<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Computer Integration Corp.
- --------------------------------------------------------------------------------
(Name of Registrant)
Computer Integration Corp.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(4) and 0-11.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 set forth the amount on which the
filing fee is calculated and state how it was determined:
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
COMPUTER INTEGRATION CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Computer Integration Corp.
The annual meeting (the "Annual Meeting") of stockholders of Computer
Integration Corp. (the "Company"), will be held at the Boca Raton Marriott, 5150
Town Center Circle, Boca Raton, Florida 33486 on October 30, 1996 at 10:00 a.m.
for the following purposes:
1. To elect five directors;
2. To consider and vote upon a proposal to amend the Company's 1994 Stock
Option Plan;
3. To ratify the Company's selection of the accounting firm of Ernst &
Young LLP as the Company's independent certified public accountants; and
4. To transact such other business as may properly be brought before the
Annual Meeting.
The Board of Directors has fixed the close of business on September 30,
1996 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting.
By Order of the Board of Directors
By: /s/ Ronald G. Farrell
---------------------------------
Ronald G. Farrell, President
October 17, 1996
IF YOU DO NOT EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE> 3
COMPUTER INTEGRATION CORP.
7900 GLADES ROAD
SUITE 440
BOCA RATON, FLORIDA 33434
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
on behalf of the Board of Directors of Computer Integration Corp. (the
"Company") to be voted at the annual meeting of stockholders ("Annual Meeting")
of the Company referred to in the foregoing Notice and is accompanied by a copy
of the Company's Form 10-K for the fiscal year ended June 30, 1996. Unless the
context otherwise requires, the term "Company" includes Computer Integration
Corp. and its wholly-owned operating subsidiary, CIC Systems, Inc. ("Systems").
Shares represented by duly executed proxies received by the Company will be
voted in accordance with the instructions contained therein and, in the absence
of specific instructions, will be voted: (i) FOR the election as directors of
the persons who have been nominated by the Board of Directors; (ii) FOR the
proposed amendment to the Company's 1994 Stock Option Plan; (iii) FOR the
ratification of the Company's selection of independent certified public
accountants; and (iv) in accordance with the judgment of the person or persons
voting the proxies on any other matter that may properly be brought before the
meeting. The execution of a proxy will in no way affect a stockholder's right to
attend the Annual Meeting and to vote in person. Any proxy executed and returned
by a stockholder may be revoked at any time thereafter either by writing the
Secretary of the Company at the above address or by attending the Annual Meeting
and revoking the proxy in person, except as to any matter or matters upon which,
prior to such revocation, a vote shall have been cast pursuant to the authority
conferred by such proxy.
This Proxy Statement and the accompanying proxy are being sent on or about
October 17, 1996 to stockholders entitled to vote at the Annual Meeting. The
entire cost of soliciting proxies hereunder will be borne by the Company and
will be made through the use of the mails. The Company will, upon request,
reimburse brokerage houses and persons holding shares in their names or in the
names of their nominees for their reasonable expenses in sending soliciting
material to their principals.
As of September 20, 1996, the Company had outstanding 6,953,038 shares of
Common Stock which are entitled to vote at the Annual Meeting, each share being
entitled to one vote. Only stockholders of record at the close of business on
September 30, 1996 will be entitled to vote at the meeting. Officers, directors
and certain related stockholders of the Company, collectively owning
approximately 56.5% of the outstanding shares of Common Stock, have indicated
their intention to vote in favor of each of the proposals to be voted upon at
the Annual Meeting and for the election as directors of the persons who have
been nominated by the Board of Directors.
<PAGE> 4
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock, par value $.001 per share ("Common
Stock") as of October 4, 1996 by the Company's executive officers and directors
and each person known by the Company to be the beneficial owner of more than 5%
of the Company's Common Stock. Except as otherwise indicated, the persons named
in the table below have sole voting and investment power with respect to the
shares shown as beneficially owned by such persons, subject to applicable
community property laws. However, as indicated by the notes following the table,
certain shares are deemed to be beneficially owned by more than one person or
entity as a result of attribution of ownership among affiliated persons and
entities.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- -------------------------------------------------------------------- --------- -------
<S> <C> <C>
Araldo A. Cossutta.................................................. 2,842,685(1) 38.2%
920 Fifth Avenue
New York, NY 10021
Ronald G. Farrell................................................... 1,574,585(2) 21.7%
7900 Glades Road, Suite 440
Boca Raton, FL 33434
Renee Cossutta, Trustee............................................. 565,462(3) 8.1%
1724 Red Cliff Street
Los Angeles, CA 90026
Current Exchange, Inc............................................... 515,000(4) 7.4%
10567 Elmcrest
Clive, IA 50325
Michael Moskowitz................................................... 404,136(5) 5.8%
66 Cranberry Lane
Needham, MA 02192
Frank J. Zappala, Jr................................................ 212,658(6) 3.0%
5584 S.W. Quail Hollow
Palm City, FL 34990
John F. Chiste...................................................... 101,329(7) 1.5%
7900 Glades Road, Suite 440
Boca Raton, FL 33434
Ronald G. Assaf..................................................... 48,500(8) *
7900 Glades Road, Suite 440
Boca Raton, FL 33434
Samuel C. McElhaney................................................. 10 *
8200 Fairview Road
Charlotte, NC 28226
All executive officers and directors as a
group (6 persons)................................................. 4,779,767(9) 57.1%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 456,000 shares of Common Stock issuable upon the conversion of
11,400 shares of Series D Preferred Stock, 500,000 shares of Common Stock
issuable upon the conversion of 125 shares of Series E Stock, and 16,000
shares of Common Stock owned by trusts for which Mr. Cossutta is the sole
trustee. Also includes immediately exercisable options to purchase (i)
5,000 shares of Common Stock, which are
2
<PAGE> 5
exercisable at $.10 per share and expire on March 30, 1999; (ii) 5,000
shares of Common Stock, which are exercisable at $1.00 per share and expire
on July 12, 2000; and (iii) 10,000 shares of Common Stock, which are
exercisable at $4.00 per share and expire on October 12, 2001. Excludes
569,462 shares held in trust, with independent trustees, for the benefit of
Mr. Cossutta's children and by other family members. Mr. Cossutta has
disclaimed beneficial ownership of such shares (See Note 3 below).
(2) Includes (i) 1,086,585 shares of Common Stock held by RGF Investments, Inc.,
a Florida corporation ("RGFI"), of which Mr. Farrell is the sole
stockholder, director and executive officer; (ii) immediately exercisable
options to purchase 118,000 shares of Common Stock at an exercise price per
share of $1.10, which options expire on September 30, 1999; and (iii)
options to purchase 200,000 shares of Common Stock at an exercise price of
$4.00 per share which are exercisable if the price of the Common Stock is
at least $6.00 per share or greater for a period of two consecutive weeks
between March 12, 1996 and June 30, 1997. Also includes an aggregate of
170,000 shares of Common Stock held by Mr. Farrell's wife (142,500 shares),
parents (20,000 shares), and son (7,500 shares), as to which shares, Mr.
