<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 14, 2000
------------------------
MSI HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
UTAH 87-0280886
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification Number)
1121 EAST 7TH STREET
AUSTIN, TEXAS 78702
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (512) 476-6925
NOT APPLICABLE
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 5. OTHER EVENTS.
We are reporting the following four events.
(i) In a press release dated February 17, 2000, a copy of which is
attached as Exhibit 99.1, we announced the completion of a $55 million private
placement of our common stock.
We intend to use the net proceeds from the private placement to fund
the initial build out of additional data centers, to implement a sales and
marketing campaign, to repay up to approximately $5.4 million of indebtedness,
to hire additional technical and sales personnel and for general corporate
purposes. The amounts we actually expend for additional data centers and other
purposes may vary significantly and will depend on a number of factors,
including the amount of our future revenues. In addition, we may use a portion
of the proceeds to make investments in, or acquire, complementary businesses,
technologies, business lines or products. However, we currently have no
agreements with respect to any such transactions. Pending these uses, the net
proceeds of the private placement will be invested in short-term,
interest-bearing, investment grade securities.
In addition, we anticipate paying $150,000 of the proceeds of the
private placement to satisfy certain obligations under our employment agreement
with Robert J. Gibbs, our president, chief executive officer and director.
(ii) On February 1, 2000, we entered into an agreement with Equity
Services, Ltd. ("ESL"), the placement agent for certain of our prior private
placements of equity securities, and ESL's affiliate, Entrepreneurial Investors,
Ltd. ("EIL"). Pursuant to the agreement:
o ESL and EIL facilitated the conversion of all of our
outstanding shares of preferred stock into shares of
our common stock;
o For a one-year period, we agreed, subject to duties
imposed by law, to use commercially reasonable
efforts to promote one person designated by agreement
of the persons converting preferred stock for
election to our board of directors; and
<PAGE> 3
o In consideration for the assistance of EIL and ESL
stated above and the releases described below, we
delivered to EIL a warrant to purchase 500,000 shares
of our common stock at an exercise price of $12.00
per share, exercisable for a period beginning on
February 15, 2000 and ending January 30, 2002. The
warrant contains customary anti-dilution provisions
in the event of a recapitalization, stock dividend,
stock split or similar transaction.
Also pursuant to the agreement, the parties released and discharged all
duties and liabilities to each other prior to the date of the agreement, other
than certain registration rights and any potential liabilities under the
anti-fraud provisions of the Securities Act of 1933. Each of the Placement Agent
Agreements with ESL was also terminated.
The issuance of the warrants described above to EIL will result in an
expense to us of approximately $2.4 million in February 2000 as an arrangement
fee to EIL for services.
(iii) On January 14, 2000, TSG Financial Limited Partnership, an
affiliate of Tejas Securities Group, Inc., loaned us $2,000,000 pursuant to a
secured convertible promissory note. The note bears interest at the prime rate
per annum as published in the Wall Street Journal and matures at the earlier of
June 30, 2000 or the closing of an equity financing with aggregate proceeds to
us in excess of $5,000,000. All or a portion of the principal and interest of
the note is convertible at the option of TSG Financial into the shares issued by
us in such an equity financing at the lowest price per share received in such
financing. The note is secured by substantially all of our assets.
As part of the loan from TSG Financial, we issued to TSG Financial
warrants to purchase 200,000 shares of our common stock at a price of $0.10 per
share. The warrants are exercisable at any time prior to January 14, 2005 and
contain customary anti-dilution provisions in the event of any recapitalization,
stock dividend, stock split or similar transaction.
(iv) We have adopted significant changes to our business plan and
strategic focus, and feel that these changes warrant an update to the
descriptions of our business currently available to investors through our SEC
filings. An updated description of our business is set forth below.
BUSINESS
INDUSTRY BACKGROUND
Increasing Demand for Internet Access and Internet-Related Outsourced
Services
The Internet has experienced rapid growth in the 1990's and has emerged
as a global medium for communications and commerce. Internet access and
Internet-related outsourced
2
<PAGE> 4
services have been two of the fastest growing segments of the telecommunications
services market. For example:
o International Data Corporation estimates that Internet users
worldwide will increase from approximately 142 million in 1998
to 502 million by 2003.
o Forrester Research estimates that by 2003 there will be over
26 million subscribers with broadband access to the Internet.
o International Data Corporation estimates that the revenue from
Web-hosting services in the United States was approximately
$770 million in 1998 and is expected to grow to approximately
$12 billion by 2002.
o International Data Corporation believes that the ASP market in
the United States will grow from $23.1 million in 1998 to over
$2.0 billion by 2003.
