedies. Each Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will
be entitled to specific performance of its rights under this Agreement.
The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive (to the extent
permitted by law) the defense in any action for specific performance
that a remedy of law would be adequate.
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given unless the
Company has obtained the written consent of the Holders of at least a
majority of the Registrable Stock then outstanding affected by such
amendment, modification, supplement, waiver or departure.
REGISTRATION RIGHTS AGREEMENT PAGE 12 OF 14
<PAGE> 13
(d) Successors and Assigns. Except as otherwise expressly
provided herein, the terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective successors and
assigns of the parties hereto. Nothing in this Agreement, express or
implied, is intended to confer upon any Person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
(e) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Texas
applicable to contracts made and to be performed wholly within that
state, without regard to the conflict of law rules thereof.
(f) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(g) Headings. The headings in this Agreement are used for
convenience of reference only and are not to be considered in
construing or interpreting this Agreement.
(h) Notices. Any notice required or permitted under this
Agreement shall be given in writing and shall be delivered in person or
by telecopy or by overnight courier guaranteeing no later than second
business day delivery, directed to (i) the Company at the address set
forth below its signature hereof; (ii) a Purchaser at the address set
forth below its signature hereof; or (iii) a Holder at its address of
record on the Company's records. Any party may change its address for
notice by giving ten (10) days advance written notice to the other
parties. Every notice or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally
delivered, or on the date actually received, if sent by telecopy or
overnight courier service, with receipt acknowledged.
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions
contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the Holders shall be
enforceable to the fullest extent permitted by law.
(j) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein.
There are no restrictions, promises, warranties or undertakings other
than those set forth or referred to herein. This Agreement supersedes
all prior agreements and understandings between the parties with
respect to such subject matter.
(k) Enforceability. This Agreement shall remain in full force
and effect notwithstanding any breach or purported breach of, or
relating to, the Investor Agreement.
(l) Recitals. The recitals are hereby incorporated in the
Agreement as if fully set forth herein.
(m) Attorneys Fees. If any action is necessary to enforce or
interpret the terms of this agreement, the prevailing party shall be
entitled to reasonable attorneys' fees and costs, in addition to any
other relief to which he is or may be entitled. This provision shall be
construed as applicable to the entire agreement.
(REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
REGISTRATION RIGHTS AGREEMENT PAGE 13 OF 14
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
MSI HOLDINGS, INC. PURCHASER
By: By:
-------------------------------- --------------------------------
Name: Robert J. Gibbs Name:
Title: President and CEO Title:
501 Waller Street
Austin, Texas 78702
Telephone: (512) 476-6925 Telephone:
Telecopier: (512) 473-2371 Telecopier:
REGISTRATION RIGHTS AGREEMENT PAGE 14 OF 14
<PAGE> 1
EXHIBIT 10.10
FORM OF WARRANT
MSI HOLDINGS, INC.
(A UTAH CORPORATION)
======================
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
======================
Effective ___________, 1999
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT
OR BENEFIT OF, U.S. PERSONS EXCEPT (1) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, OR (2) PURSUANT TO AN EXEMPTION FROM
REGISTRATION PROVIDED UNDER THE SECURITIES ACT (IF AVAILABLE),
AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION.
THIS CERTIFIES THAT, for value received, _______________________, a
___________________, or registered assigns ("Holder"), is entitled to purchase,
subject to the conditions set forth below, at any time or from time to time
during the Exercise Period (as defined in subsection 1.2, below), _____________
(_________) shares ("Shares") of fully paid and non-assessable Common Stock,
$0.10 par value ("Common Stock"), of MSI HOLDINGS, INC., a Utah corporation (the
"Company"), at the per share purchase price (the "Warrant Price") set forth in
subsection 1.1, subject to the further provisions of this Warrant. The term
"Warrants" as used herein shall
<PAGE> 2
mean this Warrant and all instruments issued by the Company which are
substantially identical to this Warrant (except for the name of the holder and
the number of securities purchasable by the holder).
1. EXERCISE OF WARRANT
The terms and conditions upon which this Warrant may be exercised, and
the Common Stock covered hereby may be purchased, are as follows:
1.1 Warrant Price. The Warrant Price shall be equal to Four Dollars and
Forty Cents ($4.40) per share, subject to adjustment as provided in Section 4,
below.
1.2 Method Of Exercise. The holder of this Warrant, may at any time
beginning ___________, 1999, and prior to _________________, 2003, or such later
date as the Company may in its sole discretion determine (the "Exercise
Period"), exercise in whole or in part the purchase rights evidenced by this
Warrant. Such exercise shall be effected by:
(a) the surrender of the Warrant, together with a duly executed copy of
the form of subscription attached hereto, to the Secretary of the Company at its
principal offices;
(b) the payment to the Company, by cash, check payable to its order or
wire transfer, of an amount equal to the aggregate Warrant Price for the number
of Shares for which the purchase rights hereunder are being exercised; and
(c) the delivery to the Company, if necessary, to assure compliance
with federal and state securities laws, of an instrument executed by the holder
certifying that the Shares are being acquired for the sole account of the holder
and not with a view to any resale or distribution.
1.3 Satisfaction with Requirements of Securities Act of 1933.
Notwithstanding the provisions of subsection 1.2(c) and Section 7, each and
every exercise of this Warrant is contingent upon the Company's satisfaction
that the issuance of Common Stock upon the exercise is exempt from the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and all applicable state securities laws. The holder of this Warrant agrees to
execute any and all documents deemed necessary by the Company to effect the
exercise of this Warrant.
1.4 Issuance Of Shares and New Warrant. In the event the purchase
rights evidenced by this Warrant are exercised in whole or in part, one or more
certificates for the purchased Shares shall be issued as soon as practicable
thereafter to the person exercising such rights. Such holder shall also be
issued at such time a new Warrant representing the number of Shares (if any) for
which the purchase rights under this Warrant remain unexercised and continuing
in force and effect.
2. TRANSFERS
2.1 Transfers. Subject to Section 7 hereof, this Warrant and all rights
hereunder are transferable in whole or in part by the holder. The transfer shall
be recorded on the books of the Company upon the surrender of this Warrant,
properly endorsed, to the Secretary of the Company at its principal offices and
the payment to the Company of all transfer taxes and other governmental charges
imposed on such transfer. In the event of a partial transfer, the Company shall
issue to the several holders one or more appropriate new Warrants, as
appropriate.
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<PAGE> 3
2.2 Registered Holder. Each holder agrees that until such time as any
transfer pursuant to subsection 2.1 is recorded on the books of the Company, the
Company may treat the registered holder of this Warrant as the absolute owner;
provided that nothing herein affects any requirement that transfer of any
Warrant or share of Common Stock issued or issuable upon the exercise thereof be
subject to compliance with the Securities Act and all applicable state
securities laws.
2.3 Form Of New Warrants. All Warrants issued in connection with
transfers of this Warrant shall bear the same date as this Warrant and shall be
substantially identical in form and provision to this Warrant except for the
number of Shares purchasable thereunder.
3. FRACTIONAL SHARES
Notwithstanding that the number of Shares purchasable upon the exercise
of this Warrant may have been adjusted pursuant to the terms hereof, the Company
shall nonetheless not be required to issue fractions of Shares upon exercise of
this Warrant or to distribute certificates that evidence fractional shares nor
shall the Company be required to make any cash payments in lieu thereof upon
exercise of this Warrant. Holder hereby waives any right to receive fractional
Shares.
4. ANTIDILUTION PROVISIONS
4.1 Stock Splits And Combinations. If the Company shall at any time
subdivide or combine its outstanding shares of Common Stock, this Warrant shall,
after that subdivision or combination, evidence the right to purchase the number
of shares of Common Stock that would have been issuable as a result of that
subdivision or combination with respect to the Shares of Common Stock that were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this section shall become effective at the close of
business on the date the subdivision or combination becomes effective.
4.2 Reclassification, Exchange and Substitution. If the Common Stock
issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other class or classes of stock, whether by
capital reorganization, reclassification, or otherwise (other than a subdivision
or combination of shares provided for above), the holder of this Warrant shall,
on its exercise, be entitled to purchase for the same aggregate consideration,
in lieu of the Common Stock that the holder would have become entitled to
purchase but for such change, a number of shares of such other class or classes
of stock equivalent to the number of shares of Common Stock that would have been
subject to purchase by the holder on exercise of this Warrant immediately before
that change.
