<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
or
[ ] 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: 0-20732
COMPUTER INTEGRATION CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 65-0506623
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
7900 GLADES ROAD, BOCA RATON, FLORIDA 33434
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (407) 482-6678
Check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES NO
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 6,915,000 shares of
common stock outstanding as of May 1, 1996.
This report contains a total of 42 pages.
The Exhibit Index appears on page 19.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed, consolidated financial statements included herein have
been prepared by the Registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been consolidated
or omitted pursuant to such rules and regulations; however, the Registant
believes that the disclosures are adequate to make the information presented
not misleading. It is suggested that these condensed, consolidated financial
statements be read in conjunction with the financial statements, and the notes
thereto, included in the Registrant's consolidated financial statements for the
year ended June 30, 1995.
The condensed, consolidated financial statements for the interim
periods included herein, which are unaudited, include, in the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial position and results of operations of
the Registrant for the periods presented. The results of operations for
interim periods should not be considered indicative of results to be expected
for the full year.
2
<PAGE> 3
Computer Integration Corp.
and Subsidiary
Condensed Consolidated Balance Sheets
<TABLE>
MARCH 31, JUNE 30,
1996 1995
-------------------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,894,034 $ 797,678
Accounts receivable, net 61,792,226 31,355,179
Inventory 22,719,330 11,547,902
Deferred income taxes 564,298 513,272
Prepaid expenses 220,005 353,688
------------ -----------
Total current assets 87,189,893 44,567,719
Property and equipment, net 2,692,605 1,693,723
Other assets:
Goodwill, net 12,577,166 7,705,754
Other 821,480 787,449
---------------------------
Total other assets 13,398,646 8,493,203
---------------------------
Total assets $103,281,144 $54,754,645
===========================
</TABLE>
Continued on next page.
3
<PAGE> 4
Computer Integration Corp.
and Subsidiary
Condensed Consolidated Balance Sheets (continued)
<TABLE>
MARCH 31, JUNE 30,
1996 1995
---------------------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 11,262,441 $ 9,920,603
Accounts payable 44,263,269 22,829,019
Accrued expenses 4,689,350 1,712,415
Current portion of subordinated notes payable 302,440 -
Current portion of capital lease obligations 8,480 34,655
Other 886,198 849,110
----------------------------
Total current liabilities 61,412,178 35,345,802
Noncurrent liabilities:
Term note payable 27,500,000 12,500,000
Subordinated notes payable, less current portion 1,610,560 -
Capital lease obligations, less current portion 2,299 7,753
Other 325,000 310,260
----------------------------
Total noncurrent liabilities 29,437,859 12,818,013
Shareholders' equity:
Preferred stock, $.001 par value, total
authorized 2,000,000 shares, issued and
outstanding as follows:
Series A, 9% cumulative, convertible,
redeemable preferred stock; 40,000 shares
authorized, 19,250 issued and outstanding in
both periods 19 19
Common stock, $.001 par value, authorized
20,000,000 shares, issued and outstanding
6,915,000 and 6,400,000 shares at March 31,
1996 and June 30, 1995, respectively 6,915 6,400
Additional paid-in capital 9,780,065 5,534,154
Retained earnings 2,644,108 1,050,257
----------------------------
Total shareholders' equity 12,431,107 6,590,830
----------------------------
Total liabilities and shareholders' equity $ 103,281,144 $54,754,645
============================
</TABLE>
Note: The balance sheet at June 30, 1995 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
4
<PAGE> 5
Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
THREE MONTHS ENDED
MARCH 31
1996 1995
----------------------------------
<S> <C> <C>
Net sales $111,289,220 $53,070,283
Cost of goods sold 101,196,921 47,859,734
--------------------------------
Gross profit 10,092,299 5,210,549
Selling, general and administrative expenses:
Salaries and benefits 6,310,951 3,034,092
Other selling and administrative 2,316,825 778,802
Occupancy costs 556,245 202,189
Depreciation and amortization 451,333 331,261
--------------------------------
9,635,354 4,346,344
--------------------------------
Income from operations 456,945 864,205
Interest expense 1,083,078 619,712
--------------------------------
Income (loss) before income taxes (626,133) 244,493
Income taxes (262,999) 107,000
--------------------------------
Net income (loss) (363,134) 137,493
Less required payments on convertible preferred stock (55,010) (53,815)
--------------------------------
Income (loss) applicable to common stock $ (418,144) $ 83,678
================================
Net income (loss) per share:
Primary $ (.06) $ .01
================================
Fully diluted $ (.04) $ .02
================================
Common shares and common share equivalents
outstanding:
Primary 7,131,000 6,415,540
================================
Fully diluted 8,401,000 7,685,540
================================
</TABLE>
See accompanying notes.
5
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Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
NINE MONTHS ENDED
MARCH 31
1996 1995
----------------------------------
<S> <C> <C>
Net sales $343,998,166 $150,838,254
Cost of goods sold 311,892,874 135,848,032
---------------------------------
Gross profit 32,105,292 14,990,222
Selling, general and administrative expenses:
Salaries and benefits 18,042,441 8,792,129
Other selling and administrative 4,941,831 1,713,741
Occupancy costs 1,510,186 598,237
Depreciation and amortization 1,272,928 864,067
---------------------------------
25,767,386 11,968,174
---------------------------------
Income from operations 6,337,906 3,022,048
Interest expense 3,400,232 1,684,267
---------------------------------
Income before income taxes 2,937,674 1,337,781
Income taxes 1,233,800 553,000
---------------------------------
Net income 1,703,874 784,781
Less required payments on convertible preferred stock (165,030) (147,884)
---------------------------------
Income applicable to common stock $ 1,538,844 $ 636,897
=================================
Net income per share:
Primary $ .22 $ .10
=================================
Fully diluted $ .20 $ .10
=================================
Common shares and common share equivalents
outstanding:
Primary 7,131,000 6,414,985
=================================
Fully diluted 8,401,000 7,591,217
=================================
</TABLE>
See accompanying notes.
6
<PAGE> 7
Computer Integration Corp.
and Subsidiary
Condensed Consolidated Statements of
Cash Flows (Unaudited)
<TABLE>
NINE MONTHS ENDED
MARCH 31
1996 1995
------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,703,874 $ 784,781
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,272,928 864,067
Changes in operating assets and liabilities,
exclusive of effects from acquisitions:
Accounts receivable 8,886,086 (5,552,836)
Inventory 4,880,920 (566,306)
Prepaid expenses 200,904 (3,489)
Other assets (264,558) (211,716)
Accounts payable (8,063,273) 4,806,770
Accrued expenses and other current liabilities 77,444 (1,546,522)
Other noncurrent liabilities 14,740 58,693
------------------------
Net cash provided (used) by operating activities 8,709,065 (1,366,558)
INVESTING ACTIVITIES
Issuance of note receivable - (115,000)
Acquisition of property and equipment (823,363) (558,552)
Purchase of net assets of Dataprint, Inc., net of cash acquired - 185,494
------------------------
Net cash used in investing activities (823,363) (488,058)
FINANCING ACTIVITIES
Proceeds from sale of preferred stock, net of offering costs - 1,898,697
Net (repayments) advances on line of credit (6,461,520) 1,074,432
Principal payments on subordinated notes payable (186,174) (847,842)
Repayments of capital lease obligations (31,629) (20,492)
Dividends paid (110,023) (112,605)
------------------------
Net cash (used) provided by financing activities (6,789,346) 1,992,190
------------------------
Net increase in cash 1,096,356 137,574
Cash at beginning of period 797,678 909,805
------------------------
Cash at end of period $ 1,894,034 $1,047,379
========================
SUPPLEMENTAL INFORMATION
Interest paid $ 3,290,986 $1,684,267
========================
Taxes paid $ 1,537,598 $ 945,400
========================
</TABLE>
See accompanying notes.
7
<PAGE> 8
Computer Integration Corp.
and Subsidiary
Notes to Condensed Consolidated
Financial Statements (Unaudited)
March 31, 1996
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Computer Integration Corp. (the Company) and its wholly-owned operating
subsidiary, CIC Systems, Inc. (CICS). All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Certain information and footnote disclosures
required by generally accepted accounting principles for complete financial
statements have been condensed or omitted. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary to
present fairly the financial position, results of operations and cash flows
have been included. The results of operations for the three and nine months
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for fiscal year 1996. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's consolidated financial
statements for the year ended June 30, 1995.
2. ACQUISITION
Effective July 1, 1995, the Company through CICS acquired substantially all of
the assets and assumed all of the trade payables and certain other liabilities
of Cedar Computer Center, Inc. (Cedar), an Iowa corporation, for a combination
of cash, notes and securities of the Company. The purchase price for the net
assets of Cedar and related acquisition costs consisted of approximately
$9,820,327 in cash, $3,760,000 of subordinated promissory notes, $4,246,426
representing the fair value of the guaranteed price for 515,000 shares of the
Company's Common Stock and other liabilities incurred of $1,124. The purchase
price was determined by arms length negotiations between the sellers and the
Company. The cash portion of the purchase price was obtained from a $70 million
revolving credit facility from Congress Financial Corporation (New England).
8
<PAGE> 9
Computer Integration Corp.
and Subsidiary
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
2. ACQUISITION (CONTINUED)
The total purchase price of $17,827,877 was allocated to assets acquired and
liabilities assumed, based on their respective estimated fair value. The excess
of the purchase price over the aggregate amount assigned to the identifiable
net assets acquired was recorded as an intangible asset which will be amortized
using the straight-line method over 20 years. The allocation of the purchase
price is summarized as follows:
<TABLE>
<S> <C>
Accounts receivable $ 40,773,369
Inventories 16,052,348
Furniture and office equipment 764,587
Prepaid expenses 155,598
Accounts payable and accrued expenses (44,063,183)
------------
Fair value of assets acquired, net of liabilities assumed 13,682,719
Cost in excess of net assets acquired (goodwill) 4,145,158
------------
$ 17,827,877
============
</TABLE>
The asset purchase agreement related to the acquisition of Cedar, provided for
adjustment of the purchase price based on the ultimate realization of certain
assets and the assumption of certain liabilities. As a result of such
adjustments, the asset purchase agreement was amended to reflect a reduction of
$2,025,016 in the net assets acquired and a corresponding reduction in the
purchase price of $1,682,780. The subordinated seller notes were also reduced
by $1,682,780 and related goodwill increased by $342,236.