Accelerating Demand for Bandwidth
The increasing demand for bandwidth is being driven by a combination of
factors. First, the number of Internet users is growing rapidly. Second,
end-users are quickly adopting broadband access technologies that allow users to
access the Internet at speeds six to 30 times greater than 56.6 Kbs dial-up
access modems. Broadband access is driving the increasing demand for full motion
video/audio content and applications. The result is greater demand for broadband
access and related value added services needed to deliver multimedia content to
a global marketplace. ISPs will have to offer high-speed Internet access and
content providers will need more bandwidth in order to remain competitive.
End-user adoption of recently introduced broadband access technologies like DSL
and cable modem reflects this demand.
The Need for Cost-Effective High-Speed Internet Access
End-user demand is growing for broadband Internet access. As a
consequence, ISPs are being required to offer their customers high-speed,
broadband technologies, like DSL and cable modems. ISPs must also connect their
customers to the Internet, typically by purchasing fixed bandwidth connections
through a local loop. Because the bandwidth is typically fixed, the ISP must
either purchase enough capacity to cover peak usage, which will remain mostly
unused at non-peak usage times, or fail to meet end-user requirements at peak
usage times. Both the infrastructure necessary to provide high-speed Internet
access from the ISP to its customers, and the infrastructure necessary to
maintain peak usage bandwidth from the ISP to the Internet, may be cost
prohibitive for many smaller ISPs. As an analogy, instead of the information
superhighway only needing more lanes to handle congestion, it now also needs to
have wider lanes for larger vehicles, and the ability to expand into overflow
lanes at peak travel times. In addition, many ISPs are required to connect to
the Internet over local loops where congestion and network failure account for a
large part of Internet delay. To remain competitive, smaller ISPs
3
<PAGE> 5
will need to provide high-speed, reliable Internet access to their customers,
while retaining their branding but freed of the burden of making the capital
expenditures and using the other resources necessary to build and maintain the
systems required to provide access.
Demand for Web-Hosting and Co-Location
The Internet can provide an effective and efficient means for
businesses to increase their revenues, but the infrastructure required to use
the Internet effectively is becoming more complex and challenging to manage.
Ensuring the quality, reliability and availability of Internet operations
typically requires substantial investments in developing Internet operations and
applications and hardware expertise. However, such a significant investment can
often be an inefficient use of business resources. As a result, businesses are
seeking outsourcing arrangements that can increase performance, provide
continuous operation of their Web sites, reduce Internet operating expenses and
eliminate the need for expensive and dedicated information technology staff.
These businesses are also seeking service providers who can host their Web sites
in a secure location with a controlled environment and active around-the-clock
monitoring.
We categorize the market for outsourced Web hosting services into the
following segments:
o Co-location Hosting. Customers own their hardware, software
and network equipment, which is housed at the Web site hosting
company's facilities. The customers retain responsibility for
the installation, management, scalability and security of
their Web sites. However, co-location has been and remains an
attractive option for Web-centric companies with advanced
in-house Internet expertise that do not want the capital
expenses of maintaining a secure environment with high
bandwidth access.
o Dedicated Hosting. Customers are provided a complete Web site
hosting solution. Unlike co-location, the service provider
supplies the hardware, software, network equipment and support
necessary to run the Web site. As Web sites have become more
complex, even large and technically astute businesses have
found Internet technologies and solutions a challenge to
manage. For such companies, including many Fortune 2000
companies, dedicated Web site hosting has become a preferred
alternative.
o Shared Hosting. Customers share server hardware and bandwidth
with other customers. Shared hosting provides a price
competitive entry point for individuals and businesses
desiring a simple Web site.
o Application Hosting. Customers are provided the services of
dedicated Web site
4
<PAGE> 6
hosting along with the management of Web-enabled business
applications supporting such common business processes as
customer service, procurement, human resource management and
sales force automation. The service provider implements and
configures the business applications to meet the specific
needs of its customers. For large and small businesses alike,
application hosting offers numerous benefits, including faster
time-to-market, access to advanced application skills and
significantly lower costs of operation.
A variety of companies, such as ISPs and large systems integrators,
offer products and services that attempt to address enterprises' Internet
outsourcing needs. However, we believe the solutions offered by these companies
generally fail to address certain elements required to ensure that customers'
mission-critical Internet operations are reliable, scalable and responsive. ISPs
have traditionally focused on providing Internet access and many have not
developed the technical expertise and physical resources to support
mission-critical Web sites. In addition, many large systems integrators focus
primarily on large enterprises and traditional information technologies. These
firms often lack the network and Internet expertise required to provide
mission-critical solutions. As a result, we believe a significant opportunity
exists for a highly-focused company to provide a combination of complex Web site
hosting, outsourced applications management and professional consulting services
that enable mid-size businesses to implement reliable, high performance and cost
effective Internet strategies.