4.3 Reorganizations, Mergers, Consolidations Or Sale Of Assets. If at
any time there shall be a capital reorganization of the Company's Common Stock
(other than a stock split, combination, reclassification, exchange, or
subdivision of shares provided for elsewhere above) or merger or consolidation
of the Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, merger, consolidation or sale, lawful
provision shall be made so that the holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
in this Warrant and upon payment of the Warrant Price then in effect, the number
of shares
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<PAGE> 4
of Common Stock or other securities or property of the Company, or of the
successor corporation resulting from such merger or consolidation, to which a
holder of the Common Stock deliverable upon exercise of this Warrant would have
been entitled in such capital reorganization, merger or consolidation or sale if
this Warrant had been exercised immediately before that capital reorganization,
merger or consolidation or sale. In any such case, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant with respect to the rights and
interests of the holder of this Warrant after the reorganization, merger,
consolidation, or sale to the end that the provisions of this Warrant (including
adjustment of the Warrant Price then in effect and number of Shares purchasable
upon exercise of this Warrant) shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant. The Company shall, within thirty (30)
days after making such adjustment, give written notice (by first class mail,
postage prepaid) to the registered holder of this Warrant at the address of that
holder shown on the Company's books. That notice shall set forth, in reasonable
detail, the event requiring the adjustment and the method by which the
adjustment was calculated and specify the Warrant Price then in effect after the
adjustment and the increased or decreased number of Shares purchasable upon
exercise of this Warrant. When appropriate, that notice may be given in advance
and be included as part of the notice required under other provisions of this
Warrant.
4.4 Common Stock Dividends; Distributions. In the event the Company
should at any time prior to the expiration of this Warrant fix a record date for
the determination of the holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock (hereinafter
referred to as the "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common Stock or Common
Stock Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such distribution, split or subdivision if no record date is fixed), the Warrant
Price shall be appropriately decreased and the number of shares of Common Stock
issuable upon exercise of the Warrant shall be appropriately increased in
proportion to such increase of outstanding shares.
4.5 Adjustments of Other Distributions. In the event the Company shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4.4, then, in each
such case for the purpose of this subsection 4.5, upon exercise of this Warrant
the holder hereof shall be entitled to a proportionate share of any such
distribution as though such holder was the holder of the number of shares of
Common Stock of the Company into which this Warrant may be exercised as of the
record date fixed for the determination of the holders of Common Stock of the
Company entitled to receive such distribution.
4.6 Certificate as to Adjustments. In the case of each adjustment or
readjustment of the Warrant Price pursuant to this Section 4, the Company will
promptly compute such adjustment or readjustment in accordance with the terms
hereof and cause a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based,
to be delivered to the holder of this Warrant. The Company will, upon the
written request at any time of the holder of this Warrant, furnish or cause to
be furnished to such holder a certificate setting forth:
(a) Such adjustments and readjustments;
(b) The purchase price at the time in effect; and
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<PAGE> 5
(c) The number of shares of Common Stock issuable upon exercise of
the Warrant and the amount, if any, of other property at the
time receivable upon the exercise of the Warrant.
4.7 Reservation of Stock Issuable Upon Exercise. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock solely for the purpose of effecting the exercise of this Warrant
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, in addition to such other remedies as shall
be available to the holder of this Warrant, the Company will use its best
efforts to take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.
5. RIGHTS PRIOR TO EXERCISE OF WARRANT
This Warrant does not entitle the holder to any of the rights of a
stockholder of the Company, including without limitation, the right to receive
dividends or other distributions, to exercise any preemptive rights, to vote, or
to consent or to receive notice as a stockholder of the Company. If, however, at
any time prior to the expiration of this Warrant and prior to its exercise, any
of the following events shall occur:
(a) the Company shall declare any dividend payable in any securities
upon its shares of Common Stock or make any distribution (other than a regular
cash dividend) to the holders of its shares of Common Stock; or
(b) the Company shall offer to the holders of its shares of Common
Stock any additional shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock or any right to subscribe for or
purchase any thereof; or
(c) a dissolution, liquidation or winding up of the Company (other than
in connection with a consolidation, merger, sale, transfer or lease of all or
substantially all of its property, assets, and business as an entirety) shall be
proposed and action by the Company with respect thereto has been approved by the
Company's Board of Directors,
then in any one or more of said events the Company shall give notice in writing
of such event to the holder at his last address as it shall appear on the
Company's records at least twenty (20) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividends, distribution, or subscription rights,
or for the determination of stockholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
publish, mail or receive such notice or any defect therein or in the publication
or mailing thereof shall not affect the validity of any action taken in
connection with such dividend, distribution or subscription rights, or such
proposed dissolution, liquidation or winding up. Each person in whose name any
certificate for shares of Common Stock is to be issued shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
this instrument was surrendered and payment of the Warrant Price was made,
irrespective of the date of delivery of such stock certificate, except that, if
the date of such surrender and payment is a date when the stock transfer books
of the Company are closed, such person shall be deemed to have become the holder
of such shares of Common Stock at the close of business on the next succeeding
date on which the stock transfer books are open.
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<PAGE> 6
6. SUCCESSORS AND ASSIGNS
The terms and provisions of this Warrant shall inure to the benefit of,
and be binding upon, the Company and the holder thereof and their respective
successors and permitted assigns.
7. RESTRICTED SECURITIES
In order to enable the Company to comply with the Securities Act and
applicable state laws, the Company may require the holder as a condition of the
transfer or exercise of this Warrant, to give written assurance satisfactory to
the Company that the Warrant, or in the case of an exercise hereof the Shares
subject to this Warrant, are being acquired for his own account, for investment
only, with no view to the distribution of the same, and that any disposition of
all or any portion of this Warrant or the Shares issuable upon the due exercise
of this Warrant shall not be made, unless and until:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b)(i) The holder has notified the Company of the proposed disposition
and shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and (ii) the holder has
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such securities
under the Securities Act and applicable state law.
The holder acknowledges that this Warrant is, and each of the shares of
Common Stock issuable upon the due exercise hereof will be, a restricted
security, that he understands the provisions of Rule 144 of the Securities and
Exchange Commission, and that the certificate or certificates evidencing such
shares of Common Stock will bear a legend substantially similar to the
following:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under the securities
laws of any state. They may not be sold, transferred or otherwise
disposed of in the absence of an effective registration statement
covering these securities under the said Act or laws, or an opinion of
counsel satisfactory to the Company and its counsel that registration
is not required thereunder."
8. LOSS OR MUTILATION
Upon receipt by the Company of satisfactory evidence of the ownership
of and the loss, theft, destruction, or mutilation of any Warrant, and (i) in
the case of loss, theft, or destruction, upon receipt by the Company of
indemnity satisfactory to it, or (ii) in the case of mutilation, upon receipt of
such Warrant and upon surrender and cancellation of such Warrant, the Company
shall execute and deliver in lieu thereof a new Warrant representing the right
to purchase an equal number of shares of Common Stock.
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<PAGE> 7
9. ACCREDITED INVESTOR
The Holder hereby represents and warrants that he is an "accredited
investor" as that term is defined in Regulation D promulgated pursuant to the
Securities Act. Holder hereby acknowledges that but for the aforesaid
representation the Company would not issue this Warrant to Holder.
10. NOTICES
All notices, requests, demands and other communications under this
Warrant shall be in writing and shall be deemed to have been duly given on the
date of service if served personally on the party to whom notice is to be given,
or on the date of mailing if mailed to the party to whom notice is to be given,
by first class mail, registered or certified, postage prepaid, and properly
addressed as follows: if to the holder, at his address as shown in the Company
records; and if to the Company, at its principal office. Any party may change
its address for purposes of this subsection by giving the other party written
notice of the new address in the manner set forth above.
11. GOVERNING LAW
This Warrant and any dispute, disagreement or issue of construction or
interpretation arising hereunder whether relating to its execution, its
validity, the obligations provided herein or performance shall be governed or
interpreted according to the laws of the State of Texas without regard to
conflicts of law.