Farrell disclaims beneficial ownership.
(3) Renee Cossutta is the daughter of director Araldo Cossutta. The shares held
in trust for the benefit of Mr. Cossutta's children and are not included in
Mr. Cossutta's shares, as he has disclaimed beneficial ownership of such
shares (See Note 1 above).
(4) Shares issued in connection with the acquisition of Cedar Computer Center,
Inc. See "Related Party Transactions -- Acquisition of Cedar."
(5) Mr. Moskowitz was a consultant to the Company pursuant to a two-year
consulting agreement which expired on September 30, 1995. Prior to October
1993, Mr. Moskowitz served as General Manager of Copley Systems Corporation
since its acquisition by the Company in March 1993.
(6) Includes 40,000 shares of Common Stock issuable upon the conversion of 1,000
shares of Series D Preferred Stock. Also includes immediately exercisable
options to purchase (i) 5,000 shares of Common Stock, which options are
exercisable at $.10 per share and expire on March 30, 1999; (ii) 5,000
shares of Common Stock, which options are exercisable at $1.00 per share,
and expire on July 12, 2000; and (iii) 10,000 shares of Common Stock, which
options are exercisable at $4.00 per share and expire on October 12, 2001.
Also includes 62,829 shares of Common Stock owned by Mr. Zappala's wife, as
to which shares, Mr. Zappala disclaims beneficial ownership.
(7) Includes immediately exercisable options to purchase 25,000 shares of Common
Stock, which options are exercisable at $1.00 per share and expire on
September 30, 2000.
(8) Includes 20,000 shares of Common Stock issuable upon the conversion of 500
shares of Series D Preferred Stock. Also includes immediately exercisable
options to purchase (i) 5,000 shares of Common Stock, which options are
exercisable at $1.00 per share and expire on April 11, 2001; and (ii)
10,000 shares of Common Stock, which options are exercisable at $4.00 per
share and expire on October 12, 2001.
(9) Includes an aggregate of (i) 198,000 shares to purchase Common Stock
underlying immediately exercisable options; (ii) 200,000 shares to purchase
Common Stock underlying options exercisable if the price of the Common
Stock is at least $6.00 per share for a period of two consecutive weeks
between March 12, 1996 and June 30, 1997; (iii) 516,000 shares of Common
Stock issuable upon the conversion of 12,900 shares of Series D Preferred
Stock; and (iv) 500,000 shares of Common Stock issuable upon the conversion
of 125 shares of Series E Preferred Stock.
3
<PAGE> 6
ITEM 1 -- ELECTION OF DIRECTORS
At the Annual Meeting, five directors are to be elected to hold office
until the next annual meeting and until their respective successors have been
elected and qualified. It is the intention of the persons named in the enclosed
form of proxy to vote for the election as directors of the persons named in the
table below.
At the 1995 annual meeting of stockholders held on October 12, 1995, Ronald
G. Farrell, Frank J. Zappala, Jr., Araldo Cossutta, Samuel C. McElhaney and
Ronald G. Assaf were elected to the Company's Board of Directors.
The following are the persons nominated to be directors of the Company,
their respective ages, the year in which each was originally elected a director
and, where applicable, the office of the Company held by the director. Each
director elected will hold office until the next annual meeting of stockholders,
expected to be held in October 1997, and until their respective successors have
been duly elected and qualified:
<TABLE>
<CAPTION>
NAME AGE POSITION SINCE
- ------------------------------------------------ ----------------------------------------------
<S> <C> <C> <C>
Ronald G. Farrell...................... 53 President, CEO and Chairman May 22, 1994
Araldo A. Cossutta..................... 71 Director May 24, 1994
Frank J. Zappala, Jr................... 64 Director May 24, 1994
Ronald G. Assaf........................ 61 Director April 11, 1995
Samuel C. McElhaney.................... 44 Director April 11, 1995
</TABLE>
RONALD G. FARRELL has served as a director of the Company since May 22,
1994 and has served as President, Chief Executive Officer and Chairman of the
Board of Directors of the Company since May 25, 1994. Mr. Farrell also has
served as the Chief Executive Officer and Chairman of the Board of Directors of
Systems since July 1992 and was the President of Systems from July 1992 to
August 1995. Mr. Farrell is the founder and, since 1985, has served as President
of R.G. Farrell, Inc. ("RGF") and RGF Investments, Inc. ("RGFI"), corporations
wholly-owned by Mr. Farrell, both of which are companies engaged in financial
consulting relating to private placements, public offerings and venture capital
transactions. Mr. Farrell was President and Chairman of Sports/Leisure, Inc., a
manufacturer of exercisewear sold throughout the United States, Canada and
Europe, from March 1990 to June 1992.
ARALDO A. COSSUTTA has served as a director of the Company since May 24,
1994. Mr. Cossutta served as a director of Systems from March 1993 to July 1994.
In 1973, Mr. Cossutta formed, and has since served as principal of, Cossutta &
Associates, Architects, P.C., located in New York, New York and Araldo Cossutta
& Associates, Architects, located in Dallas, Texas, which are engaged in large
scale, mixed use, commercial development projects in North America and Europe.
From 1956 to 1973, Mr. Cossutta was with I.M. Pei & Partners in New York, New
York, most recently as one of the four general partners of that firm.
FRANK J. ZAPPALA, JR. has served as a director of the Company since May 24,
1994. Mr. Zappala served as a director of Systems from March 1993 to July 1994.
Mr. Zappala has been retired since 1983 and is a private investor. Since 1987,
Mr. Zappala has served as a director of First City Company, a privately held
real estate management and development company located in Pittsburgh,
Pennsylvania and as a director of First United Bancorp located in Boca Raton,
Florida, a publicly held company traded on Nasdaq.
RONALD G. ASSAF has served as a director of the Company since April 11,
1995. Mr. Assaf is the co-founder of Sensormatic Electronics Corporation
("Sensormatic"), a publicly held company traded on the New York Stock Exchange.
Mr. Assaf has been Chairman of the Board of Sensormatic since 1971 and served as
President and Chief Executive Officer of Sensormatic from 1974 to 1996. A
Florida-based company, Sensormatic manufactures and sells electronic
anti-shoplifting devices in the United States and over sixty countries. Mr.
Assaf also serves on the board of directors of Hilite Industries, Inc., an
automotive parts supply company traded on the Nasdaq Stock Market.
SAMUEL C. MCELHANEY has been a director of the Company since April 11, 1995
and was an Executive Vice President of Systems from July 1994 to June 1996.
Prior to the acquisition of Dataprint, Inc. by the
4
<PAGE> 7
Company in July 1994, Mr. McElhaney served as its President, Chief Executive
Officer and Chairman of the Board since its founding by Mr. McElhaney in 1979.
Each director will serve on the Board of Directors for a period of one year
or until his successor shall have been elected and qualified.