MSI SOLUTION
We provide hosting, access and value added services, and we are
developing an ASP infrastructure platform, for companies looking to outsource
the increasingly complex infrastructure needed to utilize the Internet
effectively. We believe that we are positioned to become an industry leader in
high-bandwidth Internet infrastructure services for the next generation of
enriched content. We eliminate existing data transmission constraints by
enabling customers to connect Internet servers directly to the Internet
backbone, completely bypassing the local loop that other Web hosting and
co-location companies typically use. Since we are not constrained by local loop
connections and have access to virtually unlimited bandwidth, our customers can
deliver large amounts of high-bandwidth content as needed.
The benefits to our customers are:
o Bandwidth Burstability. Our customers can "burst" to high levels of
bandwidth usage on demand without having to add and then remove
additional local loop circuits, which typically takes 45 to 60 days to
obtain and results in significant costs. This ability is critical for
high-bandwidth applications, such as Webcasting and full-motion
audio/video.
o Response Time. Direct fiber-optic access to the Internet backbone
allows our customers to get to other Internet providers' networks with
fewer switches (hops) between carriers and routers.
5
<PAGE> 7
o Elimination of Local Loop. Through our unique DOCC infrastructure, we
provide all of our customers including ISPs "one hop" connectivity to
the Internet. This direct access to a Tier-1 Internet backbone
eliminates the need for data to travel over local loops and its related
cost, congestion, and failure points.
o Usage-based Billing. Our customers are billed only for the bandwidth
actually consumed, rather than flat-rate fixed-capacity billing.
o Scalability and Flexibility. Our services are designed to be highly
scalable and flexible in order to meet the needs of our customers as
their Internet operations expand. Our network is designed to scale
bandwidth quickly to meet our customers' needs. We also provide
flexibility for our customers by supporting most leading Internet
hardware and software systems vendor platforms.
o Reliability. Our data center and infrastructure are certified as
meeting GTE/BBN technology and service quality standards for network
architecture, security architecture and facilities design.
o High Performance and Enhanced Connectivity. We are able to address the
high bandwidth needs and rapid growth of our customers'
mission-critical operations by maintaining direct peering
interconnections, including peering relationships with Tier-one network
providers such as GTE. In order to provide our customers with
uncongested bandwidth during network traffic spikes, we have access to
the available capacity of one of the largest fiber optic high-speed
networks in the United States.
o Sophisticated Network Management Services and Tools. By leveraging the
knowledge gained from supporting many leading-edge Internet operations,
we provide sophisticated network management and monitoring services on
a 24x7 basis. We monitor all of our direct and indirect network
connections for latency and packet loss, allowing our network engineers
to reroute traffic to avoid congested points. We are able to identify
and resolve many potential problems before they impact an Internet
site's availability or performance.
o Fault Tolerant Facilities. We have built fault tolerant facilities
designed to enable the uninterrupted operations necessary for
mission-critical Internet operations. Our facility is equipped with an
uninterruptible DC or AC power supply and back-up generators for power
redundancy, multi-tiered fire suppression systems, seismically braced
racks, separate and redundant cooling zones and security systems.
o Cost Effective Solution. Our customers benefit from leveraging the
significant capital, operating and labor investments that we have made
to support distributed, mission-critical Internet operations. Most
enterprises today do not have the infrastructure that Internet
operations require, including data centers located adjacent to major
Internet connection points, 24x7 operations and specialized Internet
technology expertise. We believes that
6
<PAGE> 8
our solutions to optimize enterprises' Internet operations are
significantly more cost-effective than most in-house solutions.
OUR STRATEGY
Our objective is to strengthen our position as a leading provider of
fast and reliable Internet infrastructure solutions targeted at bandwidth
intensive mid-market businesses seeking to maximize the performance of critical
Internet-based applications. Our strategy to achieve our objective is to:
o Invest in Infrastructure and Additional Data Centers. We intend to
continue to make significant investments to expand and improve our
infrastructure and capitalize on the trend by corporate information
technology departments to outsource critical Internet operations. We
have a strategic relationship with GTE which allows us to select
additional GTE POP sites in which to build out data centers to provide
our DOCC infrastructure to area customers. Initially, our build out
will focus on large metropolitan areas in which GTE has an existing POP
and we have the opportunity for multi-homing capabilities. Our next
target markets are Atlanta, Dallas, Denver, Philadelphia, Phoenix and
Tampa. Through these additional data centers, we intend to establish a
national presence to better serve our customers. In addition, we intend
to make significant additional investments in our Austin, Texas data
center, adding more server racks, infrastructure, office and customer
service areas.
o Create Multi-Homed Networks. Our connectivity strategy is centered
around redundancy, load-sharing and balance between multiple networks.