DATED AS OF ________________, 1999.
MSI HOLDINGS, INC.
By:
----------------------------------
ROBERT J. GIBBS, President and CEO
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<PAGE> 8
SUBSCRIPTION
MSI Holdings, Inc.
501 Waller
Austin, Texas 78702
Gentlemen:
The undersigned, ______________, hereby elects to purchase, pursuant to the
provisions to the foregoing Warrant held by the undersigned, ________________
shares of the Common Stock, $0.10 par value ("Common Stock"), of MSI Holdings,
Inc.
Payment of the purchase price per Share required under such Warrant accompanies
this subscription.
The undersigned hereby represents and warrants that absent an effective
registration statement covering the Warrants, the undersigned is acquiring such
stock for the account of the undersigned and not for resale or with a view to
distribution of such Common Stock or any part hereof; that the undersigned is
fully aware of the transfer restrictions affecting restricted securities under
the pertinent securities laws and the undersigned understands that the shares
purchased hereby are restricted securities and that the certificate or
certificates evidencing the same will bear a legend to that effect.
DATED: , 199 .
----------------------------- ---
Signature:
-------------------------
Address:
-------------------------
-------------------------
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<PAGE> 1
EXHIBIT 10.11
THIS PROMISSORY NOTE AND THE SHARES ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS"), AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED OR DISPOSED OF EXCEPT PURSUANT TO REGISTRATION
UNDER SUCH ACTS OR UNLESS THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL, OR
OTHER EVIDENCE REASONABLY SATISFACTORY TO THE CORPORATION, THAT SUCH
REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE PROMISSORY NOTE
$2,000,000.00 Austin, Texas January 14, 2000
FOR VALUE RECEIVED, the undersigned, MSI Holdings, Inc., a Utah
corporation ("Borrower"), promises to pay to the order of TSG Financial Limited
Partnership ("Lender"), the sum of Two Million and No/100 Dollars
($2,000,000.00) or such lesser amount as is actually advanced by Lender to
Borrower, with interest from the date of advancement on the unpaid balance
hereof from time to time remaining unpaid at the prime rate per annum, until
maturity (the "Note"), in (i) lawful money of the United States of America or
(ii) equity securities of the Borrower as and to the extent provided herein,
both principal and interest being payable at the address designated in numbered
paragraph 13 below or at such other place as Lender may, from time to time,
designate in writing. For purposes of this Note, "prime rate" shall mean the
prime rate published in the Wall Street Journal newspaper.
The principal of this Note shall mature and be due and payable on the
earliest to occur of (i) the closing of a Financing (as defined in numbered
paragraph 1 below) or (ii) June 30, 2000. All accrued and unpaid interest shall
be payable in arrears at the maturity of the principal of this Note (whether at
scheduled maturity, upon acceleration of maturity following an "Event of
Default" (as defined in the Security Agreement referred to below) or otherwise).
All past due principal and accrued interest on this Note shall bear
interest from maturity (whether at scheduled maturity, upon acceleration of
maturity following an Event of Default or otherwise) until paid at the lesser of
(i) the rate of 18% per annum or (ii) the highest rate for which Borrower may
legally contract under applicable law. All payments hereunder shall be payable
in lawful money of the United States of America which shall be legal tender for
public and private debts at the time of payments.
This Note evidences indebtedness incurred by Borrower for interim
financing provided to Borrower prior to the consummation of a Financing, and is
subject to the terms of a Security Agreement dated as of January 12, 2000
between Borrower and Lender (the "Security Agreement").
1. Conversion; Right of Offset and Reduction. If Borrower issues or
sells any preferred stock, common stock or other stock or similar securities or
any security convertible
<PAGE> 2
into or exchangeable for preferred stock, common stock or other stock or similar
securities ("Equity Securities") with aggregate proceeds to the Borrower in
excess of $5 million during the term of this Note (a "Financing"), all or any
portion of the unpaid principal of this Note, plus accrued interest hereon,
shall be convertible, at the option of the holder hereof, into the same class or
series of Equity Securities as are issued and sold by Borrower in such Financing
(or a class or series of Equity Securities identical in all respects to and
ranking pari passu with the class or series of Equity Securities issued and sold
in such Financing) at a price per share or unit equal to the lowest price per
share or unit at which such Equity Securities were issued and sold in such
Financing. Alternatively, any time prior to the payment of this Note, Lender
shall be entitled to set off against and reduce the principal amount outstanding
under this Note, and any payment of accrued but unpaid interest hereunder, by
the amount of any obligation of Lender to Borrower for the purchase price of
Equity Securities offered for sale by Borrower and purchased by Lender.
Effective as of the date of such set-off and reduction, interest will cease to
accrue on the principal amount hereof so set-off against and reduced.
2. Prepayments. This Note may be prepaid by Borrower in whole or in
part without the consent of the holder and without prepayment penalty of any
kind; provided, that upon and as a condition to any such prepayment, Borrower
shall execute and deliver to the holder a warrant or other agreement, in form
and substance satisfactory to the holder, entitling the holder to purchase
Equity Securities in a Financing in an amount up to one-half (1/2) the prepaid
principal amount of this Note upon the terms and conditions described in
numbered paragraph 1 above and the remaining one-half (1/2) of the prepaid
principal amount to be paid in lawful money of the United States of America.
3. Default; Remedies. The entire unpaid principal balance of this Note
shall immediately be due and payable upon the occurrence of any one or more of
the Events of Default, as defined in the Security Agreement.
4. No Waiver; Cumulative Rights. No delay on the part of the holder of
this Note in the exercise of any power or right under this Note or under any
other instrument executed pursuant hereto shall operate as a waiver thereof, nor
shall a single or partial exercise of any power or right preclude other or
further exercise thereof or the exercise of any other power or right.
5. Waiver. Except as otherwise provided in the Security Agreement,
Borrower and all endorsers, sureties and guarantors of this Note waive demand,
presentment, protest, notice of dishonor, notice of nonpayment, notice of
intention to accelerate, notice of acceleration, notice of protest and any and
all lack of diligence or delay in collection or the filing of suit hereon which
may occur, and agree to all extensions and partial payments, before or after
maturity, without prejudice to the holder hereof.
6. Collection Costs. In the event that, upon an Event of Default, any
amount under this Note is collected in whole or in part through suit,
arbitration or mediation, then and in any such case there shall be added to the
unpaid principal balance hereof all costs of collection, (including, but not
limited to, reasonable attorneys' fees and expenses) whether or not suit is
filed.
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<PAGE> 3
7. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Texas.
8. Headings. The headings of the sections of this Note are inserted for
convenience of reference only and shall not be deemed to constitute a part
hereof.
9. Usury. All agreements between Borrower and the holder of this Note,
whether now existing or hereafter arising and whether written or oral, are
expressly limited so that in no contingency or event whatsoever, whether by
acceleration of the maturity of this Note or otherwise, shall the amount paid,
or agreed to be paid, to the holder hereof for the use, forbearance or detention
of the money to be loaned hereunder or otherwise, exceed the maximum amount
permissible under applicable law. If from any circumstances whatsoever
fulfillment of any provision of this Note or of any other document evidencing,
securing or pertaining to the indebtedness evidenced hereby, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, then ipso facto, the obligation to be fulfilled
shall be reduced to the limit of such validity, and if from any such
circumstances the holder of this Note shall ever receive anything of value as
interest or deemed interest by applicable law under this Note or any other
document evidencing, securing or pertaining to the indebtedness evidenced hereby
or otherwise an amount that would exceed the highest lawful rate, such amount
that would be excessive interest shall be applied to the reduction of the
principal amount owing under this Note or on account of any other indebtedness
of Borrower to the holder hereof relating to this Note, and not to the payment
of interest, or if such excessive interest exceeds the unpaid balance of
principal of this Note and such other indebtedness, such excess shall be
refunded to Borrower. In determining whether or not the interest paid or payable
with respect to any indebtedness of Borrower to the holder hereof, under any
specific contingency, exceeds the highest lawful rate, Borrower and the holder
hereof shall, to the maximum extent permitted by applicable law, (i)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (ii) amortize, prorate, allocate and spread the total amount of
interest throughout the full term of such indebtedness so that the actual rate
of interest on account of such indebtedness is uniform throughout the term
thereof and/or (iii) allocate interest between portions of such indebtedness, to
the end that no such portion shall bear interest at a rate greater than that
permitted by law. The terms and provisions of this paragraph shall control and
supersede every other conflicting provision of all agreements between Borrower
and the holder hereof.
