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PROSPECTUS
7,250,000 SHARES
COMPUTER INTEGRATION CORP.
COMMON STOCK
This Prospectus relates to the public offering and sale by certain
selling stockholders (collectively, the "Selling Stockholders"), of an aggregate
of 7,250,000 Shares (the "Shares") of the common stock, $.001 par value per
share (the "Common Stock"), of Computer Integration Corp. (the "Company")
including 300,000 shares issuable upon the exercise of 300,000 warrants (the
"Warrants"). Except for the proceeds from the exercise of the Warrants, the
Company will not receive any of the proceeds of sales of Common Stock offered
hereby. See "Use of Proceeds." Pursuant to a separate prospectus dated October
7, 1997, certain additional selling stockholders are currently offering an
additional 7,240,878 shares of Common Stock for sale.
The Common Stock is traded in the over-the-counter market, and price
quotations therefor are reported on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") under the symbol "CICC." The last
reported sale price of the Common Stock on September 30, 1997 was $1.4375 per
share.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
It is anticipated that the Shares may be offered for sale by one or
more of the Selling Stockholders, in their discretion, on a delayed or
continuous basis from time to time in transactions in the open market at prices
prevailing at the time of sale on the Nasdaq SmallCap Market or in negotiated
transactions pursuant to a separate prospectus. Such transactions may be
effected directly by the Selling Stockholders, each acting as principal for his
own account. Alternatively, such transactions may be effected through brokers,
dealers or other agents designated from time to time by the Selling
Stockholders, and such brokers, dealers or other agents may receive compensation
in the form of customary brokerage commissions or concessions from the Selling
Stockholders or the purchasers of the Shares. The Selling Stockholders, brokers
who execute orders on their behalf, and other persons who participate in the
offering of the Shares on their behalf may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and a portion of the
proceeds of sales and commissions or concessions therefore may be deemed
underwriting compensation for purposes of the Securities Act (see "Plan of
Distribution"). The aggregate proceeds to the Selling Stockholders from the sale
of the Shares will be the purchase price of the Shares sold less all applicable
commissions and underwriters discounts, if any, and other expenses of issuance
and distribution not borne by the Company. By agreement, the Company will pay
fees and expenses related to the offering of the Shares by the Selling
Stockholders, other than underwriting discounts, broker commissions and
applicable transfer taxes, if any, and certain counsel fees (see "Plan of
Distribution").
THE DATE OF THIS PROSPECTUS IS OCTOBER 7, 1997.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Copies of such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional Offices of the Commission: Seven World Trade Center, 13th
Floor, New York, NY 10048 and Citicorp Center, 500 West Madison Street (Suite
1400), Chicago, Illinois 60661. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission also maintains a Worldwide
Web site at http://www.sec.gov which contains reports, proxy statements and
other information regarding registrants, such as the Company, that file
electronically with the Commission. The Common Stock of the Company is quoted on
the Nasdaq SmallCap Market. Reports, proxy statements and other information
concerning the Company may be inspected at the offices of Nasdaq Operations at
1735 K Street, N.W., Washington, D.C. 20006.
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus omits certain of the information contained in the Registration
Statement and the exhibits and schedules thereto, as certain items are omitted
in accordance with the rules and regulations of the Commission. For further
information concerning the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and the exhibits and
schedules filed therewith, which may be inspected without charge at the office
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies
of which may be obtained from the Commission at prescribed rates. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and, in each instance, reference is made to the copy of such documents
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
INFORMATION INCORPORATED BY REFERENCE
The following documents of the Company which have been filed with the
Commission are hereby incorporated by reference in this Prospectus: (a) the
Annual Report of Computer Integration Corp. on Form 10-K for the fiscal year
ended June 30, 1997; (b) the Report on Form 8-K of Computer Integration Corp.
filed with the Commission on August 5, 1997; (c) the Report on Form 8-K of
Computer Integration Corp. filed with the Commission on July 11, 1995 as amended
on September 11, 1995; and (d) the description of the Common Stock contained in
the Company's Registration Statement on Form 8-A as filed with the Commission on
January 13, 1993.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Common Stock offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the respective dates of filing such documents. Any statement or
information contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed modified or superseded for the purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to any person to whom a
Prospectus is delivered, upon written or oral request, a copy of any or all of
the foregoing documents incorporated herein by reference (other than exhibits
and schedules to such documents). Requests should be directed to: Computer
Integration Corp., 2425 CrownPoint Executive Drive, Charlotte, North Carolina
28227, Attention: Investor Relations, telephone number (704) 847-7800.