We anticipate that each DOCC data center will be connected to two
networks: the GTE GNI Internet backbone and a second Internet provider.
We intend to leverage our relationship with GTE to take advantage of
its peering capabilities and to provide bi-directional exchange of
Tier-one traffic. The second connection will be used to route traffic
to non-Tier-one backbones that can only be accessed through Network
Access Points, Metropolitan Area Exchanges and other public or
semi-public peering points. Our goal is to move traffic along the most
efficient routes available.
o Become Outsourced Solution Provider to Other Internet Backbone
Providers. We will seek to establish relationships similar in scope to
GTE with other Internet backbone providers. These relationships will
enable us to position ourselves as the preferred outsourced solution to
these other providers to address the needs of their mid-market
customers. We believe that there are other Internet backbone providers
who would like to offer broadband web-hosting services to the
mid-market but are not yet in the position to do so on a cost effective
basis. We believe that we can fill this demand by leveraging our
expertise in this market and provide a cost effective outsourced
solution to these other providers.
7
<PAGE> 9
o Establish Brand Recognition. We believe that brand recognition will
continue to be important in our attracting customers. We intend to
leverage aggressively our GTE/BBN certification, our DOCC
infrastructure to the Internet backbone and our full range of
value-added solutions through an advertising campaign using traditional
media, press tours, trade shows, speaking engagements and strategic
co-marketing relationships. We intend to focus on an "informed
strategy" differentiating the benefits and flexibility of a direct
connection to the Internet compared to the problems associated with
local loop access.
o Expand Customer Base. We intend to expand our base of approximately 166
customers by increasing our sales and marketing efforts. In each city
where we operate a data center, we intend to maintain a direct sales
force. We will extend frequent invitations to target customers to visit
our data centers and leverage the visual and technical impact of our
DOCC infrastructure.
o Make Strategic Alliances and Acquisitions. For many businesses,
co-location and Web-hosting are transparent parts of packaged
solutions. Companies that sell these packaged applications benefit from
a relationship with co-location and Web-hosting companies. We intend to
form a number of alliances to result in additional reseller or agent
relationships, including Web design firms, application developers,
Web-hosting companies, ISPs and consulting firms. In addition, we may
make strategic acquisitions of other Internet service companies to
increase our market presence, expand our service offerings and
facilities and obtain key business relationships.
o Develop an ASP Infrastructure. We are developing an ASP infrastructure
platform to simplify and expedite the deployment of applications over
the Web. The components of this platform include security, billing,
database management and a development environment.
o Provide Value-Added Services. In addition to establishing a presence as
a premier provider of Internet bandwidth, co-location and Web-hosting
services, we intend to aggressively introduce and expand value-added
service offerings and build our customer support services. We have
developed various other value-added services which we believe
significantly enhances the availability and effectiveness of our
customers' Websites. Examples of some of these services include
e-commerce solutions such as security, network management, cacheing and
backup and recovery. We believe that we can enhance our profitability
and attract and retain additional customers through these value-added
service offerings.
PRODUCTS AND SERVICES
We currently offer the following products and services:
8
<PAGE> 10
Hosting Services
o Broadband Co-location. We offer co-location services for
customers who prefer to own and have physical access to their
servers but require the high performance, reliability and
security of our data center. Co-location customers are
typically larger enterprises employing more sophisticated
Internet hardware and software and possessing the expertise to
maintain their Web sites and related equipment. Our
co-location services include fault-tolerant physical
facilities and reliable, high-bandwidth Internet access
tailored to meet the outsourcing needs of our customers'
critical Internet operations. We support most leading Internet
hardware and software platforms. Our multi-vendor flexibility
enables us to offer our customers a broad range of technology
best suited for their needs. Customers have 24x7 physical and
remote access to the data center to administer, upgrade and
maintain their own equipment, or they may engage us to provide
systems administration and maintenance.
o Dedicated Web Server Hosting. We also offer dedicated
Web-hosting solutions for customers that require greater
server capacity than is offered by a shared Web-hosting
arrangement. Our dedicated Web-hosting solutions provide
customers with dedicated servers that we own and maintain
within our data center. This service is offered at various
price levels, depending on the required hardware and service.
o Shared Server Web-Hosting. We offer a variety of shared server
Web-hosting solutions that provide customers with servers that
we own and maintain within our data center and that are shared
with other customers. We offer shared server Web-hosting at
various price levels, depending on the customer's hardware and
service requirements.