At the time Cedar was acquired, management, with the approval of the Board of
Directors, was assessing the activities conducted at Cedar to determine which
functions, if any, were duplicative and should be eliminated. This assessment
resulted in a plan to exit certain activities conducted at Cedar and resulted
in an adjustment of the purchase price of $800,000, consisting of employee
termination benefits of $311,000, write-off of assets no longer required of
$200,000, lease termination payments of $52,000 and other costs associated with
the facility closing of $237,000. The plan to exit was fully executed in April
1996, therefore, only $10,000 of previously accrued costs relating to the
write-off of fixed assets was utilized during the three-months ended March 31,
1996.
The results of operations of Cedar have been included in the Company's
condensed consolidated statement of income since the effective date of
acquisition, July 1, 1995.
9
<PAGE> 10
Computer Integration Corp.
and Subsidiary
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
2. ACQUISITION (CONTINUED)
The following summarized unaudited pro forma results of operations for the
period from July 1, 1994 through March 31, 1995 assume the acquisition
occurred on July 1, 1994.
<TABLE>
<S> <C>
Sales $336,461,446
Net income 2,916,528
Net income per common share .36
</TABLE>
The pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which would have
resulted had the combination been in effect on the date indicated or which may
result in the future.
3. BORROWINGS
During July 1995, the Company's revolving line was replaced by a $70,000,000
revolving line of credit with its existing lender under terms and conditions
similar to the existing agreement. Outstanding borrowings as of March 31, 1996
under such facility were $38,762,441. In addition to amounts outstanding, a $10
million irrevocable letter of credit has been issued against the revolving line
to a major supplier of the Company.
In connection with the acquisition of Cedar, discussed in Note 2 above,
subordinated promissory notes in the aggregate principal amount of
approximately $1,913,000 and a short-term promissory note in the principal
amount of $250,000 were issued to the seller. The subordinated promissory notes
are payable in four annual installments of principal and interest at an
interest rate of 7.25% per annum, commencing July 2, 1996 through July 2, 1999.
The short-term promissory note was payable in six equal monthly installments of
principal and interest at an interest rate of 10% per annum. Such note has been
satisfied as of March 31, 1996. The notes are subordinate and junior in right
of payment to the prior payment of all indebtedness of CICS to its senior
lenders, secured by a pledge of 15% of the issued and outstanding shares of
common stock of CICS subject to the prior security interest of CICS' senior
lenders and is guaranteed by the Company.
10
<PAGE> 11
Computer Integration Corp.
and Subsidiary
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
4. EQUITY TRANSACTIONS
At the October 12, 1995 annual stockholders meeting, the stockholders approved
the following:
- An increase in the number of authorized shares of capital stock from
12,000,000 shares to 22,000,000 shares, including an increase in the
number of authorized shares of common stock from 10,000,000 shares to
20,000,000 shares.
- An amendment to the Company's 1994 Stock Option Plan (the Plan) to (i)
increase the total number of shares reserved for issuance under the Plan
from 500,000 to 1,050,000 shares and (ii) modify the formula under the
Plan to grant each nonemployee director a nonqualified option to purchase
10,000 shares (compared to the present 5,000) of the Company's common
stock upon election to the Board of Directors or one year anniversary of
election and continued service on the Board.
5. SUBSEQUENT EVENT
On April 3, 1996, the Company's Board of Directors authorized the issuance of
two new series of cumulative convertible redeemable preferred stock, designated
Series D and Series E. The Series D Preferred Stock is identical to the
Company's existing Series A Preferred Stock, and the Series E Preferred Stock is
identical to the Company's existing Series C Preferred Stock, with the single
exception that the mandatory conversion feature of the Series A and Series C
Preferred Stock has been modified to extend the date of that conversion.
On May 5, 1996, the Company completed a private exchange offer with the holders
of its outstanding shares of Series A and Series C convertible preferred stock.
As a result of the exchange offer, the Registrant will issue 19,250 shares of
Series D Preferred stock in exchange for 19,250 outstanding shares of Series A
Preferred Stock and 125 shares of Series E Preferred Stock in exchange for 125
outstanding shares of Series C Preferred Stock.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Computer Integration Corp. (the "Registrant") is one of the largest
volume resellers of microcomputers, workstations and related products to large
and medium-sized corporations, federal, state and local governmental entities
and colleges and universities in the United States. The Registrant, through
its wholly-owned subsidiary, CIC Systems, Inc. ("CIC"), distributes a broad
range of microcomputer-related products from major hardware manufacturers and
software developers such as Hewlett-Packard Company ("HP"), Compaq Computer
Corporation, Sun Microsystems Corporation, Toshiba America Information Systems,
Inc., International Business Machines, Lexmark International, Epson America,
Inc., NEC Technologies, Inc., 3COM, Inc., Canon Computer Systems, Inc., Novell,
Inc. and Microsoft Corporation. The Registrant is one of the largest resellers
of computer products manufactured by HP in the United States.
The Registrant began operations in 1992 with the organization of CIC
and acquired Copley Systems Corporation, a Massachusetts corporation, in March
1993. The Registrant acquired all of the outstanding capital stock of
Dataprint, Inc., a North Carolina corporation, effective July 1, 1994.
Effective July 1, 1995, the Registrant acquired substantially all of the assets
of Cedar Computer Center, Inc., an Iowa corporation ("Cedar"), which, at the
time of the acquisition, was one of the largest dealers of HP computer products
in the midwestern and western United States.
Results of Operations
The Registrant's results of operations for the three and nine months
ended March 31, 1996 include the results of operations of Cedar for the entire
period. However, since Cedar was acquired effective July 1, 1995, the results
of operations for those periods are not, in all respects, comparable with the
results of the similar periods in the prior fiscal year. In addition, since
December 1995, the Registrant has been consolidating the operations of Cedar
with its existing operations. Therefore, the Registrant is unable to attribute
to Cedar any specific portions of the changes in results of operations for the
three and nine months ended March 31, 1996.
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Net sales for the three months ended March 31, 1996 (the "1996
Quarter") were $111,289,220 compared to $53,070,283 for the three months ended
March 31, 1995 (the "1995 Quarter"), an increase of $58,218,937 or 110%.
Gross profit increased to $10,092,299 in the 1996 Quarter from
$5,210,549 in the 1995 Quarter as a result of the increased revenue. Gross
profit margin decreased to 9.07% in the 1996 Quarter compared to 9.82% in the
1995 Quarter. That decrease was primarily due to inventory adjustments
attributable to the Registrant's midwest distribution facility, which facility
was closed on April 30, 1996 and integrated with the Registrant's existing
facility in Westwood, Massachusetts.
Selling, general and administrative expenses ("SG&A") were $9,635,354
in the 1996 Quarter, compared to $4,346,344 in the 1995 Quarter, an increase of
$5,289,010 primarily attributable to the 110% increase in sales. As a
percentage of net sales, SG&A increased 5.7% from 8.19% to 8.66%.
The primary component of the Registrant's SG&A is salaries and
benefits. Salaries and benefits were $6,310,951 in the 1996 Quarter, an
increase of $3,276,859, or 108%, from the 1995 Quarter. The majority of the
increase related to increased salaries and benefits associated with the Cedar
acquisition, increased sales volume and the addition of new executive
positions. In addition, in January 1996, the Registrant began offering health
and other benefits to employees acquired in connection with the Cedar
12
<PAGE> 13
acquisition, resulting in an additional charge to SG&A of approximately
$125,000. However, as a percentage of net sales, salaries and benefits
remained constant at 5.7%.
Other selling and administrative expenses increased $1,538,023 to
$2,316,825 in the 1996 Quarter primarily as a result of a one-time charge of
approximately $425,000 relating to costs associated with a public offering
which was terminated during the quarter, and increased professional and
recruiting fees of $125,000. The balance of the increase is directly related
to the 110% increase in sales. Exclusive of the specific items discussed
above, other selling and administrative expenses as a percentage of net sales
were 1.6% in the 1996 Quarter compared to 1.5% in the 1995 Quarter.
Occupancy costs consist of rent and related occupancy expenses for 37
facilities occupied by the Registrant and its operating divisions throughout
the United States. In the 1996 Quarter, occupancy costs for all 37 facilities
were $556,245 compared to $202,189 for nine facilities in the 1995 Quarter.
Depreciation and amortization increased $120,072 to $451,333 for the
1996 Quarter. The increase is attributable primarily to increased
depreciation, amortization of goodwill and debt issuance costs related to the
acquisition of Cedar.
Interest expense increased to $1,083,078 for the 1996 Quarter from
$619,712 during the 1995 Quarter primarily as a result of higher outstanding
indebtedness related to the acquisition of Cedar and additional carrying costs
related to the increase in accounts receivable and inventory resulting from
increased sales volume.
As a result of the factors discussed above, the Registrant had a net
loss of ($363,134) in the 1996 Quarter compared to net income of $137,493 in
the 1995 Quarter.
NINE MONTHS ENDED MARCH 31, 1996 AND 1995
Net sales for the nine months ended March 31, 1996 (the "1996 Period")
were $343,998,166 compared to $150,838,254 for the nine months ended March 31,
1995 (the "1995 Period"), an increase of $193,159,912 or 128%.
Gross profit increased to $32,105,292 in the 1996 Period from
$14,990,222 in the 1995 Period as a result of the increased revenue. Gross
profit margin decreased to 9.33% in the 1996 Period compared to 9.94% in the
1995 Period. That decrease was primarily due to inventory adjustments incurred
during the third quarter attributable to the Registrant's midwest distribution
facility, which was closed on April 30, 1996 and integrated with the
Registrant's existing facility in Westwood, Massachusetts.
Selling, general and administrative expenses ("SG&A"), were
$25,767,386, compared to $11,968,174 in the 1995 Period, an increase of
$13,799,212 primarily attributable to the 128% increase in sales during the
period. As a percentage of net sales, SG&A decreased 5.5% from 7.93% to 7.49%.