10. Limitations on Additional Indebtedness. Until this Note has been
paid or satisfied, Borrower will not incur, create, assume or suffer to exist
any indebtedness, without the written consent of Lender, except:
(a) the Note and other indebtedness to Lender, and any
guarantee thereof or suretyship obligation thereof;
(b) accounts payable (for the deferred purchase price of
property or services) from time to time incurred in the ordinary course of
business;
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<PAGE> 4
(c) indebtedness under one or more subordinated promissory
notes, provided such indebtedness is subordinated to the Note and other
indebtedness to Lender on terms satisfactory to Lender; and
(d) indebtedness of Borrower (i) under equipment and office
leases and (ii) secured by purchase money liens from time to time incurred in
the ordinary course of business.
11. Successors and Assigns. All of the stipulations, promises and
agreements in this Note made by or on behalf of Borrower shall bind the
successors and assigns of Borrower, whether so expressed or not, and inure to
the benefit of the successors and assigns of Borrower and Lender. Any assignee
of Borrower or Lender shall agree in writing prior to the effectiveness of such
assignment to be bound by the provisions hereof.
12. Severability. In the event any one or more of the provisions
contained in this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Note shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein.
13. Notices. All notices and other communications hereunder shall be in
writing or by telex, telegram or facsimile (with confirmed answerback), and
shall be deemed to have been duly made when delivered in person or sent by
telex, telegram, facsimile, same day or overnight courier, or 72 hours after
having been deposited in the United States first class or registered or
certified mail return receipt requested, postage prepaid, to a party at the
address set forth below (which may be changed in accordance with these notice
procedures):
If to Lender:
TSG Financial Limited Partnership
2700 Via Fortuna, Suite 400
Austin, Texas 78746
Attn: Mr. Michael L. McAllister
Fax: (512) 306-1528
If to Borrower:
MSI Holdings, Inc.
1121 East 7th Street
Austin, Texas 78701
Attn: Robert J. Gibbs
Fax: (512) 473-2371
14. Authorization. The execution, delivery and issuance of this Note
and the reservation of shares to which this Note is convertible has been duly
authorized by the Board of Directors of the Borrower. This Note constitutes a
valid and legally binding obligation of the
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<PAGE> 5
Borrower and no consent or approval is required in connection with the
consummation of the transactions contemplated by this Note which has not been
obtained by Borrower.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 6
IN WITNESS WHEREOF, the undersigned has executed this Secured
Convertible Promissory Note on and as of the date first set forth above.
MSI HOLDINGS, INC.
By:
--------------------------------
Robert J. Gibbs
Chief Executive Officer
[SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE]
<PAGE> 1
EXHIBIT 10.12
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is made and entered
into as of January 14, 2000 (the "Effective Date") by and between MSI Holdings,
Inc., a Utah corporation ("Debtor"), and TSG Financial Limited Partnership (the
"Secured Party").
1. Creation of Security Interest. Debtor hereby grants to the Secured
Party a security interest in the Collateral described in Section 2 of this
Security Agreement to secure performance and payment of all obligations and
indebtedness of Debtor to the Secured Party, including, but not limited to, the
obligations and indebtedness of Debtor to the Secured Party described in Section
3 of this Security Agreement (collectively, the "Indebtedness"). Upon payment or
satisfaction of the Indebtedness, this Security Agreement will have no further
effect, and the Secured Party shall release it and the Collateral.
2. Collateral. In order to secure the payment when due of any and all
Indebtedness, Debtor hereby pledges to the Secured Party and grants to the
Secured Party a security interest in and to the following properties
(collectively, the "Collateral"):
(a) All of Debtor's inventory, both now owned and hereafter acquired,
including, without limitation, all goods, merchandise, raw materials, goods in
process, finished goods and other tangible personal property both now owned and
hereafter acquired by Debtor and held for sale or lease or furnished or to be
furnished under contracts of service or used or consumed in Debtor's business,
and all proceeds thereof, as well as all additions and accessions thereto and
substitutions and replacements for any thereof;
(b) All of Debtor's tangible personal property, both now owned and
hereafter acquired, including, without limitation, all equipment, consumer
goods, furniture, fixtures, machinery, operating equipment, assembly and
production equipment, engineering and electrical equipment, and all proceeds of
any thereof, as well as all additions and accessions thereto and substitutions
and replacements for any thereof;
(c) All of Debtor's intangible personal property, cash on hand and cash
in and deposits with banks or other financial institutions, whether now owned or
hereafter acquired, including, but not limited to, all accounts, chattel paper,
documents, instruments and general intangibles, as those terms are defined in
the Texas Business and Commerce Code, Chapter 9, as in effect on the date
hereof, all contracts, shares of stock, bonds, notes, evidences of indebtedness
and other securities, bills, notes and accounts receivable, interests in life
insurance policies, trademarks, trade names, patents, patent rights, copyrights,
claims, credits, choses in action, licenses, permits, franchises and grants;
(d) All rights, title and interests, now owned or hereafter acquired,
to all other property and assets, real, personal or mixed;
(e) All awards in respect of any "Taking" of any thereof (as used
herein, a "Taking" shall mean a taking, conveyance or sale of all or any part of
the Collateral or any interest therein or right accruing thereto, as a result
of, or in lieu or anticipation of, the exercise of the right of appropriation,
confiscation, condemnation or eminent domain);
<PAGE> 2
(f) All rents, income and issues arising from or in connection with,
and all proceeds of, any of the foregoing; and
(g) All other real, personal and mixed (tangible and intangible)
property of every character and wherever situated, now owned and hereafter
acquired by Debtor.
3. Payment Obligations of Debtor.
(a) Debtor shall pay to the Secured Party any sum or sums due or which
may become due pursuant to any promissory note or notes now or hereafter
executed by Debtor to evidence Debtor's indebtedness to the Secured Party,
including, without limitation, the Secured Convertible Promissory Note of Debtor
dated as of even date herewith payable to the order of the Secured Party in the
original principal amount of Two Million and no/100's Dollars ($2,000,000.00)
(the "Note"), in accordance with the terms of such Note and the terms of this
Security Agreement, as well as all other indebtedness now due and owing the
Secured Party, and any and all indebtedness hereafter to become due and owing
the Secured Party, whether evidenced by note or otherwise, and any and all
renewals, rearrangements or extensions of said indebtedness.
(b) Debtor shall account fully and faithfully to the Secured Party for
proceeds from disposition of the Collateral in any manner and, following an
Event of Default (as defined below) hereunder, shall pay or turn over promptly
in cash, negotiable instruments, drafts, assigned accounts or chattel paper all
the proceeds from each sale to be applied to Debtor's Indebtedness to the
Secured Party, subject, if other than cash, to final payment or collection.
Application of such proceeds to Indebtedness of Debtor shall be in the sole
discretion of the Secured Party, provided such application of proceeds is made
by the Secured Party in a reasonable manner.
(c) Following an Event of Default hereunder or under the Note, Debtor
shall pay to the Secured Party on demand all expenses and expenditures
(including, but not limited to, reasonable fees and expenses of legal counsel)
incurred or paid by the Secured Party in exercising or protecting its interests,
rights and remedies under this Security Agreement, plus interest thereon at the
lesser of (i) 18% per annum or (ii) the highest rate of interest then allowed by
law.
(d) Debtor shall pay immediately, without notice, the entire unpaid
Indebtedness of Debtor to the Secured Party whether created or incurred pursuant
to this Security Agreement or otherwise, upon Debtor's default under Section 5
of this Security Agreement.
4. Representations, Warranties and Agreements of Debtor.
(a) All information supplied and statements made by Debtor in any
financial, credit or accounting statement or application for credit prior to,
contemporaneously with or subsequent to the execution of this Security Agreement
are and shall be true, correct, complete, valid and genuine in all material
respects.