BOARD AND BOARD COMMITTEE MEETINGS
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit and Compensation Committees are comprised of
Messrs. Assaf, Cossutta and Zappala. The Audit Committee reviews the engagement
of the independent accountants, the scope of the annual audit undertaken by the
independent accountants and the adequacy of the Company's internal control
procedures, including those related to affiliated parties. The Compensation
Committee reviews and recommends to the full Board of Directors all aspects of
the compensation program for the executive officers. The Board's only other
committee is its Stock Option Committee, whose members are Messrs. Assaf,
Cossutta and Zappala. During the fiscal year ended June 30, 1996, there were
seven meetings held by the Board of Directors, two meetings of the Audit
Committee and two meetings of the Compensation Committee. All directors attended
at least 75% of the meetings of the Board and the respective committees on which
they serve.
COMPENSATION OF DIRECTORS
Each of the Company's non-employee directors receives an annual director's
fee of $15,000 for its regularly scheduled quarterly meetings, plus $1,000 for
each additional meeting attended, $750 for each committee meeting attended and
reimbursement for travel and lodging expenses incurred in connection with
attending such meetings. Messrs. Farrell and McElhaney did not receive any
additional compensation for serving on the Board of Directors.
Each of Messrs. Cossutta, Zappala and Assaf received options to purchase
10,000 shares of the Company's Common Stock in connection with their election to
the Company's Board of Directors in 1995 pursuant to the Company's 1994 Stock
Option Plan, as amended (the "Plan"). Each of those options became exercisable
on October 12, 1996 at an exercise price of $4.00 per share and expire on
October 12, 2001.
According to the formula set forth in the Plan, in each year that a
non-employee director is newly elected to the Board of Directors of the Company,
and on the anniversary of each succeeding re-election, he or she will receive an
option having a six-year term to purchase 10,000 shares of Common Stock at a
purchase price equal to the then current market price. Such options will not be
exercisable for a one-year period commencing with the date of grant. The
provisions of the Plan which govern grants of options to non-employee directors
may not be amended more than once in any six-month period, other than to comply
with changes in the Internal Revenue Code of 1986, as amended (the "Code"), the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or other
applicable federal or state law.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Federal securities laws require the Company's directors, certain of its
officers, and persons owning beneficially more than ten percent (10%) of a
registered class of the Company's equity securities, to file initial reports of
ownership and reports of changes in ownership with the Commission. The Company
is required to disclose any failure of persons, who at any time during the
fiscal year, were directors, officers required to report, or more than ten
percent (10%) beneficial owners, to file timely those reports during the year
ended June 30, 1996 or prior years. The Company undertakes the responsibility to
file all required reports on behalf of its directors and officers. To the
Company's knowledge, based solely upon information furnished to the Company by
its directors and certain of its officers, during the fiscal year ended June 30,
1996, all of the Company's directors, officers required to report, and greater
than ten percent (10%) beneficial owners, made all such filings on a timely
basis, except for the following: a Form 3 for Frank H. Slovenec, an officer of
Systems, was not filed on a timely basis, and a Form 5 for Ronald G. Farrell, an
officer and director of the Company, was not filed on a timely basis.
5
<PAGE> 8
POSSIBLE INCREASE IN THE SIZE OF THE BOARD OF DIRECTORS
The Board of Directors is presently considering increasing the size of the
Board of Directors from five to seven members. Pursuant to the Company's bylaws,
the number of directors may be increased by a majority vote of the Board of
Directors, and any vacancies created by such increase in the number of directors
may be filled by a majority vote of the remaining directors. Directors elected
in such manner would hold office until the next annual meeting of stockholders.
A final decision has not been made to increase the size of the Board of
Directors, and no person has been identified as of the date hereof to fill any
vacancy created by such an increase.
6
<PAGE> 9
EXECUTIVE OFFICERS
The following are the executive officers of the Company as of October 4,
1996, their respective ages, the year in which each was first elected an officer
and the office of the Company held by each. Except as set forth below, each
executive officer will hold office until the next annual meeting of the Board of
Directors or until their respective successors have been duly elected and
qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Ronald G. Farrell............. 53 Chief Executive Officer, Chairman of the Board of the
Company and Systems and President of the Company
John F. Chiste................ 40 Chief Financial Officer, Secretary, Treasurer of the
Company and Systems
</TABLE>
JOHN F. CHISTE has been the Chief Financial Officer of the Company since
May 24, 1994 and of Systems since January 1993. Prior to joining the Company,
Mr. Chiste was Chief Financial Officer of Sports/Leisure, Inc. from May 1992 to
December 1992. Prior to his employment by Sports/Leisure, Inc., Mr. Chiste was
employed by Ernst & Young LLP for 13 years, most recently as a Senior Manager.
Mr. Chiste is a Certified Public Accountant. Mr. Chiste's employment agreement
with Systems will end on February 28, 1997 and Mr. Chiste has informed the
Company that he will terminate his employment at that time.
For information regarding Ronald G. Farrell, see the descriptions above
under "Item 1 -- Election of Directors."
7
<PAGE> 10
COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth for each of the fiscal years 1994 through
1996, the compensation awarded to, earned by or paid to the Company's Chief
Executive Officer, and the Company's other most highly compensated executive
officers, whose total annual salary and bonus exceeded $100,000 for services
rendered in all capacities to the Company during the fiscal year ended June 30,
1996 (collectively the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ----------------------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Ronald G. Farrell 1996 $300,300 $448,215(1) $ 14,117(2)(3)
Chairman of the Board of 1995 278,000 107,968 13,400(2)(3)
Directors, President and 1994 199,225 72,197 12,000(2)(3)
Chief Executive Officer
John F. Chiste 1996 $139,100 $102,287(1) $ 8,063(4)
Chief Financial Officer 1995 121,175 57,188 6,893(4)
Secretary and Treasurer 1994 95,350 28,878 6,906(4)
Frank H. Slovenec 1996 $226,000 $ 65,000 $ 5,976(5)
President of Systems 1995 -0- -0- -0-
1994 -0- -0- -0-
Ira Cohen 1996 $206,600 $ 63,229 $ 12,513(6)
Executive Vice President of 1995 185,191 -0- 12,470(6)
Systems, Copley Systems Division 1994 146,205 -0- 12,743(6)
Samuel C. McElhaney 1996 $190,750 $ 30,000 $ 13,643(7)
Executive Vice President of 1995 250,000 -0- 16,766(7)
Systems, Dataprint Division
</TABLE>
- ---------------
(1) Includes a one time discretionary bonus of $255,000 and $25,000 paid to Mr.
Farrell and Mr. Chiste, respectively, in connection with the acquisition of
Cedar Computer Center, Inc.
(2) Consists of automobile allowance of $1,000 per month and an employer
contribution to Mr. Farrell's 401(k) deferred compensation plan in 1996,
1995 and 1994 in the amounts of $2,117, $1,400 and $1,081, respectively.