The primary component of the Registrant's SG&A is salaries and
benefits. Salaries and benefits were $18,042,441 in the 1996 Period, an
increase of $9,250,312, or 105%, from the 1995 Period. The majority of the
increase related to increased salaries and benefits associated with the Cedar
acquisition and increased sales volume. In January 1996, the Registrant began
offering health and other benefits to employees acquired in connection with the
Cedar acquisition, resulting in an additional charge to SG&A of approximately
$125,000. However, as a percentage of net sales, salaries and benefits
decreased 10.3% to 5.2% during the 1996 Period.
Other selling and administrative expenses increased $3,228,090 to
$4,941,831 in the 1996 Period primarily as a result of a one-time charge of
approximately $425,000 relating to costs associated with a
13
<PAGE> 14
public offering which was terminated during the period. The balance of the
increase is directly related to the 128% increase in sales. Exclusive of the
specific item discussed above, other selling and administrative expenses as a
percentage of net sales were 1.3% in the 1996 Period compared to 1.1% in the
1995 Period.
Occupancy costs consist of rent and related occupancy expenses for 37
facilities occupied by the Registrant and its operating divisions throughout
the United States. In the 1996 Period, occupancy expense for all 37 facilities
was $1,510,186 compared to $598,237 for nine facilities in the 1995 Period.
Depreciation and amortization increased $408,861 to $1,272,928 for the
1996 Period. The increase is attributable primarily to increased depreciation,
amortization of goodwill and debt issuance costs related to the acquisition of
Cedar.
Interest expense increased to $3,400,232 for the 1996 Period from
$1,684,267 during the 1995 Period primarily as a result of higher outstanding
indebtedness related to the acquisition of Cedar and additional carrying costs
related to the increase in accounts receivable and inventory resulting from
increased sales volume.
As of result of the factors discussed above, the Registrant had net
income of $1,703,874 for the 1996 Period compared to net income of $784,781 for
the 1995 Period, an increase of 117%.
Financial Condition
Primarily as a result of the acquisition of Cedar, the Registrant's
total assets increased $48,526,499 to $103,281,144 as of March 31, 1996,
compared to $54,754,645 as of June 30, 1995. Of that increase, $39,323,133
represented additional accounts receivable and $16,052,348 represented
additional inventory acquired in the Cedar transaction. Goodwill associated
with the Cedar acquisition increased total other assets by approximately
$5,300,000 from June 30, 1995 to March 31, 1996.
Total current liabilities increased $26,066,376 to $61,412,178 as of
March 31, 1996 from $35,345,802 at June 30, 1995 as a result of additional
accounts payable and accrued expenses assumed in the amount of $32,434,102
which related to the business operations of Cedar. Simultaneously with the
closing, Cedar's line of credit of approximately $9.4 million was satisfied
from the long-term portion of the Company's Credit Facility (defined below).
The Registrant's total noncurrent liabilities increased to $29,437,859
as of March 31, 1996 from $12,818,013 at June 30, 1995, as a result of
additional long-term debt of $15,000,000 and the issuance of $1,913,000 of
subordinated notes ($302,440 of which is classified in current liabilities)
incurred in connection with the acquisition of Cedar.
Additional paid in capital increased by $4,245,911 from June 30, 1995
to March 31, 1996, primarily as a result of the issuance of 515,000 shares of
the Registrant's Common Stock in connection with the acquisition of Cedar.
During the 1996 Period, retained earnings increased to $2,644,108 from
$1,050,257 as a result of earnings from operations, net of dividends paid on
the Registrant's Preferred Stock.
On March 12, 1996 the Registrant's Board of Directors approved a
restructuring plan which involves a relocation of the Registrant's corporate
headquarters located in Boca Raton, Florida to Atlanta, Georgia. The Company
has signed a five year lease, providing for monthly rental payments of
approximately $44,000, on a new headquarters and sales and distribution facility
in Atlanta which is scheduled for completion in late 1996. The Company will
recognize a restructuring charge in future periods and believes that these
actions, once completed, will result in improvements in operational efficiency.
The Registrant is in the process of quantifying the amount of the restructuring
charge, or the projected operational savings.
14
<PAGE> 15
Liquidity and Capital Resources
The Registrant has funded its operations to date primarily through
cash flow from operations, the private sale of equity securities and borrowings
under its revolving line of credit. As of March 31, 1996, the Registrant had
cash of $1,894,034, net accounts receivable of $61,792,226, working capital of
$25,777,715 and available funds under its credit facility of approximately $7.8
million.
Cash provided by operating activities during the 1996 Period was
$8,709,065. Cash from operating activities primarily resulted from net income
during the period and collections of accounts receivable and reductions in
inventory at greater rates than payments on corresponding accounts payable.
The Registrant has made a concentrated effort to reduce inventory levels, and
increase the average payment period to its major vendors.
Net cash used in investing activities for the 1996 Period was $823,363,
which was related to the acquisition of office and computer equipment.
Financing activities for the 1996 Period used $6,461,520 primarily as a result
of repayments on advances from the Registrant's Credit Facility.
In connection with the July 1995 acquisition of substantially all of
the net assets of Cedar, CIC and Congress Financial Corporation (New
England) ("Congress") amended CIC's then existing revolving credit facility to
provide increased available borrowings of up to $70 million (the "Credit
Facility"). The Credit Facility is collateralized by CIC's accounts receivable
and inventory and consists of a $27.5 million, 3-year term note and a $42.5
million revolving line of credit. Interest on the Credit Facility accrues at
1% over the prime rate of interest (8.25% on March 31, 1996) of CoreStates
Bank, N.A. The Credit Facility, which is used for inventory financing and
working capital, will expire in July 1998, and will be automatically renewable
for one year, at the option of Congress upon certain terms and conditions. The
Credit Facility requires that CIC maintain, at all times, certain net worth and
working capital levels and restricts acquisitions of property and the payment
of dividends by the Registrant and CIC. At May 10, 1996, the Registrant had an
outstanding balance under the Credit Facility of approximately $44.6 million.
The Credit Facility is guaranteed by the Registrant.
The Registrant believes that cash flow from the operations of CIC and
borrowings under the Credit Facility will provide sufficient cash to fund its
operations and meet current obligations for the remainder of the fiscal year.
Should the Registrant expand its operations or make acquisitions that would
require funds in addition to its existing liquid assets, cash flows or
borrowings under its Credit Facility, it may have to seek additional debt or
equity financing. There can be no assurance that the Registrant could obtain
such financing or that such financing would be available on terms acceptable to
the Registrant.
Subsequent Event
On April 3, 1996, the Registrant's Board of Directors authorized the
issuance of two new series of cumulative convertible redeemable preferred
stock, designated Series D and Series E. The Series D Preferred Stock is
identical to the Registrant's existing Series A Preferred Stock, and the Series
E Preferred Stock is identical to the Registrant's existing Series C Preferred
Stock, with the single exception that the mandatory conversion feature of the
Series A and Series C Preferred Stock has been modified to extend the date of
that conversion.
On May 5, 1996, the Registrant completed a private exchange offer with
the holders of its outstanding shares of Series A and Series C convertible
preferred stock. As a result of the exchange offer, the Registrant will issue
19,250 shares of Series D Preferred stock in exchange for 19,250 outstanding
shares of Series A Preferred Stock and 125 shares of Series E Preferred Stock
in exchange
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<PAGE> 16
for 125 outstanding shares of Series C Preferred Stock.
16
<PAGE> 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 4(a) - Certificate of Designation for Series D,
9% Cumulative Convertible Redeemable
Preferred Stock
Exhibit 4(b) - Certificate of Designation for Series E,
9% Cumulative Convertible Redeemable
Preferred Stock
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is being filed.
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<PAGE> 18
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.
COMPUTER INTEGRATION CORP.
By: JOHN CHISTE
-----------
John Chiste
Chief Financial Officer (Principal Financial
and Principal Accounting Officer)
Dated: May 13, 1996
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
Page
----
<S> <C> <C>
Exhibit 4(a) - Certificate of Designation for Series D 9% Cumulative Convertible
Redeemable Preferred Stock 20
Exhibit 4(b) - Certificate of Designation for Series E 9% Cumulative Convertible
Redeemable Preferred Stock 29
Exhibit 11 - Statement Re: Computation of Per Share Earnings 38
Exhibit 27 - Financial Data Schedule (for SEC use only) 41
</TABLE>
19
<PAGE> 1
EXHIBIT 4(a)
20
<PAGE> 2
COMPUTER INTEGRATION CORP.
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS, AND LIMITATIONS OF SERIES D, 9% CUMULATIVE
CONVERTIBLE REDEEMABLE PREFERRED STOCK
Computer Integration Corp., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify:
That, pursuant to authority conferred upon the Board of
Directors of the Corporation ("Board of Directors") by the Certificate of
Incorporation of the Corporation (the "Certificate"), and pursuant to the
provisions of the Delaware General Corporation Law, said Board of Directors, on
April 3, 1996, duly adopted resolutions providing for the issuance of one
series, aggregating forty thousand (40,000) shares, of Series D, 9% Cumulative
Convertible Redeemable Preferred Stock (the "Series D Preferred Stock"), stated
value $100 and par value $.001 per share, which resolutions are as follows:
WHEREAS, Article Fourth of the Corporation's Certificate of
Incorporation, as amended, vests the authority in the Board of
Directors to issue shares of the Corporation's authorized preferred
stock in series with such rights, preferences and limitations as the
Board deems appropriate, without necessity of further action by the
stockholders of the Corporation;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby creates, from the authorized but unissued shares of preferred
stock, par value $.001 per share, a series of the preferred stock to
consist of forty thousand (40,000) shares, designated "Series D, 9%
Cumulative Convertible Redeemable Preferred Stock" (the "Series D
Preferred Stock") and hereby fixes the voting powers, designation,
preferences and relative, participating, optional and other special
rights, and the qualifications, limitations or restrictions thereof,
of the shares of such Series as follows:
1. Designation. The designation of the series of stock created
by this resolution shall be "Series D, 9% Cumulative Convertible Redeemable
Preferred Stock" (the "Series D Preferred Stock") and the number of shares
constituting the Series D Preferred shall be forty thousand (40,000). Each
share of the Series D Preferred Stock shall have a stated value equal to $100.