Access
o Internet Connectivity. We offer high-speed direct Internet
connectivity and data transport and provide our customers
access to virtually unlimited bandwidth on-demand, up to the
available capacity of one of the largest fiber optic
high-speed networks in the United States. Our DOCC
infrastructure provides a direct Ethernet connection to a
Tier-1 Internet backbone through GTE's POP at speeds of 10 to
10,000 Mbps. We offer our customers a usage-based billing
system where they pay only for bandwidth actually consumed,
versus flat-rate, fixed-capacity billing. All of our Internet
access customers receive 24x7 customer and technical support.
o Digital Subscriber Lines (DSL). Through master reseller
agreements with Southwestern Bell and Covad Communications, we
offer our ISP customers the
9
<PAGE> 11
ability to offer DSL services to their end-users at bandwidth
options between 144 Kbps and 7 Mbps. DSL delivers high-speed
Internet connections through existing copper telephone lines.
DSL is also more cost-effective for many small and
medium-sized businesses than other common high-speed leased
line services. Our DSL services have been designed to enable
our ISP customers to offer their end-users high-speed Internet
access, without the need to add additional hardware or
systems.
Value Added Services
o Broadband Webcasting. Broadband Internet access enables
end-users to receive audio and visual streams which approach
the quality of television and radio. While these end-users are
finding it easier to download these streams, content providers
are finding it more difficult to send them due to bandwidth
constraints. By providing access to large amounts of
bandwidth, we seek to become one of the leading providers of
streaming media services. Our services will be aimed at
content providers, offering completely integrated, in-house
services. These services include the three main components of
streaming media technology: production; encoding; and hosting
of live or pre-recorded media.
o Private Label ISPs. We offer Internet services and
connectivity branded with an organization's logo and identity.
Through our DiaLinx reseller agreement with GTE, we provide
customers the ability to create and deploy a private label ISP
hosted or co-located at our data center. We can provide
e-mail, Web space and news group services, user authentication
and registration, user credit card billing, Internet access
kits, including bulk CD-ROM replication, and the ability for
users to choose from over 600 nationwide local dial-in
numbers. All of these services are branded with the private
label ISP's custom "look and feel," including logos, graphics
and text. Each private label ISP end-user can be allocated one
e-mail mailbox, plus 5 MB of personal Web page storage space,
with additional mailboxes and Web space available.
o Private Portals. We create and maintain Web sites and
extranets aimed at the transformation of existing communities
of interest into on-line virtual communities. Companies or
organizations with established communities of interest use
high-speed Internet access to provide enriched content to
their customers or users. We host private portals on a fully
redundant and secure environment for transactions or other
non-public or sensitive information. We provide our private
portal customers with hosting and co-location services for
their servers, on-demand high-bandwidth Internet access, Web
site and extranet design, transaction and database
architecture and remote user dial-up accessibility. In
addition to our typical hosting and Internet access service
fees, we believe that private portals will allow
10
<PAGE> 12
us to begin generating advertising revenue from advertisers
targeting a specific private portal community.
o Systems Monitoring. We provide all of our Web-hosting
customers with 24x7 network and systems administration,
maintenance and security monitoring. We also offer our
Web-hosting customers the ability to control and update their
sites remotely, monitor Web site performance, track the number
of site visits, review account billing information and
evaluate the overall effectiveness of their Web sites. In
addition, all host Web servers will have regular back-up
procedures to protect customer files.
o Other Value Added Solutions. We have developed various other
value-added services which we believe significantly enhances
the availability and effectiveness of our customers' Websites.
Examples of some of these services include security, network,
database and operating system management, caching and backup
and recovery. In addition, we are developing an ASP
infrastructure to simplify and expedite the deployment of ASP
applications over the Internet. These services enable our
customers the ability to focus on their core competencies
rather than their Internet infrastructure. In addition these
services enable our customers the ability to seamlessly
integrate the various components of an Internet solution.
SALES AND MARKETING
Our sales and marketing objective is to position ourselves on a
national basis as a premium provider of broadband infrastructure services. We
differentiate ourselves by offering complete infrastructure solutions. Using a
consultative approach, our sales team works with our customers to understand
their critical business issues. Our sales and marketing efforts focus on
bandwidth intensive companies, ISPs and ASPs. As of December 31, 1999, we
employed 17 people in sales and marketing.
Direct Sales Force
We primarily market our services through a direct sales force. As of
December 31, 1999, we had a sales force of 14 persons selling into our Austin,
Texas data center. Our core sales strategy is to work with leading application
developers, network equipment providers and Web-design firms to offer complete
e-business solutions.