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<PAGE> 3
(b) Except for the security interest granted in this Security
Agreement, no financing statement covering the Collateral or its proceeds is on
file in any public office and there is no lien, security interest or encumbrance
in or on the Collateral.
(c) The location where Debtor maintains its chief executive office is
1121 East 7th Street, Austin, Texas 78701.
(d) The Collateral shall remain in Debtor's possession or control at
all times at Debtor's risk of loss and be kept at the address shown in paragraph
4(c) above, where the Secured Party may inspect it at any time, except for its
temporary removal in connection with its ordinary use or unless Debtor notifies
the Secured Party in writing and the Secured Party consents in writing in
advance of its removal to another location.
(e) Until an Event of Default, Debtor may use the Collateral in any
lawful manner not inconsistent with this Security Agreement or with the terms or
conditions of any policy of insurance thereon and except for accounts and
contract rights may also sell the Collateral in the ordinary course of business.
The Secured Party security interest shall attach to all proceeds of sales and
other dispositions of the Collateral.
(f) Debtor will promptly notify the Secured Party in writing of any
change in the location of its chief executive office as set forth in paragraph
4(c) of this Security Agreement.
(g) Debtor shall pay prior to delinquency all material taxes, charges,
liens and assessments against the Collateral except those Debtor is contesting
in good faith and for which adequate accruals have been made, and upon Debtor's
failure to do so after ten days' prior written notice, the Secured Party at its
option may pay any of them and shall be the sole judge of the legality or
validity thereof and the amount necessary to discharge the same. Such payment
shall become part of the Indebtedness secured by this Security Agreement and
shall be paid to the Secured Party by Debtor immediately and without demand,
with interest thereon at the rate set forth in paragraph 3(c) hereof.
(h) Debtor will have and maintain insurance at all times with respect
to all Collateral against risks of fire, theft and such other risks as the
Secured Party may reasonably require, including extended coverage, and in the
case of motor vehicles, including collision coverage. Such insurance policies
shall also contain a standard mortgagee's endorsement providing for payment of
any loss to the Secured Party. All policies of insurance shall provide for ten
days' written minimum cancellation notice to the Secured Party. Debtor shall
furnish the Secured Party evidence of compliance with the foregoing insurance
provisions. Following an Event of Default, the Secured Party may act as
attorneys for Debtor in obtaining, adjusting, settling and canceling such
insurance and endorsing any drafts drawn by insurers of the Collateral. The
Secured Party may apply any proceeds of such insurance which may be received by
it in payment on account of the obligations secured hereby, whether due or not.
(i) Debtor shall, at its own expense, do, make, procure, execute and
deliver all acts, things, writings and assurances as the Secured Party may at
any time reasonably request to protect, assure or enforce its interests, rights
and remedies created by, provided in or emanating from this Security Agreement.
3
<PAGE> 4
(j) Except in the ordinary course of business, Debtor shall not sell,
lend, rent, lease or otherwise dispose of the Collateral or any interest therein
except as authorized in this Security Agreement or in writing by the Secured
Party, and Debtor shall keep the Collateral, including the proceeds thereof,
free from unpaid charges, including taxes, and from liens, encumbrances and
security interests other than that of the Secured Party.
(k) Debtor shall sign and execute alone or with the Secured Party any
Financing Statement or other document or procure any document and pay all
connected costs reasonably incurred, necessary to protect the security interest
under this Security Agreement against the rights or interests of third persons.
(l) Debtor shall at all times keep the proceeds of the Collateral
separate and distinct from other property of Debtor and shall keep accurate and
complete records of the Collateral and its proceeds.
(m) Debtor is the owner of the Collateral free of all liens, claims and
encumbrances, except as created by this Security Agreement and the security
interest granted in favor of the Secured Party, EXCEPT AS OTHERWISE SET FORTH ON
SCHEDULE A.
(n) As to that portion of the Collateral which is accounts, Debtor
represents, warrants and agrees with respect to each such account that:
(i) The account arose from the performance of services by Debtor
which have been fully and satisfactorily performed or from the lease
or the absolute sale of goods by Debtor in which Debtor had the sole
and complete ownership, and the goods have been shipped or delivered
to the account debtor.
(ii) The account is not subject to any prior or subsequent
assignment, claim, lien or security interest other than that of the
Secured Party.
(iii) The account is not subject to set-off, counterclaim,
defense, allowance or adjustment other than discounts for prompt
payment shown on the invoice, or to dispute, objection or complaint by
the account debtor concerning his liability on the account, and the
goods, the sale or lease of which gave rise to the account, have not
been returned, rejected, lost or damaged.
The account arose in the ordinary course of Debtor's business,
and no notice of bankruptcy, insolvency or financial hardship of the
account debtor has been received by Debtor.
(o) Debtor further represents and warrants as follows:
(i) Organization. Debtor is a corporation duly incorporated,
validly existing and in good standing under the laws of its
jurisdiction of organization. Debtor has the corporate power to own
its properties and to
4
<PAGE> 5
carry on its business as now being conducted and as proposed to be
conducted and is duly qualified to do business and is in good standing
in each jurisdiction in which the failure to be so qualified and in
good standing would have a material adverse effect on its business,
financial condition, results of operations or prospects;
(ii) Authority. Debtor has all requisite corporate power and
authority to execute and deliver the Note and this Security Agreement
and to carry out and perform its obligations thereunder and hereunder;
(iii) No Conflicts. The execution, delivery and performance of
the Note and this Security Agreement will not result in any violation
of, conflict with, or constitute a breach or default or give rise to a
right of termination, cancellation or acceleration under any provision
of (A) Debtor's charter or governing documents; (B) any judgment,
decree or order or any agreement, contract, understanding, indenture
or other instrument to which Debtor is a party or by which it or its
assets may be bound; or (C) any statute, rule or governmental
regulation to which Debtor may be subject; and
(iv) Enforceability. The Note and this Security Agreement
constitute the valid and binding obligations of Debtor, enforceable
against Debtor in accordance with their respective terms.
5. Events of Default. Debtor shall be in default under this Security
Agreement upon the happening of any condition or event set forth below (each, an
"Event of Default"):
(a) Debtor's failure to pay any Indebtedness secured by this Security
Agreement within ten business days after such Indebtedness becomes due in
accordance with the terms of this Security Agreement or the Note.
(b) Default by Debtor in punctual performance of any of the
obligations, covenants, terms or provisions contained or referred to in this
Security Agreement or in any note secured hereby, if such default shall continue
unremedied for a period of twenty business days following written notice of
default by the Secured Party to Debtor.
(c) Any warranty, representation or statement contained in this
Security Agreement or made or furnished to the Secured Party by or on behalf of
Debtor in connection with this Security Agreement or to induce the Secured Party
to make a loan to Debtor proves to have been false in any material respect when
made or furnished.
(d) Loss, theft, substantial damage, destruction, sale (except as
authorized in this Security Agreement) or encumbrance to or of any material
portion of the Collateral, or the making of any levy, seizure or attachment
thereof or thereon.
(e) Debtor's dissolution, termination of existence, insolvency or
business failure; the appointment of a receiver of all or any part of the
property of Debtor; an assignment for the benefit of creditors by Debtor; or the
commencement of any proceeding under any
5
<PAGE> 6
bankruptcy or insolvency laws by or against Debtor or any guarantor, surety or
endorser for Debtor which results in the entry of an order for relief or which
remains undismissed, undischarged or unbonded for a period of 60 days or more.
(f) Any statement of the financial condition of Debtor or of any
guarantor, surety or endorser of any liability of Debtor to the Secured Party
submitted to the Secured Party by Debtor or any such guarantor, surety or
endorser proves to be false in any material respect.
6. Secured Party' Rights and Remedies.
(a) Rights Exclusive of Default.
(i) This Security Agreement, the Secured Party's rights hereunder
or the Indebtedness hereby secured may be assigned by the Secured
Party (or any subsequent assignee) from time to time, and in any such
case the assignee shall be entitled to all of the rights, privileges
and remedies granted in this Security Agreement to the Secured Party;
and in such event Debtor will assert no claims or defenses, other than
a defense that it has performed its obligations under the Note and
this Security Agreement, it may have against the Secured Party against
the assignee, except those granted in this Security Agreement.