(3) RGF, a company wholly-owned by Mr. Farrell, was paid one-time acquisition
fees in 1995 and 1994 of $308,000 and $125,000, respectively, in connection
with the acquisitions of Copley Systems Corporation and Dataprint, Inc. In
addition, the Company has made certain payments on behalf of RGF, relating
to overhead and rent for offices leased by RGF and subleased to the Company
by RGF, in the aggregate amounts of $34,093, $35,361 and $32,287 for the
years ended June 30, 1996, 1995 and 1994, respectively, which amounts
approximate the rental expense incurred by RGF under its primary lease for
such offices. See "Compensation Committee Interlocks and Insider
Participation" below.
(4) Consists of auto allowance of $500 per month for all of fiscal 1996, 1995,
1994 and an employer contribution to Mr. Chiste's 401(k) deferred
compensation plan in 1996, 1995 and 1994 in the amounts of $2,063, $893 and
$906, respectively.
(5) Consists of auto allowance of $500 per month for fiscal 1996 and an employer
contribution to Mr. Slovenec's 401(k) deferred compensation plan of $976 in
fiscal 1996.
(6) Consists of auto allowances of $11,539, $11,539 and $11,723 in fiscal 1996,
1995 and 1994, respectively, and employer contributions to Mr. Cohen's
401(k) deferred compensation plan in 1996, 1995 and 1994 in the amounts of
$974, $931 and $1,020, respectively.
(7) Consists of auto allowance of $12,000 and $16,766 in fiscal 1996 and 1995,
respectively, and employer contributions to Mr. McElhaney's 401(k) deferred
compensation plan in 1996 in the amount of $1,643.
8
<PAGE> 11
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Systems entered into an employment agreement with Mr. Farrell on August 1,
1992, which agreement was modified on July 12, 1994 and June 12, 1995, to extend
the term thereof from December 31, 1996 to December 31, 1999. Pursuant to such
employment agreement, Mr. Farrell received base compensation of $300,300,
$278,000 and $199,225 during the years ended June 30, 1996, 1995 and 1994,
respectively. Mr. Farrell's annual base compensation is $314,600 through
December 31, 1996; thereafter, his base compensation will increase 10% annually
over the amount established in the previous calendar period, throughout the
remaining term of the agreement. The agreement also provides that Mr. Farrell
shall be entitled to a bonus of 5% of the pre-tax net income of Systems for each
fiscal year during the term of the agreement, but in no event may such bonus
exceed 100% of his annual base compensation. During the term of his employment
agreement and for a period of one year after his termination for cause or the
voluntary termination of his employment agreement, Mr. Farrell may not directly
or indirectly compete with Systems.
In the event of termination by Systems without cause, Systems would be
obligated under the employment agreement to pay Mr. Farrell earned compensation
up to the date of termination, plus all compensation (including base salary and
bonus) which would have been earned during the remainder of the term of
employment agreement within ten days of such termination. If such termination
occurs after December 31, 1998, Mr. Farrell would receive an additional amount
of $250,000 within such ten day period.
Mr. Farrell's employment agreement further provides that, in the event of a
purchase, merger, consolidation or other event which results in a change in
control of Systems, Systems will require any successor (whether direct or
indirect, friendly or hostile) to all or substantially all of the business
and/or assets of Systems, to compensate Mr. Farrell on the same terms as he
would be entitled to under the employment agreement if he were terminated
without cause and that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the termination
date.
Systems entered into an employment agreement with Mr. Slovenec effective
September 1, 1995, which agreement was terminated on October 3, 1996. Pursuant
to his employment agreement, Mr. Slovenec received base compensation of $250,000
for the fiscal year ended June 30, 1996. Mr. Slovenec was also entitled, under
the agreement, to certain annual bonuses equal to a percentage of his base
compensation. For a period of 18 months after his termination for cause or the
voluntary termination of his employment agreement, Mr. Slovenec may not directly
or indirectly compete with Systems.
Systems entered into an employment agreement with Mr. Chiste commencing
January 1, 1993, which agreement was subsequently modified to extend the term to
February 28, 1997. Under the employment agreement, Mr. Chiste received base
compensation of $139,100, $121,175 and $95,350 during the years ended June 30,
1996, 1995 and 1994, respectively. Mr. Chiste's base compensation was increased
to $143,000 on an annualized basis through December 31, 1996. The agreement, as
modified, also provides that Mr. Chiste shall be entitled to a bonus of 2% of
the pre-tax net income of Systems for each fiscal year during the term of the
agreement, but in no event may such bonus exceed a maximum of 75% of his annual
base compensation. During the term of his employment agreement and for a period
of two years after his termination for cause or his voluntary termination of his
employment agreement, Mr. Chiste may not directly or indirectly compete with
Systems. Mr. Chiste's employment agreement with Systems will end on February 28,
1997 and Mr. Chiste has informed the Company that he will terminate his
employment at that time. Commencing February 1, 1997 and on the first day of
each month thereafter through September 1, 1997, Mr. Chiste will receive a
severance payment of $23,125 (or a total of $185,000).
In the event of termination by Systems without cause, Mr. Chiste shall be
entitled to compensation earned up to the date of termination plus all
compensation he would have earned during the remaining term of the employment
agreement at the time and in the manner as if such termination had not occurred.
Mr. Chiste's employment agreement further provides that, in the event of a
purchase, merger, consolidation or other event which results in a change in
control of Systems, Systems will require any successor (whether direct or
indirect, friendly or hostile) to all or substantially all of the business
and/or assets of Systems, to pay Mr. Chiste all base and bonus compensation, and
benefits due him under his employment agreement through and including December
31, 1998 as if Mr. Chiste were employed through that date.
9
<PAGE> 12
Copley Systems Corporation entered into an employment agreement with Mr.
Cohen on October 1, 1993, which agreement was modified on July 12, 1994 and
expired on June 30, 1996. For a period of two years after his termination for
cause or his voluntary termination of his employment agreement, Mr. Cohen may
not directly or indirectly compete with the Company. Commencing August 30, 1996
and ending July 30, 1997, Mr. Cohen will receive twenty-six equal payments of
approximately $6,730 (or a total of $175,000) as severance.
Dataprint, Inc. entered into an employment agreement with Mr. McElhaney on
July 13, 1994, which agreement expired on July 12, 1995, providing for annual
compensation of $250,000. Systems entered into a new employment agreement with
Mr. McElhaney, effective October 1, 1995, which agreement expired on June 30,
1996 and provided for compensation of $175,000. On June 30, 1996, Mr. McElhaney
voluntarily terminated his employment with Systems. For a period of three years
after his termination for cause or his voluntary termination of his employment
agreement, Mr. McElhaney may not directly or indirectly compete with Systems.
CONSULTING AGREEMENT
Systems entered into a two-year consulting agreement with Michael
Moskowitz, the founder of Copley, effective October 1, 1993, pursuant to which
Mr. Moskowitz provided Systems with managerial, operational and financial
consultation and advice from time to time. Mr. Moskowitz served as Copley's
President from April 1984 to March 1993. The consulting agreement terminated on
September 30, 1995, and provided for annual compensation of $150,000 during the
first year of the term and $200,000 during the final year of the term.