Our target markets include businesses with significant Internet
applications, ASPs and ISPs. We are our retail customers' solutions provider of
choice due to our ability to provide end-to-end outsourced infrastructure
services, thus allowing them to focus on their Website content. Our wholesale
customers choose us because of our ability to provide direct Tier-1 access to
the Internet using our DOCC infrastructure. By extending frequent invitations to
target customers to
11
<PAGE> 13
visit our data centers, we intend to leverage the visual and technical impact of
our DOCC infrastructure.
We intend to build our sales force aggressively in each region in which
we operate data centers. Our direct sales professionals will be supported by a
telesales group that generates leads. The telesales group will also be used to
offer basic Web-hosting solutions. As we expand our strategic partnerships and
capabilities, the sales force will be structured along financial, medical,
entertainment, education and retail markets.
Indirect Channels
We leverage the effectiveness of our retail sales force by developing
close working relationships with application developers, web design firms,
venture capital firms, the Big Five accounting firms, leading technology law
firms and hardware vendors. We intend to deploy relationship executives in each
of our markets to focus on building these partnerships. We expect that indirect
channel relationships will range from simple sales lead exchanges to full
reseller relationships. We are currently a Cisco Powered Network partner and a
Hewlett Packard Covision partner, which provide us substantial marketing
assistance.
Marketing
Our marketing program is intended to build national and local MSI brand
awareness. We intend to aggressively leverage our GTE/BBN Certification, our
DOCC infrastructure to the Internet backbone and our full range of value-added
solutions through an advertising campaign using traditional media, press tours,
trade shows, speaking engagements and strategic co-marketing relationships. Our
marketing strategy will focus on differentiating the benefits and flexibility of
a direct connection to the Internet compared to the problems associated with
local-loop access to the Internet. Through speaking engagements, networking
events, and partnerships, we intend to establish ourselves as a leader within
each community in which we operate. We also intend to establish a program to
evaluate the efficiency of our marketing efforts through sales force automation
software, telemarketing, reader responses and Web responses.
CUSTOMERS
Our customers can be classified in four categories:
o Web-centric Companies. Internet-related businesses depend on
their Web site or Internet access for a significant portion of
their revenues. We offer these businesses a GTE/BBN-certified
facility specifically designed to provide a high level of
broadband quality, reliability and access. Our web-centric
customers include iBooks.com, inc., Global Ticket Exchange,
LLC, eBlox, Inc., and SpecIT Corp.
12
<PAGE> 14
o Non-Web-centric Companies. We provide a cost effective and
efficient Internet infrastructure outsourced solution. Our
customers benefit from leveraging off of the significant
capital, operating and labor investments that we have made to
support distributed, mission-critical Internet operations. Our
non-Web-centric customers include Catapult, Teledynamics, Aim
Technologies and Esoterix.
o Internet Service Providers. ISPs provide end-users with access
to the Internet. We provide ISPs virtually unlimited Internet
bandwidth and bill only for the bandwidth actually consumed.
Our ISP customers include Outernet Connection Strategies,
Inc., Real Time Communications, Inc., Database City,
SVIWeb.com and Business Network Services, Inc.
o Application Service Providers. ASPs deploy applications over
the Internet and typically use a subscription or timeshare
billing model. ASPs typically struggle with infrastructure
issues such as billing, security, database management, latency
and application communication issues. We combine our hosting
infrastructure with value-added tools to help ASPs solve these
business issues. Our ASP customers include Ventix, Core
Metrics and iAutoparts.com.
STRATEGIC RELATIONSHIPS
We plan to take advantage of the following strategic relationships:
o GTE GNI (Global Network Infrastructure). In Austin, GTE has
placed its OC-192 POP in our building. By locating its POP
within our facility, GTE provides us a direct connection to a
Tier-1 Internet backbone.
o GTECC (GTE Communications Corp.). GTECC is the subsidiary of
GTE that sells bundled services to the general public. These
services include premise equipment (PBX), long distance,
wireless, help desk, and dedicated access to the Internet but
do not include co-location. Our services are complementary to
GTECC's services and, therefore, GTECC and we maintain a
customer lead exchange program.
o GTE/BBN Technologies. GTE/BBN Technologies has over 30 years
of experience at building reliable, fault-tolerant data
centers. We use GTE/BBN Technologies to provide consulting and
design services in the construction and operation of our
facilities. GTE/BBN is one of the originators of the ARPANET
(the predecessor to the Internet) and has built much of the
United States government's high security defense network.
Utilizing the GTE/BBN design, our Austin, Texas data center
has been operational without any outages of more than two
minutes.