2. Dividends. The holders of the Series D Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors out
of the funds of the Corporation legally available therefore, cumulative
dividends at the annual rate of $9 per share, payable $4.50 per share on each
January 31st and July 31st, commencing July 31, 1996. Such dividends shall be
payable in cash or in kind. In the year in which shares of Series D Preferred
Stock are issued, in the event that the payment date for the purchase of shares
of Series D Preferred Stock shall be other than January 31st or July 31st, the
initial dividend shall accumulate and be payable pro rata only from the date of
payment to the Corporation for the respective shares of Series D Preferred
Stock. If the dividend on the Series D Preferred Stock for any dividend period
shall not have been paid or set apart in full for the Series D Preferred Stock,
the aggregate deficiency shall be cumulative and shall be fully paid or set
apart for payment before any dividends shall be paid upon or set apart for
payment for any class of common stock of the Corporation or any other class of
preferred stock of the Corporation ranking junior thereto. Accumulations of
dividends on the Series D Preferred Stock shall not bear interest.
3. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, whether voluntary
or otherwise, after payment or provision for payment of the debts and other
liabilities of the Corporation, the holders of the Series D Preferred Stock
shall be
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<PAGE> 3
entitled to receive, before the holders of any of the common stock or other
classes of preferred stock of the Corporation ranking junior thereto, out of
the remaining net assets of the Corporation, the amount of $100 in cash or in
kind for each share of Series D Preferred Stock, plus an amount equal to all
dividends accrued but unpaid, if any, with respect to each such share up to the
date fixed for distribution. After such payment shall have been made in full
to the holders of the outstanding Series D Preferred Stock, or funds or assets
necessary for such payment shall have been set aside in trust for the account
of the holders of the outstanding Series D Preferred Stock, so as to be and
continue to be available therefor, the holders of the outstanding Series D
Preferred Stock shall be entitled to no further participation in such
distribution of the assets of the Corporation.
In the event, after payment or provision for payment of the debts and
other liabilities of the corporation, the remaining net assets of the
Corporation are not sufficient to pay the liquidation preference of the holders
of the Series D Preferred Stock, no such distribution shall be made on account
of any shares of any other class or series of capital stock of the Corporation
ranking on a parity with the shares of the Series D Preferred Stock upon such
liquidation unless proportionate distributive amounts shall be paid on account
of each share of the Series D Preferred Stock, ratably, in proportion to the
full distributable amounts for which holders of all such parity shares,
including other shares of Series D Preferred Stock, are respectively entitled
upon such liquidation.
4. Conversion of Preferred Stock into Common Stock. Each share
of the Series D Preferred Stock shall be, under paragraph 4(a) below,
convertible at the option of the holder thereof and, under paragraph 4(b)
below, automatically and mandatorily converted upon the occurrence of the event
described therein; in either event, any such shares of Series D Preferred Stock
shall be converted into fully paid and nonassessable shares of the
Corporation's common stock, par value $.001 per share (the "Common Stock").
(a) Elective Conversion. Subject to any other provision
of this paragraph 4, each holder of record of any share(s) of Series D
Preferred Stock shall have the right to convert such holder's share(s) of
Series D Preferred Stock, in whole or in part, including all accrued but unpaid
dividends, if any, in accordance with the Conversion Ratio (defined below),
subject to the adjustments set forth below, at his or her option, at any time
and from time to time after the date on which a Registration Statement
(defined below) that includes the shares of the Common Stock issuable upon
conversion of the Series D Preferred Stock is declared effective by the U.S.
Securities and Exchange Commission ("SEC"), or any other Federal agency at the
time administering the Securities Act of 1933, as amended, or any similar
Federal statute, and the rules and regulations of the SEC issued under such
Act, as they each may, from time to time, be in effect.
In case any shares of Series D Preferred Stock shall have been
called for redemption pursuant to paragraph 5 hereof, any election to convert
under this paragraph 4(a) with respect to the shares so called for redemption
shall cease and terminate at the close of business on the tenth day prior to
the date fixed for the redemption of such shares, unless default shall be made
in the payment of the redemption price.
Any holder of a share or shares of Series D Preferred Stock
electing to convert his or her Series D Preferred Stock into Common Stock shall
surrender the certificate(s) representing all of the share(s) of Series D
Preferred Stock so to be converted, duly endorsed to the Corporation or in
blank, at the principal office of the Corporation (or such other place as may
be designated by the Corporation), and shall give written notice to the
Corporation at said office that he or she elects to convert the same and
therein set forth the name or names (with the address or addresses) in which
the shares of Common Stock are to be issued.
If the last day of the exercise period of the conversion right
in the city where the principal place of business of the Corporation (or in the
city of the principal office of such other entity as the
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<PAGE> 4
Corporation shall have designated as the place so to surrender Series D
Preferred Stock for conversion, as aforesaid) shall be a legal holiday or a day
on which banking institutions are authorized by law to close, then such
conversion right may be exercised in such city on the next succeeding day not
in such city a legal holiday or a day on which banking institutions are
authorized by law to close.
For purposes of this paragraph 4(a), the term "Registration
Statement" shall mean a registration statement filed by the Corporation with
the SEC for a public offering and sale of securities of the Corporation (other
than a registration statement on Form S-4 or Form S-8, or their successors, or
any other form for a limited purpose, or any registration statement covering
only securities proposed to be issued in exchange for securities or assets of
another corporation).
(b) Mandatory Conversion. Each share of the Series D
Preferred Stock, and all accrued but unpaid dividends, if any, shall
automatically and mandatorily convert, without the option of any holder of any
share(s) of Series D Preferred Stock or any action of the Corporation, to
shares of Common Stock in accordance with the Conversion Ratio (defined below)
as of the close of business on the date (the "Automatic Conversion Date"),
following a public offering of Common Stock by the Corporation, which ends a
ten (10) consecutive trading-day period during which a quote is available (such
trade dates need not occur an consecutive business days if no quote is
available for a given business day) and during which the average of the bid and
ask price of the Common Stock on the OTC Bulletin Board ("OTCBB") (or any
successor thereto) or on the NASDAQ Small-Cap Market(R), if then admitted for
trading thereon (or the average of the last reported sale price on the Nasdaq
National Market(R) System ("Nasdaq-NMS") or other national stock exchange on
which the Common Stock is principally traded, if the Common Stock is then
listed or admitted for trading on the Nasdaq- NMS or such other exchange),
equals or exceeds $4.00 per share (the "Automatic Conversion Price Level").
The term "principally traded" as used in this paragraph shall refer to that
national securities exchange or Nasdaq-NMS, if any, on which the greatest
number of shares of Common Stock have been traded during such ten (10) day
period.
As soon as practicable after the Automatic Conversion Date,
the Corporation shall provide each holder of record of Series D Preferred Stock
with notice of the automatic conversion and the Automatic Conversion Date and
call upon the holders to surrender to the Corporation, in the manner and at the
place designated, the certificate(s) representing shares of the Series D
Preferred Stock. Such notice shall be by mail to each holder of the Series D
Preferred Stock at the address last shown on the records of the Corporation for
such holder or given by such holder to the Corporation for the holder for the
purpose of notice or, if no such address appears or is given, at the place
where the principal executive office of the Corporation is located.
Notwithstanding any failure by a holder to deliver the certificates
representing his or her shares of Series D Preferred Stock, after the Automatic
Conversion Date all such certificates of the Series D Preferred Stock shall be
deemed to represent the appropriate number of shares of Common Stock.
Notwithstanding any provision contained in this paragraph
4(b), no share of the Series D Preferred Stock called for redemption pursuant
to paragraph 5 hereof shall automatically and mandatorily convert at any time
after the Corporation has provided notice of its intent to redeem such shares
pursuant to paragraph 5 hereof, unless the Corporation shall provide notice to
the holder on or before the date specified for redemption of such shares of
Series D Preferred Stock that it elects to have the mandatory conversion
provisions of this paragraph 4(b) apply and override the Corporation's notice
of redemption (the "Notice of Cancellation"). Unless such Notice of
Cancellation is provided, the automatic and mandatory conversion under this
paragraph 4(b) shall cease and terminate with respect to all shares of Series D
Preferred Stock so called for redemption at the close of business on the date
that the Corporation provides notice of such redemption pursuant to Paragraph 5
hereof. The Corporation's redemption, including any related notice to redeem,
of certain shares of the Series D Preferred Stock shall have no effect on the
automatic and mandatory conversion under paragraph 4(b) of those other shares
of Series D Preferred Stock with respect to which notice of redemption was not
provided.
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<PAGE> 5
(c) Additional Provisions Applicable to All Conversions.
Any conversion of Series D Preferred Stock into Common Stock pursuant to this
paragraph 4 shall be subject to the following additional terms and provisions:
(1) All shares of the Series D Preferred Stock
and all accrued but unpaid dividends, if any, shall be convertible (or, as the
case may be, automatically converted) into Common Stock at the rate of $2.50
per share of Common Stock (initially equivalent to a rate of forty (40) shares
of Common Stock for each share of Series D Preferred Stock based on the stated
value of $100 of the Series D Preferred Stock) (the "Conversion Ratio"),
subject to the adjustments set forth in this paragraph 4(c) below.
(2) Subject to compliance with all applicable
securities laws, as soon as practicable after the surrender for conversion of
any certificate(s) representing Series D Preferred Stock (in the case of an
elective conversion) or after the Automatic Conversion Date (in the case of an
automatic conversion), the Corporation shall deliver or cause to be delivered
at the principal office of the Corporation (or such other place as may be
designated by the Corporation), to each holder of Series D Preferred Stock,
certificates representing the shares of Common Stock issuable upon such
conversion, issued in such name or names as such holder may direct. Except as
otherwise provided herein, shares of the Series D Preferred Stock shall be
deemed to have been converted, in the case of an elective conversion pursuant
to paragraph 4(a), as of the close of business on the date of the surrender for
conversion of the certificates representing Series D Preferred Stock, or in the
case of an automatic conversion pursuant to paragraph 4(b), as of the close of
business on the Automatic Conversion Date, and in either case the rights of
such holders of the Series D Preferred Stock shall cease, and the person(s) in
whose name(s) the certificates for such shares are to be issued shall be
treated for all purposes as having become the record holder(s) of such Common
Stock, at such time, or if such day shall not constitute a business day, then
the close of business on the next succeeding business day.