(ii) The Secured Party may enter Debtor's premises at any
reasonable time without interruption of Debtor's business and without
any breach of the peace to inspect the Collateral and Debtor's books
and records pertaining to the Collateral, and Debtor shall assist the
Secured Party in making any such inspection; provided, that the
Secured Party and its agents shall keep confidential all Debtor's
proprietary information and confidential information and shall not use
such proprietary information and confidential information except in
connection with enforcing the Secured Party's rights under this
Security Agreement or unless required to disclose such information
pursuant to a judicial or governmental order.
(iii) The Secured Party may execute, sign, endorse, transfer or
deliver in the name of Debtor, notes, checks, drafts or other
instruments for the payment of money and receipts, certificates of
origin, applications for certificates of title or any other documents,
necessary to evidence, perfect or upon an Event of Default realize
upon the security interest and obligations created by this Security
Agreement.
(iv) At its option, the Secured Party may discharge taxes, liens
or security interests or other encumbrances at any time levied or
placed on the Collateral, may pay for the insurance on the Collateral
and may pay for the maintenance and preservation of the Collateral.
Debtor agrees to reimburse the Secured Party on demand for any payment
made, or expense incurred by the Secured Party pursuant to the
foregoing authorization, plus interest thereon at the rate set forth
in paragraph 3(c) hereof.
6
<PAGE> 7
(b) Rights in Event of Default. In addition to any other rights which
the Secured Party may have at law or hereunder, upon the occurrence of an Event
of Default, and at any time thereafter, the Secured Party may:
(i) Declare all obligations secured hereby immediately due and
payable and shall have the rights and remedies of a "secured party"
under the Texas Business and Commerce Code, including, without
limitation, the right to sell, lease or otherwise dispose of any or
all of the Collateral and the right to take possession of the
Collateral, and for that purpose the Secured Party may enter any
premises on which the Collateral or any part thereof may be situated
and remove the same therefrom, so long as the same may be accomplished
without a breach of the peace. The Secured Party may require Debtor to
assemble the Collateral and make it available to the Secured Party at
a place to be designated by the Secured Party which is reasonably
convenient to the parties. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily
sold on a recognized market, the Secured Party will send Debtor
reasonable notice of the time and place of any public sale thereof or
of the time after which any private sale or other disposition thereof
is to be made. The requirement of sending reasonable notice shall be
met if such notice is given to Debtor at least ten days before the
time of the sale or disposition. Expenses of retaking, holding,
preparing for sale, selling or the like shall include the Secured
Party's reasonable fees and expenses (including, but not limited to,
reasonable fees and expenses of legal counsel), and Debtor agrees to
pay such expenses, plus interest thereon at the rate set forth in
paragraph 3(c) hereof. Debtor shall remain liable for any deficiency
hereunder or under the Note;
(ii) Notify the account of debtors or obligors of any accounts,
chattel paper, negotiable instruments or other evidences of
indebtedness remitted by Debtor to the Secured Party as proceeds to
pay the Secured Party directly;
(iii) Demand, sue for, collect or make any compromise or
settlement with reference to the Collateral as the Secured Party, in
its sole discretion, chooses; and
(iv) Remedy any default and may waive any default without waiving
or being deemed to have waived any other prior or subsequent default.
7. Miscellaneous.
(a) Notices. All notices and other communications hereunder shall be
in writing or by telegram or facsimile, and shall be deemed to have been duly
made when delivered in person or sent by telegram or facsimile (with confirmed
receipt), same day or overnight courier, or 72 hours after having been deposited
in the United States first class or registered or
7
<PAGE> 8
certified mail return receipt requested, postage prepaid, to a party at the
address set forth below (which may be changed in accordance with these notice
procedures):
If to the Secured Party:
TSG Financial Limited Partnership
2700 Via Fortuna, Suite 400
Austin, TX 78746
Attn: Mr. Michael L. McAllister
Fax: (512) 306-1528
If to Debtor:
MSI Holdings, Inc.
1121 East 7th Street
Austin, Texas 78701
Attn: Mr. Robert J. Gibbs
Fax: (512) 473-2371
(b) Construction. "Secured Party" and "Debtor", as used in this
instrument, include the administrators, successors, representatives, receivers,
trustees and assigns of such parties.
(c) Headings. The headings appearing in this instrument have been
inserted for convenience of reference only and shall be given no substantive
meaning or significance whatever in construing the terms and provisions of this
instrument. Terms used in this instrument which are defined in the Texas
Business and Commerce Code are used with the meanings as therein defined.
(d) Governing Law. The law governing this secured transaction shall be
that of the State of Texas in force at the date of this instrument.
(e) Further Assurances. All property acquired by Debtor after the date
hereof, which by the terms hereof is required or intended to be subjected to the
lien of this Security Agreement, shall, immediately upon the acquisition thereof
and without further mortgage, conveyance or assignment, become subject to the
lien of this Security Agreement as fully as though now owned by Debtor and
specifically described herein. Nevertheless, Debtor will do all such further
acts and execute, acknowledge and deliver all such further conveyances,
mortgages, financing statements and assurances as the Secured Party shall
reasonably require for accomplishing the purposes of this Security Agreement.
(f) Expenses. Debtor will pay to the Secured Party all reasonable
expenses and expenditures, including fees and expenses of counsel to the Secured
Party, and other expenses incurred or paid by the Secured Party in connection
with any default or non-payment when due and payable in collection of the Note.
8
<PAGE> 9
(g) Waiver. Debtor hereby waives all rights to which Debtor may or
might otherwise become entitled to with respect to the provisions of Section
34.02 and 34.03 of the Texas Business and Commerce Code, as amended, and agrees
that the rights of Debtor pursuant to the provisions of Section 34.04 of the
Texas Business and Commerce Code, as amended, shall be subject to, secondary,
subordinate and inferior in all respects to the rights of each Secured Party
pursuant to this Security Agreement.
(h) Rights Cumulative; No Waiver. The rights and remedies of the
Secured Party hereunder are cumulative, and the exercise (or waiver) of any one
or more of the remedies provided for herein shall not be construed as a waiver
of any of the other rights and remedies of the Secured Party. No delay on the
part of the holder of this Security Agreement in the exercise of any power or
right under this Security Agreement or under any other instrument executed
pursuant hereto shall operate as a waiver thereof, nor shall a single or partial
exercise of any power or right preclude other or further exercise thereof or the
exercise of any other power or right.
(i) Successors and Assigns. No assignment of this Security Agreement
shall be made without the prior written consent of the Secured Party. Any
assignee of Debtor or the Secured Party shall agree in writing prior to the
effectiveness of such assignment to be bound by the provisions hereof. All of
the stipulations, promises and agreements in this Security Agreement made by or
on behalf of Debtor shall bind the successors and permitted assigns of Debtor,
whether so expressed or not, and inure to the benefit of the successors and
permitted assigns of Debtor and the Secured Party.
(j) Severability. In the event any one or more of the provisions
contained in this Security Agreement shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, and this Security
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
[SIGNATURE PAGE FOLLOWS]
9
<PAGE> 10
IN WITNESS WHEREOF, the undersigned parties have executed this Security
Agreement on and as of the Effective Date.
DEBTOR:
MSI HOLDINGS, INC.
By:
-----------------------------------
Robert J. Gibbs
Chief Executive Officer
SECURED PARTY:
TSG FINANCIAL LIMITED PARTNERSHIP
By:
-----------------------------------
Michael L. McAllister
Executive Vice President and
Managing Director
10
<PAGE> 11
SCHEDULE A TO SECURITY AGREEMENT
Secured debt consists of:
Austin Community Development Corporation $100,000 equipment loan dated May 29,
1996, secured by equipment and accounts receivable. December 31, 1999 balance is
$50,707.
Austin Community Development Corporation $100,000 working capital loan dated
June 14, 1995, secured by equipment and accounts receivable. December 31, 1999
balance is $14,583.
Neighborhood Commercial Management Program $75,000 loan from City of Austin
dated June 8, 1995, secured by second lien on equipment and accounts receivable.
December 31, 1999 balance is $17,708.