KEY PERSON LIFE INSURANCE AND DIRECTORS AND OFFICERS LIABILITY INSURANCE
The Company's Board of Directors has authorized the purchase of $2 million
in life insurance on the life of Mr. Farrell and $1 million in life insurance on
the life of Mr. Slovenec, of which the Company will be the beneficiary of 50% of
the face amount and the officers' designees will be the beneficiaries of the
remaining 50%.
The Company has obtained a directors and officers liability insurance
policy with a policy limit of $5 million for the benefit of its directors and
officers. Under the policy, such persons are insured against certain liabilities
incurred in the discharge of their duties, solely in their capacity as directors
and officers of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's executive officers have employment agreements governing their
compensation. The Chief Executive Officer's salary, as set forth in his
employment agreement, was ratified by the Board of Directors, with Mr. Farrell
abstaining. The salaries of the Company's other executive officers were
determined by the entire Board of Directors, based on recommendations of the
Chief Executive Officer, and are also set forth in employment agreements. Since
the execution of the employment agreements, the Board of Directors has appointed
a Compensation Committee, consisting of three non-employee directors, Messrs.
Assaf, Cossutta and Zappala. The Board currently consists of Ronald G. Farrell,
the Company's President, Chief Executive Officer and Chairman and four
non-employee directors, Ronald G. Assaf, Araldo Cossutta, Frank Zappala and
Samuel McElhaney.
The Company subleases offices for its corporate headquarters in Boca Raton,
Florida, from R.G. Farrell, Inc. ("RGF"), a Florida corporation wholly-owned by
Mr. Farrell, for an aggregate annual rent of $32,400, which amount approximates
the annual rent incurred by RGF under its primary lease. The Company's sublease
will expire on February 28, 1997. The Company believes that the terms of the
sublease from RGF are at least as favorable as those which the Company could
obtain from an independent third party for similar space.
On December 15, 1994, the Company's Board of Directors approved a personal
loan to Mr. Farrell in the principal amount of $115,000 with interest accruing
at an annual rate of prime plus 3%. The loan was secured
10
<PAGE> 13
by shares of Common Stock owned by RGFI. The note plus accrued interest thereon
was paid in full on July 7, 1995.
On May 15, 1996, the Company's Board of Directors approved a personal loan
to Mr. Farrell in the principal amount of $200,000 with interest accruing at an
annual rate of 5.76%. The loan was secured by shares of Common Stock owned by
RGFI. The purpose of the loan was to assist in the payment of relocation
expenses incurred in connection with Mr. Farrell's move to Atlanta, Georgia, the
site of the Company's new corporate headquarters.
As successor by merger to Dataprint, Inc., the Company leases offices for
the Dataprint Division's headquarters in Charlotte, North Carolina from director
Samuel McElhaney and his wife, Jane McElhaney, for an aggregate annual rent of
$264,000. The Company believes that the terms of the sublease from the
McElhaneys, which will expire on August 31, 1997, are at least as favorable as
those which the Company could obtain from an independent third party for similar
space.
Three of the Company's directors, Messrs. Cossutta, Zappala and Assaf, have
contractual registration rights with respect to 256,000, 40,000 and 20,000
shares of Common Stock, respectively. In addition, the former Chief Executive
Officer of NEG, Inc., the Company's predecessor, has contractual registration
rights with respect to 25,000 shares issuable upon the exercise of options. On
June 14, 1996, the Company satisfied its initial registration obligations by
registering for sale all such shares of Common Stock with the Securities and
Exchange Commission.
COMPENSATION COMMITTEE REPORT
Executive Compensation Policy -- The Company's overall compensation
philosophy is as follows:
- Attract and retain quality talent, which is critical to both the
short-term and long-term success of the Company;
- Foster a performance-oriented environment, where compensation is based
upon corporate performance as measured by achievement of short- and long-term
objectives, taking into account economic conditions and competitive compensation
levels;
- Create a mutuality of interest between executive officers and
shareholders through compensation structures that share the rewards and risks of
strategic decision making; and
- Promote a cohesive, team oriented ethic among members of senior
management in order to maintain the competitive advantage of efficiently
integrating diverse business capabilities.
Base Compensation -- The Compensation Committee's approach to base
compensation is to offer competitive salaries in comparison to those of other
computer equipment resellers. Increases in base compensation will be based on
the competence and performance of the Company's executives and take into account
the performance of the Company.
The Committee's policy is to enter into employment agreements with the
Company's principal executive officers. In determining the compensation payable
under such employment agreements, the Committee examines market compensation
levels and trends observed in the labor market. Market information is used as a
frame of reference for compensation decisions. The salary of all officers is
determined by the Board acting as a whole based on the recommendations of the
Committee.
The Committee believes that it is appropriate to specifically tie a portion
of the compensation of its executive officers to the performance of the Company
and its subsidiaries. Consequently, as discussed above, each executive officer's
salary has two components, base salary and bonus compensation. Bonus
compensation is determined as a percentage of the pre-tax net income of the
division or divisions for which the executive is responsible, and, under certain
circumstances, may be based upon specific accomplishments of the executive.
The Committee also believes that stock ownership enhances management's
focus on maximizing stockholder value. Consequently, the Company has also
adopted an incentive stock option plan for its officers and employees. The
administrators of that plan will allocate options to employees, including
executive officers,
11
<PAGE> 14
based on an evaluation of their relative levels of responsibility for, and
contribution to, the Company's operating results (in relation to the Company's
other optionees) and the number of options then owned by the employee.
CEO Compensation -- As indicated above, on August 1, 1992, Systems entered
into an employment agreement with Mr. Farrell, which was subsequently amended on
July 12, 1994 and June 12, 1995. The terms of such agreement, including the base
salary and bonus compensation thereunder, were ratified by the Board of
Directors, with Mr. Farrell abstaining. See "COMPENSATION -- Employment
Agreements, Termination and Change-In-Control Arrangements" for information
concerning Mr. Farrell's compensation.
As Chairman and Chief Executive Officer, Mr. Farrell's total compensation
is more directly related to corporate performance than other executive officers.
Mr. Farrell founded the Company in July 1992. Since that time, the Company's net
sales have increased from $0 in 1992 to approximately $450,000,000 for the
fiscal year ended June 30, 1996. That growth was attributable to both
acquisitions and internal growth. On March 30, 1993, the Company acquired Copley
Systems Corporation ("Copley") of Westwood, Massachusetts. Effective July 1,
1994, the Company acquired Dataprint, Inc. ("Dataprint") of Charlotte, North
Carolina. Effective July 1, 1995, the Company acquired the assets of Cedar
Computer Center, Inc. ("Cedar") of Des Moines, Iowa. Copley, Dataprint and Cedar
were each, respectively, one of the largest dealers of Hewlett-Packard computer
products in the northeastern, southeastern and mid-western/western United
States. Mr. Farrell identified the acquisition candidates, negotiated the terms
of the acquisitions and obtained the necessary debt and equity financing to
consummate the transactions.