(3) The Corporation shall not be required to
issue any fractions of shares of Common Stock upon conversions of any shares of
Series D Preferred Stock. If more than one share of Series D Preferred Stock
shall be surrendered for conversion at one time by the same holder, the number
of full shares of Common Stock which shall be issuable upon conversion of such
Series D Preferred Stock shall be computed on the basis of the aggregate number
of shares of the Series D Preferred Stock so surrendered. If any interest in a
fractional share of Common Stock would otherwise be deliverable upon the
conversion of any shares of Series D Preferred Stock, the Corporation shall
make adjustment for such fractional share interest by payment of an amount in
cash equal to the same fraction of the value of a full share of Common Stock of
the Corporation as determined by the Corporation, which determination shall be
conclusive.
(4) In the event that the Corporation shall at
any time subdivide or combine in a greater or lesser number of shares the
outstanding shares of Common Stock, the number of shares of Common Stock
issuable upon conversion of any shares of Series D Preferred Stock prior to the
occurrence of such event shall be proportionately increased in the case of
subdivision or decreased in the case of a combination, effective in either case
at the close of business on the date when such subdivision or combination shall
become effective.
(5) In the event that the Corporation shall be
consolidated with or merged into any other corporation, provision shall be made
as part of the terms of such consolidation or merger so that any holder of
Series D Preferred Stock may thereafter receive in lieu of Common Stock
otherwise issuable to him upon conversion of his or her Series D Preferred
Stock, but only in accordance with the conversion ratio stated in this
paragraph 4, the same kind and amount of securities as may be distributable
upon such consolidation or merger with respect to the Common Stock.
(6) In the event that the Corporation shall at
any time pay to the holders of
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<PAGE> 6
Common Stock a dividend in Common Stock, the number of shares of Common Stock
of the Corporation issuable upon any conversion of the Series D Preferred Stock
shall be proportionately increased, effective following the close of business
on the record date for determination of the holders of Common Stock entitled to
such dividend.
(7) Such adjustments shall be made successively
if more than one event listed in paragraphs 4(c)(4), (5) or (6) shall occur;
provided, however, that no adjustment need be made by the Corporation until
such adjustments cumulatively aggregate at least five percent (5%) of the then
current Conversion Ratio.
(8) No adjustment of the Conversion Ratio shall
be made by any event or occurrence other than those enumerated in this
paragraph 4(c).
(9) The issuance of certificates for shares of
Common Stock upon conversion of any shares of the Series D Preferred Stock
shall be made without charge for any tax in respect of such issuance. However,
if any certificate is to be issued in a name other than that of the holder of
record as the Series D Preferred Stock so converted, the person or persons
requesting the issuance thereof shall pay to the Corporation the amount of any
tax which may be payable in respect of any transfer involved in such issuance,
or shall establish to the satisfaction of the Corporation that such tax has
been paid or is not due and payable.
5. Redemption of Preferred Stock. The Series D Preferred Stock
of any holder shall be redeemable, in whole or in part, at the option of the
Corporation by resolution of its Board of Directors, from time to time and at
any time, after the date that the Series D Preferred Stock certificate was
issued to the original holder of such shares of Series D Preferred Stock. The
redemption price shall equal $110, plus all dividends accrued and unpaid on the
Series D Preferred Stock so redeemed up to the date fixed for redemption. The
Corporation shall give notice of redemption as hereinafter provided.
In the event that less than the entire amount of the Series D
Preferred Stock outstanding is redeemed at any one time, the shares to be
redeemed shall be selected by lot in a manner to be determined by the Board of
Directors of the Corporation.
The Corporation shall give notice of redemption not less than
thirty (30) nor more than sixty (60) days prior to the date fixed for
redemption of the Series D Preferred Stock or any part thereof. Such notice
shall specify the time and place thereof and shall be given by mail to each
holder of record of shares of Series D Preferred Stock chosen for redemption at
the address last shown on the records of the Corporation for such holder or
given by such holder to the Corporation for the purpose of notice or, if no
such address appears or is given, at the place where the principal executive
office of the Corporation is located. Any notice which was mailed in the
manner herein provided shall be conclusively presumed to have been duly given
whether or not the holder received the notice.
Upon such redemption date, or upon such earlier date as the
Board of Directors shall designate for payment of the redemption price (unless
the Corporation shall default in the payment of the redemption price as set
forth in such notice), the holders of shares of Series D Preferred Stock
selected for redemption to whom notice has been duly given shall cease to be
stockholders with respect to such shares and shall have no interest in or claim
against the Corporation by virtue thereof and shall have no other rights with
respect to such shares except the right to convert such shares within the time
hereinafter set forth and except the right to receive the moneys payable upon
such redemption from, the Corporation or otherwise, without interest thereon,
upon surrender (and endorsement, if required by the Corporation) of the
certificates, and the shares represented thereby shall no longer be deemed to
be outstanding.
Upon redemption or conversion of any share of Series D
Preferred Stock in the manner set out herein, or upon purchase of any share of
Series D Preferred Stock by the Corporation, the shares
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<PAGE> 7
so acquired by the Corporation shall be cancelled.
After giving any notice of redemption and prior to the close
of business on the tenth day prior to the redemption date, as hereinafter
provided, the holders of the Series D Preferred Stock so called for redemption
may convert such stock into Common Stock of the Corporation in accordance with
the conversion privileges set forth in paragraph 4(a) hereof.
In the event that the Corporation shall at any time subdivide
or combine in a greater or lesser number of shares the outstanding shares of
Series D Preferred Stock or issue shares of Common Stock as the form of a
dividend paid with respect to its Common Stock, the consideration payable upon
redemption of the Series D Preferred Stock shall be proportionately decreased
in the case of subdivision or increased in the case of a combination or the
payment of such a stock dividend, effective in either case at the close of
business on the date when such subdivision or combination shall become
effective.
6. Voting Rights.
(a) Except as otherwise required by law or as otherwise
specifically provided herein, the holders of the Series D Preferred Stock shall
not be entitled to vote at any meeting of the stockholders for the election of
directors or for any other purpose or otherwise to participate in any action
taken by the Corporation or the stockholders thereof, or to receive notice of
any meeting of stockholders.
(b) If at any time, and from time to time, the
Corporation shall default in paying two consecutive dividends for a period of
more than thirty (30) days as to each dividend payment date (an "Event of
Default"), then the holders of the Series D Preferred Stock shall have the
exclusive right, voting separately as a class, to elect one additional director
to the Board of Directors of the Corporation in the manner provided in
paragraph 6(d) below, and the holders of shares entitled to vote thereon other
than the Series D Preferred Stock shall be entitled to elect the remaining
members of the Board of Directors. Such voting rights shall remain vested
until all defaults respecting dividends shall have been cured, whereupon (i)
the holders of the Series D Preferred Stock shall be divested of such voting
right (subject, however, to such voting right at any time or from time to time
similarly arising and being divested); (ii) the term of any director then in
office elected by the holders of the Series D Preferred Stock shall terminate;
and (iii) the number of directors constituting the Board of Directors of the
Corporation shall be reduced by the same number by which it was increased at
the time the voting rights of the holders of the Series D Preferred Stock
arose. Notwithstanding anything to the contrary in this paragraph 6(b), any
dividend payment date which forms the basis of an Event of Default subsequently
cured in the manner described in the preceding sentence, may not be counted for
purposes of determining a subsequent Event of Default. In each instance in
which the holders of the Series D Preferred Stock shall be entitled to vote for
directors as provided herein, each such holder shall be entitled to one vote
for each share of the Series D Preferred Stock held.
(c) Directors elected by the holders of the Series D
Preferred Stock shall serve for a term ending on the earlier to occur of (i)
the first annual meeting of stockholders of the Corporation following an Event
of Default or (ii) until all defaults respecting dividends shall have been
cured. At each annual meeting of the Corporation's stockholders following an
Event of Default, until such default shall have been cured, the holders of
Series D Preferred Stock shall be entitled to elect one director to the Board
of Directors of the Corporation.
(d) At any time when the holders of the Series D
Preferred Stock shall have thus become entitled to elect directors, any
provision of the by-laws of the Corporation to the contrary notwithstanding, a
special meeting of the holders of Series D Preferred Stock may be called by the
holders of 51% of the Series D Preferred Stock for the purpose of electing
directors, by notice being mailed, first class postage prepaid, not less than
ten (10) days prior to the proposed date of such meeting, to each holder of
record of Series D Preferred Stock at his address as the same appears on the
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<PAGE> 8
Corporation's record of holders of the Series D Preferred Stock.
At any such special meeting at which the holders of the Series
D Preferred Stock shall be entitled to elect directors, the holders of a
majority of the then outstanding Series D Preferred Stock present in person or
by proxy shall be sufficient to constitute a quorum for the election of such
director. The person elected by the holders of the Series D Preferred Stock at
any meeting held in accordance with the terms of the preceding sentence shall
become a director as of the date of such election and, together with the
directors remaining in office or such persons, if any, as may be elected by the
holders of voting shares other than Series D Cumulative Preferred Stock, shall
constitute the Board of Directors of the Corporation. Any director so elected
by the holders of the Series D Preferred Stock may be removed by, and shall not
be removed except by, the vote of the holders of record of a majority of the
shares of the Series D Preferred Stock, voting as a single class at a meeting
of the stockholders, or of the holders of the Series D Preferred Stock called
for that purpose. Any vacancy, whether as a result of removal or otherwise, in
the office of a director elected by the holders of the Series D Preferred Stock
may be filled by, and shall only be filled by, the majority vote of the holders
of the Series D Preferred Stock, voting as a separate class. A meeting for the
removal of a director elected by the holders of the Series D Preferred Stock
and the filling of the vacancy created thereby or otherwise shall be called,
noticed and held in the same manner as provided for in the initial election of
such board members.