13
<PAGE> 15
o Covad Communications and Southwestern Bell. Through Covad
Communication's and Southwestern Bell's DSL service, we are
able to provide customers with end-to-end connectivity. Covad
Communications has agreements with local exchange carriers
across the United States which enables it to provide DSL
circuits to homes and businesses. Our agreements with Covad
Communications and Southwestern Bell allow us to provide
access to the Internet through these circuits. The agreements
designate us as a master reseller under which we sell the
service through local Internet service providers.
o Cisco and Hewlett Packard. We are a Cisco Powered Network and
a HP Covision partner. These strategic partner designations
provide us with significant technical and marketing
assistance, preferred pricing, vendor financing and access to
potential customers.
DATA CENTER INFRASTRUCTURE
We operate a highly secure, fault-tolerant data center, and are
developing additional data centers, designed for the 24x7 hosting of Web sites
and Web-based applications. We anticipate that each of our data centers will
have a targeted minimum of 10,000 square feet. Our data centers will combine the
predictability and control of traditional mainframe-based data centers with the
network access and capacity required for today's bandwidth intensive
Internet-based computing. Our data centers will be designed to allow customers
to deploy new and strategic applications rapidly without substantially
increasing cost or incurring risk of service failure.
The physical infrastructure and security controls of our data centers
have been designed to satisfy rigorous requirements for secure data storage and
processing. Specifically, our data center offers the following major benefits to
our customers:
o Direct access to a high-performance POP. Our DOCC
infrastructure provides a direct Ethernet connection to a
Tier-1 Internet backbone through GTE's POP at speeds of 10 to
10,000 Mbps. Our DOCC infrastructure connects our customers
directly to the OC-192 (10Gbps) backbone. By having our
facilities located next to a GTE POP, our clients bypass the
local loop infrastructure, increasing efficiency, reducing
cost and failure rates.
o State-of-the-art physical security. We have implemented state
of the art physical security through tightly controlled
security zones requiring card key entry. Surveillance cameras
record movement through the data centers and security guards
provide real-time visibility. Access to our data centers is
further restricted to our employees and customer-authorized
personnel.
o Redundant networking equipment, utilities and environmental
control. Our network has been designed to provide redundancy,
security, reliability and disaster
14
<PAGE> 16
recovery. Our Austin data center has been GTE/BBN certified
for technology and service quality standards, including
network architecture, security architecture and facilities
design. In addition, the network has been certified by Cisco
as a Cisco-Powered Network, which gives us quick access to the
latest Cisco hardware and technical resources. We use computer
controlled environmental systems to maximize cooling, humidity
control and energy efficiency. We use an INERGEN Clean Agent
Fire Extinguishing System. We use redundant uninterruptible
power supply systems and redundant generators, to ensure the
power system is capable of maintaining power to the data
center in the event of component failure.
o Multi-home Network. Through our relationship with GTEI and our
unique DOCC infrastructure, we can leverage private network
peering points without having to build a costly network. Our
strategy of dividing traffic between GTE and a second Internet
provider in each market is designed to give us a highly
reliable solution. We expect to be able to access private
network peering points without relying on local telephone
loops and while maintaining a second access point for
redundancy and reliability.
NETWORK OPERATIONS CONTROL CENTER
Our Network Operations Control Center ("NOCC") performs operations
support for our network and infrastructure components on a 24x7 basis. The NOCC
is equipped with sophisticated Internet traffic management and reporting systems
that provide diagnostic tools allowing for the optimum bi-directional delivery
of data. Each client network device is monitored using the latest, most
sophisticated technologies. The NOCC serves three primary functions:
o Monitoring and routing MSI's traffic to and from the Internet.
Our NOCC continuously monitors and manages our DOCC
infrastructure. Most importantly, the NOCC takes advantage of
our fast and efficient routing platform which places traffic
on either GTE's OC-192 fiber Tier-one network or onto a second
Internet provider. From our Austin, Texas NOCC or other NOCCs,
we will monitor our DOCC infrastructures throughout the United
States. The monitoring is accomplished utilizing proven
methodologies and systems that ensure our customers' content
is being routed and delivered over the Internet from source to
destination in the fastest, most efficient path possible.
o Monitoring client equipment and Web sites. Our 24x7 monitoring
of customer Web sites allows our engineering staff to take
immediate action to isolate malfunctions in our customer's
equipment and provide swift problem resolution. Issues are
typically identified and resolved prior to content delivery
being impacted or the customer noticing the problem. We
provide our clients with 24 hour access to their systems data
via a Web-access interface. In addition, we provide our
customers with a single point of contact for support-related
issues and complete 24
15
<PAGE> 17
hour access to engineering assistance. We believe that our
Internet-related skill set combined with our approach to
providing superior customer service in a timely and methodical
manner creates a significant advantage over our competitors.
o Value-Added Monitoring. On a custom basis, we monitor Web site
thresholds and other processes. For example, a customer doing
a Webcast of a live event may want to monitor sound quality
and streaming video delivery. Some customers may ask us to
monitor thresholds of how many users are accessing their Web
site or how many transactions are occurring. In this manner,
the NOCC acts a revenue center while helping customers
outsource what would normally be internal monitoring.