Neighborhood Commercial Management Program $250,000 loan from City of Austin
dated August 12, 1996, secured by second lien on equipment and accounts
receivable. December 31, 1999 balance is $96,284.
Note:
The Collateral discussed in Section 4(m) does not include leased equipment.
11
<PAGE> 1
EXHIBIT 10.13
MSI HOLDINGS, INC.
(A UTAH CORPORATION)
=======================
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
=======================
Effective January 14, 2000
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT
(1) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, OR (2) PURSUANT TO AN EXEMPTION
FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT (IF AVAILABLE),
AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION.
THIS CERTIFIES THAT, for value received, TSG Financial Limited Partnership,
a Texas limited partnership, or registered assigns ("Holder"), is entitled to
purchase, subject to the conditions set forth below, at any time or from time to
time during the Exercise Period (as defined in subsection 1.2, below), Two
Hundred Thousand (200,000) shares ("Shares") of fully paid and non-assessable
Common Stock, $0.10 par value ("Common Stock"), of MSI HOLDINGS, INC., a Utah
corporation (the "Company"), at the per share purchase price (the "Warrant
Price") set forth in subsection 1.1, subject to the further provisions of this
Warrant. The term "Warrants" as used herein shall mean this Warrant and all
instruments issued by the Company which are substantially identical to this
Warrant (except for the name of the holder and the number of securities
purchasable by the holder).
1. EXERCISE OF WARRANT
The terms and conditions upon which this Warrant may be exercised, and the
Common Stock covered hereby may be purchased, are as follows:
1.1 Warrant Price. The Warrant Price shall be equal to $0.10 per share,
subject to adjustment as provided in Section 4, below.
1.2 Method Of Exercise. The holder of this Warrant, may at any time
beginning January 14, 2000, and prior to January 14, 2005, or such later date as
the Company may in its sole discretion determine (the "Exercise
<PAGE> 2
Period"), exercise in whole or in part the purchase rights evidenced by this
Warrant. Such exercise shall be effected by:
(a) the surrender of the Warrant, together with a duly executed copy of
the form of subscription attached hereto, to the Secretary of the Company at its
principal offices;
(b) the payment to the Company, by cash, check payable to its order or
wire transfer, of an amount equal to the aggregate Warrant Price for the number
of Shares for which the purchase rights hereunder are being exercised; and
(c) the delivery to the Company, if necessary, to assure compliance with
federal and state securities laws, of an instrument executed by the holder
certifying that the Shares are being acquired for the sole account of the holder
and not with a view to any resale or distribution.
1.3 Satisfaction with Requirements of Securities Act of 1933.
Notwithstanding the provisions of subsection 1.2(c) and Section 7, each and
every exercise of this Warrant is contingent upon the Company's satisfaction
that the issuance of Common Stock upon the exercise is exempt from the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and all applicable state securities laws. The holder of this Warrant agrees to
execute any and all documents deemed necessary by the Company to effect the
exercise of this Warrant.
1.4 Issuance Of Shares and New Warrant. In the event the purchase rights
evidenced by this Warrant are exercised in whole or in part, one or more
certificates for the purchased Shares shall be issued as soon as practicable
thereafter to the person exercising such rights. Such holder shall also be
issued at such time a new Warrant representing the number of Shares (if any) for
which the purchase rights under this Warrant remain unexercised and continuing
in force and effect.
2. TRANSFERS
2.1 Transfers. Subject to Section 7 hereof, this Warrant and all rights
hereunder are transferable in whole or in part by the holder. The transfer shall
be recorded on the books of the Company upon the surrender of this Warrant,
properly endorsed, to the Secretary of the Company at its principal offices and
the payment to the Company of all transfer taxes and other governmental charges
imposed on such transfer. In the event of a partial transfer, the Company shall
issue to the several holders one or more appropriate new Warrants.
2.2 Registered Holder. Each holder agrees that until such time as any
transfer pursuant to subsection 2.1 is recorded on the books of the Company, the
Company may treat the registered holder of this Warrant as the absolute owner;
provided that nothing herein affects any requirement that transfer of any
Warrant or share of Common Stock issued or issuable upon the exercise thereof be
subject to compliance with the Securities Act and all applicable state
securities laws.
2.3 Form Of New Warrants. All Warrants issued in connection with transfers
of this Warrant shall bear the same date as this Warrant and shall be
substantially identical in form and provision to this Warrant except for the
number of Shares purchasable thereunder.
- 2 -
<PAGE> 3
3. FRACTIONAL SHARES
Notwithstanding that the number of Shares purchasable upon the exercise of
this Warrant may have been adjusted pursuant to the terms hereof, the Company
shall nonetheless not be required to issue fractions of Shares upon exercise of
this Warrant or to distribute certificates that evidence fractional shares nor
shall the Company be required to make any cash payments in lieu thereof upon
exercise of this Warrant. Holder hereby waives any right to receive fractional
Shares.
4. ANTIDILUTION PROVISIONS
4.1 Stock Splits And Combinations. If the Company shall at any time
subdivide or combine its outstanding shares of Common Stock, this Warrant shall,
after that subdivision or combination, evidence the right to purchase the number
of shares of Common Stock that would have been issuable as a result of that
change with respect to the Shares of Common Stock that were purchasable under
this Warrant immediately before that subdivision or combination. If the Company
shall at any time subdivide the outstanding shares of Common Stock, the Warrant
Price then in effect immediately before that subdivision shall be
proportionately decreased, and, if the Company shall at any time combine the
outstanding shares of Common Stock, the Warrant Price then in effect immediately
before that combination shall be proportionately increased. Any adjustment under
this section shall become effective at the close of business on the date the
subdivision or combination becomes effective.
4.2 Reclassification, Exchange and Substitution. If the Common Stock
issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other class or classes of stock, whether by
capital reorganization, reclassification, or otherwise (other than a subdivision
or combination of shares provided for above), the holder of this Warrant shall,
on its exercise, be entitled to purchase for the same aggregate consideration,
in lieu of the Common Stock that the holder would have become entitled to
purchase but for such change, a number of shares of such other class or classes
of stock equivalent to the number of shares of Common Stock that would have been
subject to purchase by the holder on exercise of this Warrant immediately before
that change.
4.3 Reorganizations, Mergers, Consolidations Or Sale Of Assets. If at any
time there shall be a capital reorganization of the Company's Common Stock
(other than a stock split, combination, reclassification, exchange, or
subdivision of shares provided for elsewhere above) or merger or consolidation
of the Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, merger, consolidation or sale, lawful
provision shall be made so that the holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
in this Warrant and upon payment of the Warrant Price then in effect, the number
of shares of Common Stock or other securities or property of the Company, or of
the successor corporation resulting from such merger or consolidation, to which
a holder of the Common Stock deliverable upon exercise of this Warrant would
have been entitled in such capital reorganization, merger or consolidation or
sale if this Warrant had been exercised immediately before that capital
reorganization, merger or consolidation or sale. In any such case, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the holder of this Warrant after the
reorganization, merger, consolidation, or sale to the end that the provisions of
this Warrant (including adjustment of the Warrant Price then in effect and
number of Shares purchasable upon exercise of this Warrant) shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon exercise of this Warrant. The
Company shall, within thirty (30) days after making such adjustment, give
written notice (by first class mail, postage prepaid) to the registered holder
of this Warrant
- 3 -
<PAGE> 4
at the address of that holder shown on the Company's books. That notice shall
set forth, in reasonable detail, the event requiring the adjustment and the
method by which the adjustment was calculated and specify the Warrant Price then
in effect after the adjustment and the increased or decreased number of Shares
purchasable upon exercise of this Warrant. When appropriate, that notice may be
given in advance and be included as part of the notice required under other
provisions of this Warrant.
4.4 Common Stock Dividends; Distributions. In the event the Company should
at any time prior to the expiration of this Warrant fix a record date for the
determination of the holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock (hereinafter
referred to as the "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common Stock or Common
Stock Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such distribution, split or subdivision if no record date is fixed), the Warrant
Price shall be appropriately decreased and the number of shares of Common Stock
issuable upon exercise of the Warrant shall be appropriately increased in
proportion to such increase of outstanding shares.