(e) Notwithstanding the provisions of paragraph 6(d), the
election or removal of such directors may be evidenced by one or more written
consents executed by the holders of a majority of the then outstanding Series D
Preferred Stock without the necessity of a meeting, prior notice, and a formal
vote. Within ten (10) days after any such meeting or written consent, the
holders of the Series D Preferred Stock shall provide written notice to the
Corporation of the election, or removal, as the case may be, of such directors.
(f) Notwithstanding anything herein to the contrary,
within thirty (30) days of the end of the calendar quarter in which the holders
of the Series D Preferred Stock shall have thus become entitled to elect
directors, holders of 51% of the Series D Preferred Stock may, by written
consent to the Corporation, irrevocably terminate said voting rights. After
such written termination, the holders of the Series D Preferred Stock shall not
be entitled to vote at any meeting of the stockholders for the election of
directors or for any other purpose or otherwise to participate in any action
taken by the Corporation or the stockholders thereof, or to receive notice of
any meeting of stockholders.
7. Ranking. As long as any shares of the Series D Preferred
Stock remain outstanding, the Corporation shall not, without obtaining the
prior written consent of the holders of at least a majority in number of the
shares of the Series D Preferred Stock then outstanding, create, authorize or
issue any other class or series of capital stock of the Corporation, the terms
of which provide that such class or series shall rank prior to the Series D
Preferred Stock in respect to dividend rights or rights upon dissolution,
liquidation or winding up of the Corporation; provided, however, the
Corporation may at any time create, authorize or issue, without the consent of
any of the holders of the Series D Preferred Stock, other classes or series of
capital stock which rank junior to, or on parity with, the Series D Preferred
Stock in respect to dividend rights and upon dissolution, liquidation or
winding up of the Corporation.
27
<PAGE> 9
IN WITNESS WHEREOF, Computer Integration Corp., a Delaware
corporation, has caused its corporate seal to be affixed hereto and this
Certificate of Designation to be signed by its President and Secretary this
15th day of April, 1996.
COMPUTER INTEGRATION CORP.
By:/s/ RONALD G. FARRELL
----------------------------
Ronald G. Farrell, President
By:/s/ JOHN F. CHISTE
----------------------------
John F. Chiste, Secretary
28
<PAGE> 1
EXHIBIT 4(b)
29
<PAGE> 2
COMPUTER INTEGRATION CORP.
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS, AND LIMITATIONS OF SERIES E, 9% CUMULATIVE
CONVERTIBLE REDEEMABLE PREFERRED STOCK
Computer Integration Corp., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify:
That, pursuant to authority conferred upon the Board of
Directors of the Corporation ("Board of Directors") by the Certificate of
Incorporation of the Corporation (the "Certificate"), and pursuant to the
provisions of the Delaware General Corporation Law, said Board of Directors, on
April 3, 1996, duly adopted resolutions providing for the issuance of one
series, aggregating two hundred fifty (250) shares, of Series E, 9% Cumulative
Convertible Redeemable Preferred Stock (the "Series E Preferred Stock"), stated
value $4,000 and par value $.001 per share, which resolutions are as follows:
WHEREAS, Article Fourth of the Corporation's Certificate of
Incorporation, as amended, vests the authority in the Board of
Directors to issue shares of the Corporation's authorized preferred
stock in series with such rights, preferences and limitations as the
Board deems appropriate, without necessity of further action by the
stockholders of the Corporation;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby creates, from the authorized but unissued shares of preferred
stock, par value $.001 per share, a series of the preferred stock to
consist of two hundred fifty (250) shares, designated "Series E, 9%
Cumulative Convertible Redeemable Preferred Stock" (the "Series E
Preferred Stock") and hereby fixes the voting powers, designation,
preferences and relative, participating, optional and other special
rights, and the qualifications, limitations or restrictions thereof,
of the shares of such Series as follows:
1. Designation. The designation of the series of stock created
by this resolution shall be "Series E, 9% Cumulative Convertible Redeemable
Preferred Stock" (the "Series E Preferred Stock") and the number of shares
constituting the Series E Preferred shall be two hundred fifty (250). Each
share of the Series E Preferred Stock shall have a stated value equal to
$4,000.
2. Dividends. The holders of the Series E Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors out
of the funds of the Corporation legally available therefore, cumulative
dividends at the annual rate of $360 per share, payable $180 per share on each
January 31st and July 31st, commencing July 31, 1996. Such dividends shall be
payable in cash or in kind. In the year in which shares of Series E Preferred
Stock are issued, in the event that the payment date for the purchase of shares
of Series E Preferred Stock shall be other than January 31st or July 31st, the
initial dividend shall accumulate and be payable pro rata only from the date of
payment to the Corporation for the respective shares of Series E Preferred
Stock. If the dividend on the Series E Preferred Stock for any dividend period
shall not have been paid or set apart in full for the Series E Preferred Stock,
the aggregate deficiency shall be cumulative and shall be fully paid or set
apart for payment before any dividends shall be paid upon or set apart for
payment for any class of common stock of the Corporation or any other class of
preferred stock of the Corporation ranking junior thereto. Accumulations of
dividends on the Series E Preferred Stock shall not bear interest.
3. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, whether voluntary
or otherwise, after payment or provision for payment of
30
<PAGE> 3
the debts and other liabilities of the Corporation, the holders of the Series E
Preferred Stock shall be entitled to receive, before the holders of any of the
common stock or other classes of preferred stock of the Corporation ranking
junior thereto, out of the remaining net assets of the Corporation, the amount
of $4,000 in cash or in kind for each share of Series E Preferred Stock, plus
an amount equal to all dividends accrued but unpaid, if any, with respect to
each such share up to the date fixed for distribution. After such payment
shall have been made in full to the holders of the outstanding Series E
Preferred Stock, or funds or assets necessary for such payment shall have been
set aside in trust for the account of the holders of the outstanding Series E
Preferred Stock, so as to be and continue to be available therefor, the holders
of the outstanding Series E Preferred Stock shall be entitled to no further
participation in such distribution of the assets of the Corporation.
In the event, after payment or provision for payment of the
debts and other liabilities of the Corporation, the remaining net assets of the
Corporation are not sufficient to pay the liquidation preference of the holders
of the Series E Preferred Stock, no such distribution shall be made on account
of any shares of any other class or series of capital stock of the Corporation
ranking on a parity with the shares of the Series E Preferred Stock upon such
liquidation unless proportionate distributive amounts shall be paid on account
of each share of the Series E Preferred Stock, ratably, in proportion to the
full distributable amounts for which holders of all such parity shares,
including other shares of Series E Preferred Stock, are respectively entitled
upon such liquidation.
4. Conversion of Preferred Stock into Common Stock. Each share
of the Series E Preferred Stock shall be, under paragraph 4(a) below,
convertible at the option of the holder thereof and, under paragraph 4(b)
below, automatically and mandatorily converted upon the occurrence of the event
described therein; in either event, any such shares of Series E Preferred Stock
shall be converted into fully paid and nonassessable shares of the
Corporation's common stock, par value $.001 per share (the "Common Stock").
(a) Elective Conversion. Subject to any other provision
of this paragraph 4, each holder of record of any share(s) of Series E
Preferred Stock shall have the right to convert such holder's share(s) of
Series E Preferred Stock, in whole or in part, including all accrued but unpaid
dividends, if any, in accordance with the Conversion Ratio (defined below),
subject to the adjustments set forth below, at his or her option, at any time
and from time to time after the date of issuance of any share(s) of Series E
Preferred Stock.
In case any shares of Series E Preferred Stock shall
have been called for redemption pursuant to paragraph 5 hereof, any election to
convert under this paragraph 4(a) with respect to the shares so called for
redemption shall cease and terminate at the close of business on the tenth day
prior to the date fixed for the redemption of such shares, unless default shall
be made in the payment of the redemption price.
Any holder of a share or shares of Series E Preferred
Stock electing to convert his or her Series E Preferred Stock into Common Stock
shall surrender the certificate(s) representing all of the share(s) of Series E
Preferred Stock so to be converted, duly endorsed to the Corporation or in
blank, at the principal office of the Corporation (or such other place as may
be designated by the Corporation), and shall give written notice to the
Corporation at said office that he or she elects to convert the same and
therein set forth the name or names (with the address or addresses) in which
the shares of Common Stock are to be issued.
If the last day of the exercise period of the
conversion right in the city where the principal place of business of the
Corporation (or in the city of the principal office of such other entity as the
Corporation shall have designated as the place so to surrender Series E
Preferred Stock for conversion, as aforesaid) shall be a legal holiday or a day
on which banking institutions are authorized by law to close, then such
conversion right may be exercised in such city on the next succeeding day not
31
<PAGE> 4
in such city a legal holiday or a day on which banking institutions are
authorized by law to close.
(b) Mandatory Conversion. Each share of the Series E
Preferred Stock, and all accrued but unpaid dividends, if any, shall
automatically and mandatorily convert, without the option of any holder of any
share(s) of Series E Preferred Stock or any action of the Corporation, to
shares of Common Stock in accordance with the Conversion Ratio (defined below)
as of the close of business on the date (the "Automatic Conversion Date"),
following a public offering of Common Stock by the Corporation, which ends a
ten (10) consecutive trading-day period during which a quote is available (such
trade dates need not occur on consecutive business days if no quote is
available for a given business day) and during which the average of the bid and
ask price of the Common Stock on the OTC Bulletin Board ("OTCBB") (or any
successor thereto) or on the NASDAQ Small-Cap Market(R), if then admitted for
trading thereon (or the average of the last reported sale price on the Nasdaq
National Market(R) System ("Nasdaq-NMS") or other national stock exchange on
which the Common Stock is principally traded, if the Common Stock is then
listed or admitted for trading on the Nasdaq-NMS or such other exchange),
equals or exceeds $4.00 per share (the "Automatic Conversion Price Level").
The term "principally traded" as used in this paragraph shall refer to that
national securities exchange or Nasdaq-NMS, if any, on which the greatest
number of shares of Common Stock have been traded during such ten (10) day
period.