Accordingly, Mr. Farrell's base and bonus compensation, as established
pursuant to the formula set forth in his employment agreement, increased by
approximately 69% from fiscal 1993 to fiscal 1994, by approximately 42% from
fiscal 1994 to fiscal 1995 and by approximately 28% from fiscal 1995 to fiscal
1996. In fiscal 1994, 1995 and 1996, respectively, approximately 60%, 25% and
27% of Mr. Farrell's total compensation pursuant to his employment agreement was
represented by discretionary and performance bonuses. RGF, a company
wholly-owned by Mr. Farrell, was paid one-time acquisition fees of $308,000 and
$125,000, respectively, in connection with the acquisitions of Copley and
Dataprint.
Mr. Farrell was also granted options to purchase 200,000 shares of Common
Stock during fiscal 1996. The Committee believes that this level of options
places the proper emphasis on stock appreciation in Mr. Farrell's total
compensation package and further strengthens the alignment of his interests with
those of stockholders.
Respectfully submitted by the Compensation Committee:
Ronald G. Assaf
Araldo A. Cossutta
Frank J. Zappala, Jr.
STOCK PERFORMANCE
The Company's Common Stock has been traded on the Nasdaq SmallCap Market
since June 21, 1996 under the symbol CICC. During the period from the
commencement of trading on the Nasdaq SmallCap Market through October 4, 1996,
the high and low sale prices for the Common Stock were $5.00 and $0.75,
respectively.
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<PAGE> 15
STOCK OPTION GRANTS
The following table sets forth information regarding stock options granted
to the Company's Named Officers during the fiscal year ended June 30, 1996 and
the potential value of such options at the end of their terms, assuming certain
levels of stock price appreciation:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED
------------------------------------------------- ANNUAL RATES
PERCENT OF OF STOCK PRICE
TOTAL APPRECIATION
SHARES OPTIONS FOR OPTION
UNDERLYING GRANTED TO TERM(4)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR PRICE DATE 5% 10%
- ----------------------- ---------- ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ronald G. Farrell(1)... 200,000 46.2% $ 4.00 3/12/02 $272,000 $618,000
John F. Chiste(2)...... 25,000 5.8 4.00 1/30/02 34,000 77,250
Frank H. Slovenec(3)... 100,000 23.1 4.00 1/30/02 136,000 309,000
Ira Cohen(2)........... 25,000 5.8 4.00 1/30/02 34,000 77,250
Samuel C. McElhaney.... -- -- -- -- -- --
</TABLE>
- ---------------
(1) The options granted to Mr. Farrell during fiscal 1996 will not vest unless
and until such time as the price of Common Stock has been at least $6.00
per share for a period of two consecutive weeks between March 12, 1996 and
June 30, 1997.
(2) The options granted to Mr. Chiste and Mr. Cohen during fiscal 1996 vest in
one-third increments annually beginning on the first anniversary of the
date of grant.
(3) The options granted to Mr. Slovenec during fiscal 1996 vest as follows:
30,000 on July 1, 1996 and 1997, respectively, and 40,000 on July 1, 1998.
(4) Dollar amounts represent the potential realizable value of each grant of
options assuming that the market price of the Common Stock appreciates in
value from the date of grant to the expiration date at 5% and 10% annual
rates of return. These calculations are not intended to forecast possible
future appreciation, if any, of the price of Common Stock.
STOCK OPTION EXERCISES AND HOLDINGS
The following table provides certain information concerning the unexercised
options to purchase shares of Common Stock held by the Company's Named Officers
as of June 30, 1996. No stock options were exercised by any Named Officer of the
Company during the fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT JUNE 30, 1996(#) JUNE 30, 1996(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald G. Farrell........................ 118,000 200,000 $ 442,500 $ 150,000
John F. Chiste........................... 25,000 25,000 93,750 18,750
Frank H. Slovenec........................ -- 100,000 -- 75,000
Ira Cohen................................ 42,900 25,000 160,875 18,750
Samuel C. McElhaney...................... -- -- -- --
</TABLE>
- ---------------
(1) Dollar values are calculated based on the difference between the option
exercise price and $4.75, the closing price of the Common Stock on June 28,
1996 as reported by Nasdaq.
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<PAGE> 16
EMPLOYEE SAVINGS PLANS
Effective September 1, 1993, Copley terminated its profit sharing plan and
adopted a 401(k) plan. Effective July 1, 1995, Systems adopted a 401(k) plan
(the "401(k)") and the Copley 401(k) was merged with the Systems 401(k). Systems
administers the 401(k) and all Systems employees are eligible to participate in
the 401(k) upon completion of one year of service and the attainment of age 21.
Voluntary employee pre-tax contributions may be made to the 401(k) in 1%
increments from 1% to 15% of total gross annual compensation. Systems makes
matching contributions of 25% of the first 4% of employee pre-tax contributions.
In addition, as a one-time incentive for employees to enroll, Systems
contributed $600 to the 401(k) for each employee who enrolled on September 1,
1993 (the "Incentive Bonus"). The employee's account balance, including Systems'
contributions, will be 100% vested at all times. The Incentive Bonus will be
subject to the same vesting schedule as the 401(k)'s vesting schedule. A
participant is entitled to receive a distribution of the vested interest in his
or her account upon retirement, death, permanent disability or termination of
employment.
Dataprint had a Profit Sharing Defined Contribution Plan with 401(k)
Savings Plan, whereby Dataprint matched 50% of employee contributions up to 6%
of salary deferrals. Effective July 1, 1995, the separate Systems and Dataprint
401(k) plans were merged into one plan.
Cedar has a 401(k) plan under which all Cedar employees are eligible to
participate upon completion of one year of service and the attainment of age 21.
Voluntary employee pre-tax contributions may be made to the Cedar 401(k) in 1%
increments from 1% to 15% of total gross annual compensation. Cedar does not
make any matching contributions. Under ERISA, after expiration of a transition
period beginning on July 1, 1995 and ending on the last day of the first plan
year which begins after that date, the separate Systems and Cedar 401(k) plans
will be treated as one for purposes of qualifying under ERISA minimum and
nondiscriminatory coverage requirements.
EMPLOYEE INCENTIVE PLAN
The Company has adopted a 1994 Employee Incentive Plan (the "Employee
Incentive Plan"). Pursuant to the Employee Incentive Plan, key employees of the
Company who have been selected as participants are eligible to receive awards of
various forms of equity-based incentive compensation, including stock
appreciation rights, restricted stock awards, performance shares, performance
units and awards consisting of combinations of such incentives. The Employee
Incentive Plan is administered by the Compensation Committee. No Compensation
Committee member will be eligible to participate in the Employee Incentive Plan.