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PROSPECTUS SUMMARY
THE COMPANY
The Company is one of the largest volume resellers of microcomputers,
workstations and related products, services and solutions to large and
medium-sized corporations, federal, state and local governmental entities and
colleges and universities in the United States. The Company distributes a broad
range of microcomputer-related products, services and solutions from major
hardware manufacturers and software developers such as Hewlett-Packard Company
("HP"), Compaq Computer Corporation ("Compaq"), Sun Microsystems Computer
Corporation ("Sun"), Toshiba America Information Systems, Inc. ("Toshiba"),
International Business Machines ("IBM"), Lexmark International ("Lexmark"), NEC
Technologies, Inc. ("NEC"), 3COM, Inc. ("3COM"), Oracle Corporation ("Oracle"),
Netscape Communications Corporation ("Netscape"), Sterling Commerce, Inc.
("Sterling"), Novell, Inc. ("Novell") and Microsoft Corporation ("Microsoft").
The Company is one of the largest resellers of computer products manufactured by
HP in the United States, and during the years ended June 30, 1996 ("Fiscal
1996") and June 30, 1997 ("Fiscal 1997"), sales of HP products accounted for
approximately 65% and 67% of the Company's net sales, respectively.
The Company has experienced rapid 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, and effective July 1, 1995, the
Company acquired substantially all of the assets of Cedar Computer Center, Inc.
("Cedar") of Des Moines, Iowa (the "Cedar Acquisition"). At the time of their
acquisitions, Copley and Dataprint were two of the largest dealers of HP
computer products in the northeastern and southeastern United States,
respectively. Cedar was one of the largest dealers of HP computer products in
the midwestern and western United States. Net sales of the Company have
increased from $103.9 million for the fiscal year ended June 30, 1993 to $417.5
million in Fiscal 1997.
The microcomputer industry has grown dramatically over the past several
years as a result of equipment price reductions, significant improvements in
hardware performance and software applications, increased use of microcomputers
by governments and businesses and increased product familiarity by end users.
The microcomputer distribution industry has experienced related growth in the
use of wholesale distribution channels by manufacturers for the distribution of
their products. The Company has distinguished itself from its competitors by
focusing primarily on the direct delivery of personal computer ("PC") hardware,
peripherals and software from selected manufacturers to a broad range of
customers through a low-cost, efficient method of distribution. The Company
configures PCs and printers with memory, operating systems and software at its
two distribution centers in Westwood, MA and Charlotte, NC. Management believes
that the Company's focus on a limited number of manufacturers, its expertise
with their product lines, commitment to servicing of its customers and efficient
distribution and delivery of products provide the Company a competitive
advantage and enable it to operate with relatively low operating costs.
The Company's operating strategy is to (i) increase customer loyalty
through the offering of a full array of services and excellent product delivery,
(ii) increase its market share of products of selected manufacturers such as HP,
Compaq, and Sun, (iii) grow its nationwide sales and distribution network and
its tele-sales operations, (iv) expand its systems integration and support
services, and (v) strengthen its professional, and solution services. The
Company may acquire other companies whose products and services complement the
Company's existing products and services, including both resellers and providers
of systems integration and other support services.
The Company's principal executive offices are located at 2425
CrownPoint Executive Drive, Charlotte, North Carolina 28227 and its telephone
number is (704) 847-7800.
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RISK FACTORS
INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS AND
INCORPORATED HEREIN BY REFERENCE, PROSPECTIVE INVESTORS SHOULD CONSIDER
CAREFULLY THE FOLLOWING RISK FACTORS BEFORE PURCHASING ANY SHARES OFFERED
HEREBY.
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE
HARBOR" FOR FORWARD-LOOKING STATEMENTS. CERTAIN STATEMENTS INCLUDED IN THIS
PROSPECTUS ARE FORWARD-LOOKING, SUCH AS STATEMENTS REGARDING THE COMPANY'S
GROWTH STRATEGY AND ANTICIPATED RESULTS FOR THE YEAR ENDED JUNE 30, 1998. SUCH
FORWARD-LOOKING STATEMENTS ARE BASED ON THE COMPANY'S CURRENT EXPECTATIONS AND
ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS IN THE FUTURE TO DIFFER SIGNIFICANTLY FROM RESULTS EXPRESSED OR IMPLIED
IN ANY FORWARD-LOOKING STATEMENTS MADE BY, OR ON BEHALF OF, THE COMPANY. THESE
RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, UNCERTAINTIES RELATING
TO THE COMPANY'S RELATIONSHIPS WITH KEY CUSTOMERS AND IMPLEMENTATION OF THE
COMPANY'S GROWTH STRATEGY. THESE AND OTHER RISKS ARE DETAILED BELOW AS WELL AS
IN OTHER DOCUMENTS FILED BY THE COMPANY WITH THE COMMISSION.