As soon as practicable after the Automatic Conversion
Date, the Corporation shall provide each holder of record of Series E Preferred
Stock with notice of the automatic conversion and the Automatic Conversion Date
and call upon the holders to surrender to the Corporation, in the manner and at
the place designated, the certificate(s) representing shares of the Series E
Preferred Stock. Such notice shall be by mail to each holder of the Series E
Preferred Stock at the address last shown on the records of the Corporation for
such holder or given by such holder to the Corporation for the holder for the
purpose of notice or, if no such address appears or is given, at the place
where the principal executive office of the Corporation is located.
Notwithstanding any failure by a holder to deliver the certificates
representing his or her shares of Series E Preferred Stock, after the Automatic
Conversion Date all such certificates of the Series E Preferred Stock shall be
deemed to represent the appropriate number of shares of Common Stock.
Notwithstanding any provision contained in this
paragraph 4(b), no share of the Series E Preferred Stock called for redemption
pursuant to paragraph 5 hereof shall automatically and mandatorily convert at
any time after the Corporation has provided notice of its intent to redeem such
shares pursuant to paragraph 5 hereof, unless the Corporation shall provide
notice to the holder on or before the date specified for redemption of such
shares of Series E Preferred Stock that it elects to have the mandatory
conversion provisions of this paragraph 4(b) apply and override the
Corporation's notice of redemption (the "Notice of Cancellation"). Unless such
Notice of Cancellation is provided, the automatic and mandatory conversion
under this paragraph 4(b) shall cease and terminate with respect to all shares
of Series E Preferred Stock so called for redemption at the close of business
on the date that the Corporation provides notice of such redemption pursuant to
Paragraph 5 hereof. The Corporation's redemption, including any related notice
to redeem, of certain shares of the Series E Preferred Stock shall have no
effect on the automatic and mandatory conversion under paragraph 4(b) of those
other shares of Series E Preferred Stock with respect to which notice of
redemption was not provided.
(c) Additional Provisions Applicable to All Conversions.
Any conversion of Series E Preferred Stock into Common Stock pursuant to this
paragraph 4 shall be subject to the following additional terms and provisions:
(1) All shares of the Series E Preferred Stock
and all accrued but unpaid dividends, if any, shall be convertible (or, as the
case may be, automatically converted) into Common Stock at the rate of $1.00
per share of Common Stock (initially equivalent to a rate of four thousand
(4,000) shares of Common Stock for each share of Series E Preferred Stock based
on the stated value
32
<PAGE> 5
of $4,000 of the Series E Preferred Stock) (the "Conversion Ratio"), subject to
the adjustments set forth in this paragraph 4(c) below.
(2) Subject to compliance with all applicable
securities laws, as soon as practicable after the surrender for conversion of
any certificate(s) representing Series E Preferred Stock (in the case of an
elective conversion) or after the Automatic Conversion Date (in the case of an
automatic conversion), the Corporation shall deliver or cause to be delivered
at the principal office of the Corporation (or such other place as may be
designated by the Corporation), to each holder of Series E Preferred Stock,
certificates representing the shares of Common Stock issuable upon such
conversion, issued in such name or names as such holder may direct. Except as
otherwise provided herein, shares of the Series E Preferred Stock shall be
deemed to have been converted, in the case of an elective conversion pursuant
to paragraph 4(a), as of the close of business on the date of the surrender for
conversion of the certificates representing Series E Preferred Stock, or in the
case of an automatic conversion pursuant to paragraph 4(b), as of the close of
business on the Automatic Conversion Date, and in either case the rights of
such holders of the Series E Preferred Stock shall cease, and the person(s) in
whose name(s) the certificates for such shares are to be issued shall be
treated for all purposes as having become the record holder(s) of such Common
Stock, at such time, or if such day shall not constitute a business day, then
the close of business on the next succeeding business day.
(3) The Corporation shall not be required to
issue any fractions of shares of Common Stock upon conversions of any shares of
Series E Preferred Stock. If more than one share of Series E Preferred Stock
shall be surrendered for conversion at one time by the same holder, the number
of full shares of Common Stock which shall be issuable upon conversion of such
Series E Preferred Stock shall be computed on the basis of the aggregate number
of shares of the Series E Preferred Stock so surrendered. If any interest in a
fractional share of Common Stock would otherwise be deliverable upon the
conversion of any shares of Series E Preferred Stock, the Corporation shall
make adjustment for such fractional share interest by payment of an amount in
cash equal to the same fraction of the value of a full share of Common Stock of
the Corporation as determined by the Corporation, which determination shall be
conclusive.
(4) In the event that the Corporation shall at
any time subdivide or combine in a greater or lesser number of shares the
outstanding shares of Common Stock, the number of shares of Common Stock
issuable upon conversion of any shares of Series E Preferred Stock prior to the
occurrence of such event shall be proportionately increased in the case of
subdivision or decreased in the case of a combination, effective in either case
at the close of business on the date when such subdivision or combination shall
become effective.
(5) In the event that the Corporation shall be
consolidated with or merged into any other corporation, provision shall be made
as part of the terms of such consolidation or merger so that any holder of
Series E Preferred Stock may thereafter receive in lieu of Common Stock
otherwise issuable to him upon conversion of his or her Series E Preferred
Stock, but only in accordance with the conversion ratio stated in this
paragraph 4, the same kind and amount of securities as may be distributable
upon such consolidation or merger with respect to the Common Stock.
(6) In the event that the Corporation shall at
any time pay to the holders of Common Stock a dividend in Common Stock, the
number of shares of Common Stock of the Corporation issuable upon any
conversion of the Series E Preferred Stock shall be proportionately increased,
effective following the close of business on the record date for determination
of the holders of Common Stock entitled to such dividend.
(7) Such adjustments shall be made successively
if more than one event listed in paragraphs 4(c)(4), (5) or (6) shall occur;
provided, however, that no adjustment need be made by the Corporation until
such adjustments cumulatively aggregate at least five percent (5%) of the then
current Conversion Ratio.
33
<PAGE> 6
(8) No adjustment of the Conversion Ratio shall
be made by any event or occurrence other than those enumerated in this
paragraph 4(c).
(9) The issuance of certificates for shares of
Common Stock upon conversion of any shares of the Series E Preferred Stock
shall be made without charge for any tax in respect of such issuance. However,
if any certificate is to be issued in a name other than that of the holder of
record as the Series E Preferred Stock so converted, the person or persons
requesting the issuance thereof shall pay to the Corporation the amount of any
tax which may be payable in respect of any transfer involved in such issuance,
or shall establish to the satisfaction of the Corporation that such tax has
been paid or is not due and payable.
5. Redemption of Preferred Stock. The Series E Preferred Stock
of any holder shall be redeemable, in whole or in part, at the option of the
Corporation by resolution of its Board of Directors, from time to time and at
any time, after the date that the Series E Preferred Stock certificate was
issued to the original holder of such shares of Series E Preferred Stock. The
redemption price shall equal $4,400, plus all dividends accrued and unpaid on
the Series E Preferred Stock so redeemed up to the date fixed for redemption.
The Corporation shall give notice of redemption as hereinafter provided.
In the event that less than the entire amount of the Series E
Preferred Stock outstanding is redeemed at any one time, the shares to be
redeemed shall be selected by lot in a manner to be determined by the Board of
Directors of the Corporation.
The Corporation shall give notice of redemption not less than
thirty (30) nor more than sixty (60) days prior to the date fixed for
redemption of the Series E Preferred Stock or any part thereof. Such notice
shall specify the time and place thereof and shall be given by mail to each
holder of record of shares of Series E Preferred Stock chosen for redemption at
the address last shown on the records of the Corporation for such holder or
given by such holder to the Corporation for the purpose of notice or, if no
such address appears or is given, at the place where the principal executive
office of the Corporation is located. Any notice which was mailed in the
manner herein provided shall be conclusively presumed to have been duly given
whether or not the holder received the notice.
Upon such redemption date, or upon such earlier date as the
Board of Directors shall designate for payment of the redemption price (unless
the Corporation shall default in the payment of the redemption price as set
forth in such notice), the holders of shares of Series E Preferred Stock
selected for redemption to whom notice has been duly given shall cease to be
stockholders with respect to such shares and shall have no interest in or claim
against the Corporation by virtue thereof and shall have no other rights with
respect to such shares except the right to convert such shares within the time
hereinafter set forth and except the right to receive the moneys payable upon
such redemption from, the Corporation or otherwise, without interest thereon,
upon surrender (and endorsement, if required by the Corporation) of the
certificates, and the shares represented thereby shall no longer be deemed to
be outstanding.
Upon redemption or conversion of any share of Series E
Preferred Stock in the manner set out herein, or upon purchase of any share of
Series E Preferred Stock by the Corporation, the shares so acquired by the
Corporation shall be cancelled.
After giving any notice of redemption and prior to the close
of business on the tenth day prior to the redemption date, as hereinafter
provided, the holders of the Series E Preferred Stock so called for redemption
may convert such stock into Common Stock of the Corporation in accordance with
the conversion privileges set forth in paragraph 4(a) hereof.
In the event that the Corporation shall at any time subdivide
or combine in a greater or lesser number of shares the outstanding shares of
Series E Preferred Stock or issue shares of Common Stock as the form of a
dividend paid with respect to its Common Stock, the consideration payable upon
34
<PAGE> 7
redemption of the Series E Preferred Stock shall be proportionately decreased
in the case of subdivision or increased in the case of a combination or the
payment of such a stock dividend, effective in either case at the close of
business on the date when such subdivision or combination shall become
effective.
6. Voting Rights.
(a) Except as otherwise required by law or as otherwise
specifically provided herein, the holders of the Series E Preferred Stock shall
not be entitled to vote at any meeting of the stockholders for the election of
directors or for any other purpose or otherwise to participate in any action
taken by the Corporation or the stockholders thereof, or to receive notice of
any meeting of stockholders.