COMPETITION
We are not aware of any company that currently duplicates our business
model in full. While many companies will provide strong competition in any one
component of our spectrum of offerings, few companies offer our solutions. Our
individual product offerings face competition from a variety of organizations:
o Broadband Co-location and Web-hosting. Our unmanaged
co-location and advanced managed Web-hosting services compete
with companies such as Metromedia Fiber/AboveNet
Communications, Inc. and Exodus Communications, Inc., as well
as internal information services departments. Unlike us, their
connectivity and bandwidth capabilities are limited by a
reliance on either local loop or SONET ring connections to the
Internet.
o Broadband Webcasting. Our broadband Webcasting service
competes with organizations like Broadcast.com. Unlike us,
they do not have a direct Tier-one connection to the Internet,
which constrains their bandwidth. In addition, their Web site
formats act as an aggregation point, meaning all content is
accessed from the same site, which limits the content
providers from branding an individual Web site.
o Internet connectivity. Our connectivity services face
competition primarily from ISPs. We intend to license ISPs to
resell broadband access via DSL based on strategic alliances
with Southwestern Bell, Covad Communications and other
providers. We believe we can provide a competitive advantage
in speed, bandwidth, credibility and reliability.
16
<PAGE> 18
THIS ANNOUNCEMENT INCLUDES "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALTHOUGH THE COMPANY BELIEVES THAT
THE EXPECTATIONS REFLECTED IN THESE FORWARD LOOKING STATEMENTS ARE REASONABLE,
THEY CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN
CORRECT. MANY FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE IN THE FORWARD LOOKING STATEMENTS.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(C) EXHIBITS.
99.1 - Press Release, dated February 17, 2000.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MSI Holdings, Inc.
(Registrant)
By: /s/ DOUGLAS W. BANISTER
---------------------------------
Name: Douglas W. Banister
Title: Chief Financial Officer
Date: February 17, 2000
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
99.1 Press Release, dated February 17, 2000.
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONTACT: Gary Fortin or Michael Mason (Investors)
VP/Marketing Allen & Caron Inc.
512-476-6925 212-698-1360
[email protected] [email protected]
Robert Hersch Kari Rinkeviczie (Media)
VP/Corporate Finance Allen & Caron Inc.
512-476-6925 616-647-0780
[email protected] [email protected]
MSI HOLDINGS ANNOUNCES COMPLETION OF $55 MILLION
PRIVATE PLACEMENT OF COMMON SHARES
AUSTIN, TX (FEBRUARY 17, 2000) ... MSI Holdings, Inc (OTC BB: MSIA) announced
today that it has completed placement of $55 million of common stock at a price
of $6 a share to a diverse group of institutional investors. The Company
announced on January 10, 2000 its intention to raise funds through a private
placement; Janney Montgomery Scott LLC and Tejas Securities Group, Inc.
represented the Company as placement agents in the private transaction. In
addition, the Company intends to make application to Nasdaq for National Market
Listing.
President & CEO Robert Gibbs commented, "The net proceeds of this placement will
fund our build-out of additional data centers, implement a sales and marketing
campaign, hire additional sales and marketing personnel, and repay certain
indebtedness. These funds should allow us to pursue our long-term strategic
objectives and enhance shareholder value."
ABOUT MSI HOLDINGS, INC.
MSI Holdings, Inc., (MSI) is headquartered in Austin, Texas. MSI provides
advanced Internet broadcast delivery for a wide array of markets. MSI's Direct
Optical Co-location Connection (DOCC(TM)) provides broadband Internet
co-location services and high-speed Internet connectivity through MSI's
facilities in Austin and Dallas/Fort Worth. MSI Holdings Inc. is publicly traded
on the OTC Bulletin Board under the symbol "MSIA." For more information
regarding MSI Holdings, Inc. visit
www.msiaustin.com
The statements in this release that relate to future plans, events or
performance are forward-looking statements that involve risks and uncertainties,
including demand for the Company's products and services, development of markets
for the Company's products and services and other risks as identified in the
Company's SEC filings. Actual results, events and performance may differ
materially. The Company undertakes no obligation to publicly update these
forward-looking statements to reflect events or circumstances that occur after
the date hereof or to reflect the occurrence of unanticipated events.
# # # #