Subject to the provisions of the Employee Incentive Plan, the Compensation
Committee has sole discretionary authority to interpret the Employee Incentive
Plan and to determine the type of awards to grant, when, if and to whom awards
are granted, the number of shares covered by each award and the terms and
conditions of the award.
Shares of Common Stock covered by a restricted stock award will be issued
to the recipient at the time the award is granted, but will be subject to
forfeiture in the event continued employment and/or other restrictions and
conditions established by the Compensation Committee at the time the award is
granted are not satisfied. A performance unit will provide for the future
payment of cash or the issuance of shares of Common Stock to the recipient if
continued employment or other performance objectives established by the
Compensation Committee at the time of grant are attained. Stock bonus awards,
restricted stock awards and performance unit awards may, in the discretion of
the Compensation Committee, be settled in cash, on each date on which shares of
Common Stock covered by the awards would otherwise have been delivered or become
unrestricted, in an amount equal to the fair market value of such shares on such
date. The Company has reserved 5,000 shares of Common Stock for issuance under
the Employee Incentive Plan. Pursuant to the Employee Incentive Plan, during
1996, the Company issued ten shares of its Common Stock to each of its 445
employees.
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<PAGE> 17
RELATED PARTY TRANSACTIONS
ACQUISITION OF CEDAR
Effective July 1, 1995, Systems acquired substantially all of the assets,
and assumed certain liabilities and obligations of Cedar, for an aggregate
purchase price of approximately $16,183,000. The purchase price was determined
by arm's-length negotiations between Cedar (n/k/a "The Current Exchange, Inc.")
and Systems and is payable to Cedar as follows: approximately $9,860,000 in
cash, $2,077,000 of subordinated promissory notes, $515,000 representing the
fair value at the date of acquisition of 515,000 shares of Common Stock and
$3,731,000 representing the fair value of the Company's guarantee that the
Common Stock will have a market value of $10 per share at the end of three years
following the sale. The cash portion of the purchase price was obtained from the
Company's $70 million revolving credit facility with Congress Financial
Corporation (New England).
In connection with the acquisition of the assets of Cedar, Systems and
Cedar entered into a lease agreement on July 1, 1995 for the lease of
approximately 4,200 square feet of office space in Des Moines, Iowa, which space
served as the former headquarters of Cedar and will continue to be the division
headquarters for the Cedar Division. The lease provides for a term of one year
and annual rent of approximately $37,000.
ITEM 2 -- AMENDMENT OF 1994 STOCK OPTION PLAN
In April 1994, the Board of Directors of the Company approved the adoption
of the 1994 Stock Option Plan (the "Plan"), which Plan was amended in June 1994
and September 1995. Such amendments to the Plan were approved by the Company's
stockholders in July 1994 and October 1995, respectively. The Board of Directors
has adopted, subject to approval by the affirmative vote of a majority of the
shares of Common Stock represented at the Annual Meeting, in person or by proxy,
Amendment No. 2 to the Plan, a copy of which is annexed hereto as Exhibit A.
GENERAL
Under the Plan, the Company has reserved an aggregate of 1,050,000 shares
of Common Stock for issuance, of which options to acquire 957,750 shares are
currently outstanding. The purpose of the Plan is to encourage stock ownership
by certain officers, non-employee directors and key personnel, including
consultants and advisors, of the Company and its wholly-owned subsidiaries, to
give such persons a greater personal interest in the success of the Company's
business, and to provide incentive to continue to advance and contribute to the
Company. The Plan is administered by those members of the Board of Directors of
the Company who are "disinterested persons" within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended, which
committee selects the persons who will be granted options under the Plan,
prescribes the terms and provisions of each option granted (which need not be
identical), specifies the number of shares subject to each option, sets the
option price and determines the maximum period during which options may be
exercised.
Options granted under the Plan may either be options qualifying as
incentive stock options (the "Incentive Options") under Section 422(a) of the
Internal Revenue Code of 1986, as amended, or non-qualifying options
("Nonqualified Options"). Any Incentive Option granted under the Plan must
provide for an exercise price of not less than 100% of the fair market value of
the underlying shares on the date of such grant; provided, however, that the
exercise price of any Incentive Option granted to an eligible employee owning
more than 10% of the outstanding Common Stock of the Company must not be less
than 110% of such fair market value as determined on the date of the grant. The
term of each option and the manner in which it may be exercised is determined by
the Board of Directors, provided that no option may be exercisable more than ten
years after the date of its grant and, in the case of an Incentive Option
granted to an eligible employee owning more than 10% of the Common Stock, no
more than five years after the date of the grant.
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<PAGE> 18
The individuals eligible to receive options under the Plan are employees,
non-employee directors, advisors and consultants of the Company and its
subsidiaries. Non-employee directors, advisors and consultants shall only be
eligible to receive Nonqualified Options. Employees are eligible to receive both
Incentive Options and Nonqualified Options. The Company currently has four
non-employee directors and 511 employees who are eligible to participate in the
Plan. In the event that an outstanding option terminates for any reason, the
shares of Common Stock subject to the unexercised portion of such option shall
again be available for grants under the Plan.
Options granted under the Plan are nontransferable and nonassignable by the
optionee, other than by will or the laws of descent and distribution, and are
exercisable during his or her lifetime only by the optionee. No option may be
exercised after the expiration of its term. The Company receives no proceeds
upon the grant of options. Any proceeds received by the Company from the sale of
Common Stock on the exercise of options shall be used for general corporate
purposes.
Upon the occurrence of certain events involving a recapitalization or
reorganization of the Company, the committee will make appropriate adjustments
to the number of shares covered by each outstanding option and the per share
exercise price thereof, in its discretion, to prevent dilution or enlargement of
rights.
The Board of Directors of the Company may at any time suspend or
discontinue the Plan or revise or amend it in any respect whatsoever, provided,
however, that without approval of the stockholders, no revision or amendment
shall increase the number of shares of Common Stock that may be issued under the
Plan, materially increase the benefits accruing to individuals holding options
granted pursuant to the Plan or materially modify the requirements as to
eligibility for participation in the Plan.
The Plan currently provides that each existing non-employee director of the
Company as of October 12, 1995, or any other non-employee as of the date he or
she first becomes a director, shall automatically be granted a Nonqualified
Option to purchase 10,000 shares of Common Stock. The options granted to the
Company's non-employee directors have an exercise price of $4.00 per share. A
Nonqualified Option to purchase an additional 10,000 shares of common stock
shall be granted to each such non-employee director on each election to the
Board, or one year anniversary of his or her last election and continued service
on the Board (the "Formula Plan"). All such options granted to non-employee
directors will have an exercise price per share equal to 100% of the fair market
value per share of the Common Stock on the date of such grant, shall not be
exercisable for a period of one year from the date of grant and shall expire on
the earlier of (i) six years from the date of grant or (ii) 30 days after the
optionee shall cease to be a member of the Board.
FEDERAL INCOME TAX CONSEQUENCES
The grant of an Incentive Option or a Nonqualified Option would not result
in income for the grantee or in a deduction for the Company.