DEPENDENCE ON KEY SUPPLIERS
Products from HP accounted for 67% and 65%, respectively, of the
Company's net sales for Fiscal 1997 and Fiscal 1996. The Company purchases its
other products from a number of distributors. For Fiscal 1997, products from one
distributor accounted for 13% of the Company's sales (the "Primary
Distributor"). The Company's business is dependent upon terms provided by its
major vendors, including pricing and related provisions, product availability,
credit terms and cooperative advertising and marketing allowances. The Company
operates under authorized dealer agreements with its suppliers, which agreements
are typically non-exclusive, short-term in duration, subject to periodic
renewal, and may be terminated by either party without cause on short notice.
The Company's current reseller's agreement with HP has a one-year term expiring
on February 28, 1998. The agreement allows either party to terminate the
agreement without cause upon 30 days written notice, or with cause upon 15 days
written notice. The Company's current agreement with its Primary Distributor has
a one-year term expiring April 4, 1998. The agreement allows either party to
terminate with or without cause on 30 days' notice.
The Company's total purchases of products from HP have qualified the
Company for HP's maximum reseller's volume discount (presently known as the
"Level II Discount") since August 1, 1994. As of the date of this Prospectus,
the Level II Discount is available to resellers who have attained gross
purchases of HP products of at least $135.0 million during a contract year.
Qualification for the Level II discount enables the Company to purchase HP
products at the lowest available cost. There can be no assurance that HP will
not, in the future, increase the sales level necessary to qualify for the Level
II Discount or create other more favorable discount categories for which the
Company may not qualify. The Company's total purchases of HP products for the
contract year ending February 28, 1998 are expected to substantially exceed
$135.0 million.
Although the Company considers its relations with HP and its Primary
Distributor to be excellent, there can be no assurance that such relationships
will continue as presently in effect. The deterioration of the Company's
relationship with HP or the Primary Distributor, or the termination or
cancellation of the Company's agreements with HP or the Primary Distributor,
would have a material adverse effect on the Company's business, operations,
financial condition and prospects.
MANAGING RAPID GROWTH; NO ASSURANCE OF ADDITIONAL FINANCING
Since its inception, the Company's cash flow from operations has been
insufficient to finance the Company's operations and rapid growth. The Company
has relied upon the private sale of equity securities, borrowings under its
revolving credit facility, and, during certain periods, cash flow from
operations, to finance working capital requirements. The Company's operating
activities provided $6.3 million in Fiscal 1997 and used $4.9 million in Fiscal
1996. The Company believes that cash flow from operations and borrowings under
its revolving credit facility will provide sufficient cash to fund the Company's
operations and current obligations for the next 12 months. See "--High Level of
Indebtedness; Ability to Service Indebtedness", and "--Restrictions Contained in
Loan Agreements". As part of its growth strategy, the Company may acquire other
companies whose product lines, markets or services would complement the
Company's existing products, markets or services, create new marketing programs,
hire additional personnel and increase sales to business customers. Should the
Company expand its operations or make acquisitions that would require funds in
addition to its existing liquid assets and cash flows, it may have to seek
additional debt or equity financing. There can be no assurance that the Company
could obtain such financing or that such financing would be available on terms
acceptable to the Company.
Although the Company continuously reviews potential acquisition
targets, it has not entered into any agreement, understanding or commitment with
respect to any additional acquisitions at this time. Furthermore, there can be
no assurance that the Company will complete any acquisitions, obtain sufficient
funds to finance any
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acquisitions or that it will be able to successfully integrate any acquired
business into its existing operations and expand such operations.
HIGH LEVEL OF INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS
The Company is highly leveraged. At June 30, 1997, the Company had
$38.3 million of total debt. On July 24, 1997, the Company repaid $7.4 million
of its debt from the proceeds obtained from a private placement of Common
Stock. The Company may incur additional indebtedness from time-to-time to
finance additional acquisitions, capital expenditures or for other corporate
purposes. Interest expense for Fiscal 1997, Fiscal 1996 and Fiscal 1995 was $4.5
million, $4.8 million and $2.6 million, respectively.