4.5 Adjustments of Other Distributions. In the event the Company shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4.4, then, in each
such case for the purpose of this subsection 4.5, upon exercise of this Warrant
the holder hereof shall be entitled to a proportionate share of any such
distribution as though such holder was the holder of the number of shares of
Common Stock of the Company into which this Warrant may be exercised as of the
record date fixed for the determination of the holders of Common Stock of the
Company entitled to receive such distribution.
4.6 Certificate as to Adjustments. In the case of each adjustment or
readjustment of the Warrant Price pursuant to this Section 4, the Company will
promptly compute such adjustment or readjustment in accordance with the terms
hereof and cause a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based,
to be delivered to the holder of this Warrant. The Company will, upon the
written request at any time of the holder of this Warrant, furnish or cause to
be furnished to such holder a certificate setting forth:
(a) Such adjustments and readjustments;
(b) The purchase price at the time in effect; and
(c) The number of shares of Common Stock issuable upon exercise of the
Warrant and the amount, if any, of other property at the time
receivable upon the exercise of the Warrant.
4.7 Reservation of Stock Issuable Upon Exercise. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock solely for the purpose of effecting the exercise of this Warrant
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, in addition to such other remedies as shall
be available to the holder of this Warrant, the Company will use its best
efforts to take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.
- 4 -
<PAGE> 5
5. RIGHTS PRIOR TO EXERCISE OF WARRANT
This Warrant does not entitle the holder to any of the rights of a
stockholder of the Company, including without limitation, the right to receive
dividends or other distributions, to exercise any preemptive rights, to vote, or
to consent or to receive notice as a stockholder of the Company. If, however, at
any time prior to the expiration of this Warrant and prior to its exercise, any
of the following events shall occur:
(a) the Company shall declare any dividend payable in any securities upon
its shares of Common Stock or make any distribution (other than a regular cash
dividend) to the holders of its shares of Common Stock; or
(b) the Company shall offer to the holders of its shares of Common Stock
any additional shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock or any right to subscribe for or
purchase any thereof; or
(c) a dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation, merger, sale, transfer or lease of all or
substantially all of its property, assets, and business as an entirety) shall be
proposed and action by the Company with respect thereto has been approved by the
Company's Board of Directors,
Then in any one or more of said events the Company shall give notice in writing
of such event to the holder at his last address as it shall appear on the
Company's records at least twenty (20) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividends, distribution, or subscription rights,
or for the determination of stockholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
publish, mail or receive such notice or any defect therein or in the publication
or mailing thereof shall not affect the validity of any action taken in
connection with such dividend, distribution or subscription rights, or such
proposed dissolution, liquidation or winding up. Each person in whose name any
certificate for shares of Common Stock is to be issued shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
this instrument was surrendered and payment of the Warrant Price was made,
irrespective of the date of delivery of such stock certificate, except that, if
the date of such surrender and payment is a date when the stock transfer books
of the Company are closed, such person shall be deemed to have become the holder
of such shares of Common Stock at the close of business on the next succeeding
date on which the stock transfer books are open.
6. SUCCESSORS AND ASSIGNS
The terms and provisions of this Warrant shall inure to the benefit of, and
be binding upon, the Company and the holder thereof and their respective
successors and permitted assigns.
7. RESTRICTED SECURITIES
In order to enable the Company to comply with the Securities Act and
applicable state laws, the Company may require the holder as a condition of the
transfer or exercise of this Warrant, to give written assurance satisfactory to
the Company that the Warrant, or in the case of an exercise hereof the shares
subject to this Warrant, are being acquired for his own account, for investment
only, with no view to the distribution of the same, and that any disposition of
all or any portion of this Warrant or the Shares issuable upon the due exercise
of this Warrant shall not be made, unless and until:
- 5 -
<PAGE> 6
(a) There is then in effect a registration statement under the Securities
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b)(i) The holder has notified the Company of the proposed disposition and
shall have furnished the Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (ii) the holder has furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such securities under the
Securities Act and applicable state law.
The holder acknowledges that this Warrant is, and each of the shares of
Common Stock issuable upon the due exercise hereof will be, a restricted
security, that he understands the provisions of Rule 144 of the Securities and
Exchange Commission, and that the certificate or certificates evidencing such
shares of Common Stock will bear a legend substantially similar to the
following:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, or under the securities laws of any
state. They may not be sold, transferred or otherwise disposed of in the
absence of an effective registration statement covering these securities
under the said Act or laws, or an opinion of counsel satisfactory to the
Company and its counsel that registration is not required thereunder."
8. LOSS OR MUTILATION
Upon receipt by the Company of satisfactory evidence of the ownership of
and the loss, theft, destruction, or mutilation of any Warrant, and (i) in the
case of loss, theft, or destruction, upon receipt by the Company of indemnity
satisfactory to it, or (ii) in the case of mutilation, upon receipt of such
Warrant and upon surrender and cancellation of such Warrant, the Company shall
execute and deliver in lieu thereof a new Warrant representing the right to
purchase an equal number of shares of Common Stock.
9. ACCREDITED INVESTOR
The Holder hereby represents and warrants that he is an "accredited
investor" as that term is defined in Regulation D promulgated pursuant to the
Securities Act. Holder hereby acknowledges that but for the aforesaid
representation the Company would not issue this Warrant to Holder.
10. NOTICES
All notices, requests, demands and other communications under this Warrant
shall be in writing and shall be deemed to have been duly given on the date of
service if served personally on the party to whom notice is to be given, or on
the date of mailing if mailed to the party to whom notice is to be given, by
first class mail, registered or certified, postage prepaid, and properly
addressed as follows: if to the holder, at his address as shown in the Company
records; and if to the Company, at its principal office. Any party may change
its address for purposes of this subsection by giving the other party written
notice of the new address in the manner set forth above.
11. GOVERNING LAW
This Warrant and any dispute, disagreement or issue of construction or
interpretation arising hereunder whether relating to its execution, its
validity, the obligations provided herein or performance shall be governed or
interpreted according to the laws of the State of Texas without regard to
conflicts of law.
- 6 -
<PAGE> 7
DATED AS OF JANUARY 14, 2000.
MSI HOLDINGS, INC.
By:
--------------------------------------
ROBERT J. GIBBS, President and CEO
- 7 -
<PAGE> 8
SUBSCRIPTION
MSI Holdings, Inc.
501 Waller
Austin, Texas 78702
Gentlemen:
The undersigned, TSG Financial Limited Partnership, hereby elects to purchase,
pursuant to the provisions to the foregoing Warrant held by the undersigned,
200,000 (two hundred thousand) shares of the Common Stock, $0.10 par value
("Common Stock"), of MSI Holdings, Inc.
Payment of the purchase price per Share required under such Warrant accompanies
this subscription.
The undersigned hereby represents and warrants that absent an effective
registration statement covering the Warrants, the undersigned is acquiring such
stock for the account of the undersigned and not for resale or with a view to
distribution of such Common Stock or any part hereof; that the undersigned is
fully aware of the transfer restrictions affecting restricted securities under
the pertinent securities laws and the undersigned understands that the shares
purchased hereby are restricted securities and that the certificate or
certificates evidencing the same will bear a legend to that effect.
DATED: JANUARY 14, 2000
Signature:
----------------------------------
Address: TSG Financial Limited Partnership
2700 Via Fortuna, Suite 400
Austin, TX 78746
- 8 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MST
HOLDINGS, INC. FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 228,703
<SECURITIES> 0
<RECEIVABLES> 422,944
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,026,021
<PP&E> 4,035,785
<DEPRECIATION> 925,873
<TOTAL-ASSETS> 4,228,886
<CURRENT-LIABILITIES> 3,930,190
<BONDS> 0
0
381,630
<COMMON> 2,384,344
<OTHER-SE> (3,743,428)
<TOTAL-LIABILITY-AND-EQUITY> 4,228,886
<SALES> 1,168,458
<TOTAL-REVENUES> 1,168,458
<CGS> 1,266,351
<TOTAL-COSTS> 1,266,351
<OTHER-EXPENSES> 7,152,129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,028,626
<INCOME-PRETAX> (8,278,648)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,278,648)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,278,648)
<EPS-BASIC> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