(b) If at any time, and from time to time, the
Corporation shall default in paying two consecutive dividends for a period of
more than thirty (30) days as to each dividend payment date (an "Event of
Default"), then the holders of the Series E Preferred Stock shall have the
exclusive right, voting separately as a class, to elect one additional director
to the Board of Directors of the Corporation in the manner provided in
paragraph 6(d) below, and the holders of shares entitled to vote thereon other
than the Series E Preferred Stock shall be entitled to elect the remaining
members of the Board of Directors. Such voting rights shall remain vested
until all defaults respecting dividends shall have been cured, whereupon (i)
the holders of the Series E Preferred Stock shall be divested of such voting
right (subject, however, to such voting right at any time or from time to time
similarly arising and being divested); (ii) the term of any director then in
office elected by the holders of the Series E Preferred Stock shall terminate;
and (iii) the number of directors constituting the Board of Directors of the
Corporation shall be reduced by the same number by which it was increased at
the time the voting rights of the holders of the Series E Preferred Stock
arose. Notwithstanding anything to the contrary in this paragraph 6(b), any
dividend payment date which forms the basis of an Event of Default subsequently
cured in the manner described in the preceding sentence, may not be counted for
purposes of determining a subsequent Event of Default. In each instance in
which the holders of the Series E Preferred Stock shall be entitled to vote for
directors as provided herein, each such holder shall be entitled to one vote
for each share of the Series E Preferred Stock held.
(c) Directors elected by the holders of the Series E
Preferred Stock shall serve for a term ending on the earlier to occur of (i)
the first annual meeting of stockholders of the Corporation following an Event
of Default or (ii) until all defaults respecting dividends shall have been
cured. At each annual meeting of the Corporation's stockholders following an
Event of Default, until such default shall have been cured, the holders of
Series E Preferred Stock shall be entitled to elect one director to the Board
of Directors of the Corporation.
(d) At any time when the holders of the Series E
Preferred Stock shall have thus become entitled to elect directors, any
provision of the by-laws of the Corporation to the contrary notwithstanding, a
special meeting of the holders of Series E Preferred Stock may be called by the
holders of 51% of the Series E Preferred Stock for the purpose of electing
directors, by notice being mailed, first class postage prepaid, not less than
ten (10) days prior to the proposed date of such meeting, to each holder of
record of Series E Preferred Stock at his address as the same appears on the
Corporation's record of holders of the Series E Preferred Stock.
At any such special meeting at which the holders of the Series
E Preferred Stock shall be entitled to elect directors, the holders of a
majority of the then outstanding Series E Preferred Stock present in person or
by proxy shall be sufficient to constitute a quorum for the election of such
director. The person elected by the holders of the Series E Preferred Stock at
any meeting held in accordance with the terms of the preceding sentence shall
become a director as of the date of such election and, together with the
directors remaining in office or such persons, if any, as may be elected by the
holders of voting shares other than Series E Cumulative Preferred Stock, shall
constitute the Board of Directors of the Corporation. Any director so elected
by the holders of the Series E Preferred Stock may be removed by,
35
<PAGE> 8
and shall not be removed except by, the vote of the holders of record of a
majority of the shares of the Series E Preferred Stock, voting as a single
class at a meeting of the stockholders, or of the holders of the Series E
Preferred Stock called for that purpose. Any vacancy, whether as a result of
removal or otherwise, in the office of a director elected by the holders of the
Series E Preferred Stock may be filled by, and shall only be filled by, the
majority vote of the holders of the Series E Preferred Stock, voting as a
separate class. A meeting for the removal of a director elected by the holders
of the Series E Preferred Stock and the filling of the vacancy created thereby
or otherwise shall be called, noticed and held in the same manner as provided
for in the initial election of such board members.
(e) Notwithstanding the provisions of paragraph 6(d), the
election or removal of such directors may be evidenced by one or more written
consents executed by the holders of a majority of the then outstanding Series E
Preferred Stock without the necessity of a meeting, prior notice, and a formal
vote. Within ten (10) days after any such meeting or written consent, the
holders of the Series E Preferred Stock shall provide written notice to the
Corporation of the election, or removal, as the case may be, of such directors.
(f) Notwithstanding anything herein to the contrary,
within thirty (30) days of the end of the calendar quarter in which the holders
of the Series E Preferred Stock shall have thus become entitled to elect
directors, holders of 51% of the Series E Preferred Stock may, by written
consent to the Corporation, irrevocably terminate said voting rights. After
such written termination, the holders of the Series E Preferred Stock shall not
be entitled to vote at any meeting of the stockholders for the election of
directors or for any other purpose or otherwise to participate in any action
taken by the Corporation or the stockholders thereof, or to receive notice of
any meeting of stockholders.
7. Ranking. As long as any shares of the Series E Preferred
Stock remain outstanding, the Corporation shall not, without obtaining the
prior written consent of the holders of at least a majority in number of the
shares of the Series E Preferred Stock then outstanding, create, authorize or
issue any other class or series of capital stock of the Corporation, the terms
of which provide that such class or series shall rank prior to the Series E
Preferred Stock in respect to dividend rights or rights upon dissolution,
liquidation or winding up of the Corporation; provided, however, the
Corporation may at any time create, authorize or issue, without the consent of
any of the holders of the Series E Preferred Stock, other classes or series of
capital stock which rank junior to, or on parity with, the Series E Preferred
Stock in respect to dividend rights and upon dissolution, liquidation or
winding up of the Corporation. Without limiting the generality of the
foregoing, the Series E Preferred Stock shall rank on parity with: (i) the
Corporation's Series A, 9% Cumulative Convertible Redeemable Preferred Stock
with respect to dividends and the dissolution, liquidation or winding up of the
affairs of the Corporation, whether voluntary or otherwise; (ii) the
Corporation's Series B, Convertible Preferred Stock with respect to the
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or otherwise; and (iii) the Corporation's Series C, 9%
Cumulative Convertible Redeemable Preferred Stock with respect to dividends and
the dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or otherwise.
36
<PAGE> 9
IN WITNESS WHEREOF, Computer Integration Corp., a Delaware
corporation, has caused its corporate seal to be affixed hereto and this
Certificate of Designation to be signed by its President and Secretary this
15th day of April 1996.
COMPUTER INTEGRATION CORP.
By: /s/ RONALD G. FARRELL
----------------------------
Ronald G. Farrell, President
By: /s/ JOHN F. CHISTE
----------------------------
John F. Chiste, Secretary
37
<PAGE> 1
EXHIBIT 11
38
<PAGE> 2
Computer Integration Corp.
and Subsidiary
Exhibit 11 - Statement Re: Computation of Per-Share Earnings
<TABLE>
THREE MONTHS ENDED
MARCH 31
1996 1995
----------------------------
<S> <C> <C>
Primary:
Average shares outstanding 6,915,000 6,402,040
Net effect of dilutive stock options and
warrants--based on the treasury stock
method using average market price of $1.80
and $1.00 per share in 1996 and 1995, respectively 216,000 13,500
-----------------------------
Total 7,131,000 6,415,540
=============================
Net income (loss) applicable to common stock $ (418,144) $ 83,678
=============================
Per-share amount, net (loss) income
applicable to common stock $ (.06) $ .01
=============================
Fully diluted:
Average shares outstanding 6,915,000 6,402,040
Net effect of dilutive stock options and
warrants--based on the treasury stock
method using the period end market price,
if higher than average market price 216,000 13,500
Assumed conversion of 9% Series A and
Series C cumulative, convertible,
redeemable preferred stock 1,270,000 1,270,000
-----------------------------
Total 8,401,000 7,685,540
=============================
Net income (loss) applicable to common stock $ (418,144) $83,678
Add required dividends on Series A and
Series C cumulative, convertible,
redeemable preferred stock 55,010 53,815
-----------------------------
Total $ (363,134) $ 137,493
=============================
Per share amount, net income (loss)
applicable to common stock $ (.04) $ .02
=============================
</TABLE>
39
<PAGE> 3
Computer Integration Corp.
and Subsidiary
Exhibit 11 - Statement Re: Computation of Per-Share Earnings (continued)
<TABLE>
NINE MONTHS ENDED
MARCH 31
1996 1995
--------------------------
<S> <C> <C>
Primary:
Average shares outstanding 6,915,000 6,401,485
Net effect of dilutive stock options and
warrants--based on the treasury stock method using
average market price of $1.80 and $1.00 per share in
1996 and 1995, respectively 216,000 13,500
---------------------------
Total 7,131,000 6,414,985
===========================
Net income applicable to common stock $1,538,844 $ 636,897
===========================
Per-share amount, net income applicable to common
stock $ .22 $ .10
===========================
Fully diluted:
Average shares outstanding 6,915,000 6,401,485
Net effect of dilutive stock options and
warrants--based on the treasury stock method using the
period end market price, if higher than average market
price 216,000 13,500
Assumed conversion of 9% Series A and Series C
cumulative, convertible, redeemable preferred stock 1,270,000 1,176,232
---------------------------
Total 8,401,000 7,591,217
===========================
Net income applicable to common stock $1,538,844 $ 636,897
Add required dividends on Series A and Series C
cumulative, convertible, redeemable preferred stock 165,030 147,884
---------------------------
Total $1,703,874 $ 784,781
===========================
Per share amount, net income applicable to
common stock $ .20 $ .10
===========================
</TABLE>
40
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF COMPUTER INTEGRATION CORPORATION FOR THE NINE MONTHS
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,894,034
<SECURITIES> 0
<RECEIVABLES> 61,792,226
<ALLOWANCES> 0
<INVENTORY> 22,719,330
<CURRENT-ASSETS> 87,189,893
<PP&E> 2,692,605
<DEPRECIATION> 0
<TOTAL-ASSETS> 103,281,144
<CURRENT-LIABILITIES> 61,412,178
<BONDS> 0
0
19
<COMMON> 6,915
<OTHER-SE> 12,424,173
<TOTAL-LIABILITY-AND-EQUITY> 103,281,144
<SALES> 343,998,166
<TOTAL-REVENUES> 343,998,166
<CGS> 311,892,874
<TOTAL-COSTS> 25,767,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,337,906
<INCOME-PRETAX> 2,937,674
<INCOME-TAX> 1,233,800
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,703,874
<EPS-PRIMARY> .22
<EPS-DILUTED> .20
</TABLE>