The exercise of a Nonqualified Option would result in ordinary income for
the optionee and a deduction for the Company measured by the difference between
the option price and the fair market value of the shares received at the time of
exercise. Income tax withholding would be required.
The exercise of an Incentive Option would not result in income for the
grantee if the grantee (i) does not dispose of the shares within two years after
the date of grant or one year after the transfer of shares upon exercise and
(ii) is an employee of the Company or a subsidiary of the Company from the date
of grant until three months before the exercise date. If these requirements are
met, the basis of the shares upon later disposition would be the option price.
Any gain will be taxed to the employee as long-term capital gain and the Company
would not be entitled to a deduction. The excess of the market value on the
exercise date over the option price is an item of tax preference, potentially
subject to the alternative minimum tax.
If the grantee disposes of the shares prior to the expiration of either of
the holding periods, the grantee would recognize ordinary income and the Company
would be entitled to a deduction equal to the lesser of the fair market value of
the shares on the exercise date minus the option price or the amount realized on
disposition minus the option price. Any gain in excess of the ordinary income
portion would be taxable as long-term or short-term capital gain.
16
<PAGE> 19
THE PROPOSED AMENDMENT
Amendment No. 2 would increase the number of shares of Common Stock
reserved for issuance under the Plan from 1,050,000 shares to 1,800,000 shares.
Presently, only 92,250 shares remain available for the grant of new options.
With the increase, the shares of Common Stock available for issuance under the
Plan will constitute 8.4% of the total shares of Common Stock outstanding on a
fully diluted basis, assuming the granting of awards for all of the Common Stock
available for issuance under the Plan and the issuance of such Common Stock upon
the exercise thereof and assuming that all options, rights and warrants for
Common Stock and all securities convertible into shares of Common Stock
currently outstanding are exercised or converted.
The Board of Directors believes that the Company's ability to grant
additional stock options is important to the Company's ability to recruit and
retain qualified personnel and directors.
VOTE REQUIRED FOR ADOPTION
For approval of Amendment No. 2 to the Plan, the affirmative vote of a
majority of the shares of Common Stock represented at the Annual Meeting, in
person or by proxy, is required. The Board of Directors recommends a vote FOR
the adoption of Amendment No. 2 to the Plan.
ITEM 3 -- RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
The Board of Directors, upon recommendation of its Audit Committee, has
appointed the firm of Ernst & Young LLP as the Company's certified independent
public accountants with respect to its operations for the fiscal year ending
June 30, 1997, subject to ratification of such appointment by the holders of
Common Stock.
To ratify the selection of Ernst & Young LLP, the affirmative vote of a
majority of the shares of Common Stock represented at the Annual Meeting, in
person or by proxy, is required. The Board of Directors recommends a vote FOR
this proposal.
The Company anticipates that a representative of Ernst & Young LLP will be
present at the Annual Meeting, and such representative will have the opportunity
to make a statement if he or she desires to do so and will be available to
respond to appropriate questions.
OTHER MATTERS
The Board of Directors is not aware of any other matters to come before the
Annual Meeting. However, if any other matters properly come before the Annual
Meeting, it is the intention of the person named in the enclosed form of proxy
to vote said proxy in accordance with his judgment in such matters.
REVERSE STOCK SPLIT
At the 1995 annual meeting of stockholders, the stockholders approved a
reverse stock split in which holders of Common Stock would receive four shares
of Common Stock in exchange for every five shares of Common Stock held of
record. The reverse stock split was adopted by the stockholders in connection
with a proposed underwritten public offering of the Common Stock and was subject
to the right of the Company's Board of Directors to abandon such action at any
time. On March 12, 1996, the Company's underwriters determined not to proceed
with the public offering and the Board of Directors decided not to effectuate
the reverse stock split.
STOCKHOLDERS' PROPOSALS
Proposals of stockholders to be presented at the annual meeting to be held
in 1997 must be received for inclusion in the Company's proxy statement and form
of proxy by June 1, 1997.
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<PAGE> 20
EXHIBITS
The following exhibits are attached hereto and incorporated herein by
reference.
A. Amendment No. 2 to 1994 Stock Option Plan.
Dated: Boca Raton, Florida
October 17, 1996
18
<PAGE> 21
EXHIBIT A
AMENDMENT NO. 2 TO 1994 STOCK OPTION PLAN
RESOLVED, that the first sentence of Section 3 of the Company's 1994 Stock
Option Plan be amended to read in its entirety as follows:
Subject to adjustments pursuant to Section 9 of the Plan, no more than One
Million Eight Hundred Thousand (1,800,000) shares in the aggregate of the
Company's Common Stock (the "Reserved Shares") may be issued pursuant to
the Plan to eligible participants.
19
<PAGE> 22
EXHIBIT B
PROXY
COMPUTER INTEGRATION CORP.
The undersigned stockholder hereby appoints RONALD G. FARRELL, the attorney
and proxy of the undersigned, with power of substitution, to vote on behalf of
the undersigned stockholder all the shares of stock of Computer Integration
Corp. (the "Company"), which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the Boca Raton Marriott,
5150 Town Center Circle, Boca Raton, Florida 33486 on October 30, 1996 at 10:00
a.m., local time, and at all adjournments thereof, hereby revoking any proxy
heretofore given with respect to such stock, and the undersigned authorizes and
instructs said proxy to vote as follows:
1. Election of five directors.
/ / FOR the election of the nominees listed below (except as marked to the
contrary below):
Ronald G. Farrell, Frank J. Zappala, Jr., Araldo A. Cossutta, Ronald G. Assaf
and Samuel C. McElhaney
/ / WITHHOLD AUTHORITY to vote for all the nominees listed above.
/ / WITHHOLD AUTHORITY to vote for individual nominee or nominees listed in
the space provided below.
2. Approve Amendment No. 2 to the Company's 1994 Stock Option Plan, as amended.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED AND TO BE DATED AND SIGNED ON THE OTHER SIDE)
3. Ratify the Company's selection of the accounting firm of Ernst & Young LLP as
the Company's independent certified public accountants.
/ / FOR / / AGAINST / / ABSTAIN
4. In his discretion, upon such other business as may be properly brought before
the Annual Meeting.
If this Proxy is properly executed and returned, the shares represented
hereby will be voted as instructed. If not otherwise specified, this Proxy will
be voted FOR all of the persons nominated as directors, and FOR each of
proposals 2 and 3.
PLEASE DATE AND SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR BELOW AND RETURN IN
THE ENCLOSED ENVELOPE. IF ACTING AS EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN,
ETC., YOU SHOULD SO INDICATE WHEN SIGNING. IF THE SIGNER IS A CORPORATION,
PLEASE SIGN THE FULL CORPORATE NAME AND THE NAME AND TITLE OF THE DULY
AUTHORIZED OFFICER SIGNING ON SUCH CORPORATION'S BEHALF.
Dated:___________________, 1996
_______________________________
_______________________________
(Signature of Stockholders)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