The level of the Company's indebtedness could have important
consequences to stockholders, including that a substantial part of the Company's
cash flow from operations must be dedicated to debt service and will not be
available for other purposes; that the Company's ability to obtain financing in
the future, if needed, may be limited; that the Company's leveraged position and
the covenants contained in the Company's Credit Facility, as defined below, or
any replacements thereof, could limit its ability to expand and make capital
improvements and acquisitions, and that the Company's level of indebtedness
could make it more vulnerable to economic downturns, limit its ability to
withstand competitive pressures and limit its flexibility in reacting to changes
in its industry and economic conditions generally. The Credit Facility is
secured by all of the assets of the Company, and, should the Company default in
its obligations to its lender, the Company's assets could be used by the lender
to satisfy the Company's obligations pursuant to that facility. In addition, the
covenants made by the Company to its lender as conditions to obtaining the
Credit Facility may effect the Company's operations. Most of the Company's
competitors currently operate on a less leveraged basis and may have
significantly greater operating and financing flexibility than the Company.
RECENT LOSSES; ACCUMULATED DEFICIT; POTENTIAL NEED FOR ADDITIONAL FINANCING
The Company experienced losses in each of Fiscal 1997 and Fiscal 1996.
For Fiscal 1997, the Company had a net loss of $6.0 million and for Fiscal 1996
had a net loss of $403,209. At June 30, 1997, the Company had an accumulated
deficit of $5.6 million. There can be no assurance that the Company will be able
to achieve or maintain profitability on a quarterly or annual basis or that it
will be able to achieve revenue growth. If the Company requires additional
funds, there can be no assurance that additional financing can be obtained on
acceptable terms, if at all. The inability to obtain such financing, if
necessary, could have a material adverse effect on the Company. If additional
funds are raised by issuing equity securities, such as the sale of 6,950,000
shares of Common Stock in a private placement in July 1997, dilution to existing
shareholders would result.
GUARANTEE OF SHARE PRICE OF CERTAIN SHARES OF COMMON STOCK
A stockholder of the Company, the Current Exchange, Inc., has a
contractual right (the "Price Guarantee") pursuant to which it can require the
Company to pay to such stockholder, with respect to 515,000 shares of Common
Stock, the difference between $10.00 per share and the closing market price for
the Common Stock on July 2, 1998. The closing market price for the Common Stock
on September 30, 1997 was $1.4375. Should the Company be called upon to satisfy
the Price Guarantee, and should such obligation require funds in excess of its
then existing liquid assets or cash flows, the Company may have to seek
additional debt or equity financing. There can be no assurance that the Company
could obtain such financing or that such financing would be available on terms
acceptable to the Company.
RESTRICTIONS CONTAINED IN LOAN AGREEMENTS
Effective June 30, 1996, the Company amended its financing agreement
(the "Credit Facility") with its primary lender, Congress Financial Corporation
("Congress"), to increase the maximum available credit from $70 million to $77
million (subject to a borrowing limit based on eligible inventory and accounts
receivable) and to modify certain financial covenants. The Credit Facility's
financial covenants were amended again in
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May 1997. The Credit Facility is collateralized by the Company's accounts
receivable and inventory and requires that the Company maintain, at all times,
certain net worth and working capital ratios and restricts the payment of
dividends by the Company. These financial ratios and restrictions may affect the
flexibility of the Company to pursue further acquisitions and incur further
indebtedness. In addition, the failure to comply with the terms and conditions
of the Credit Facility, including those described herein, could result in a
default and permit Congress to accelerate the maturity of the indebtedness and
to foreclose on the assets pledged as collateral.
MARKETS FOR PRODUCTS AND SERVICES
The Company's sales efforts are focused primarily on a defined market
segment, consisting of large and medium-sized corporations, federal, state and
local governments ("government") and colleges and universities ("education")
throughout the United States. The Company's future financial performance will
depend upon continued demand for the computer products which it distributes and
related technical services which it provides within such markets, as well as
general economic conditions. In recent years, fiscal pressures have severely
affected the budgets of many of these organizations and in many instances
imposed mandatory spending restraints. The Company's revenues and operating
income could be adversely affected by a general slowdown or other adverse
economic conditions affecting any of its customers or any additional fiscal
limitations which may lead to a decline in public sector purchasing.
INDUSTRY CONDITIONS
Resellers in the microcomputer industry, including the Company, face a
number of potentially adverse business conditions, including declining gross
profit margins. Although increased price competition among hardware
manufacturers has generally reduced the cost of products purchased by resellers,
gross profit margins for many resellers have declined since the costs of
products for resellers has not declined proportionately with decreases in prices
to the ultimate consumer.
For Fiscal 1997, Fiscal 1996 and Fiscal 1995, the Company's gross
profit margin was 9.4%, 9.5% and 9.8%, respectively. Because the Company's gross
profit margins are relatively small, small increases in expenses or other
charges to income could have a material adverse effect on the Company's results
of operations. In addition, increased price competition among hardware
manufacturers has resulted in a reduction in existing vendor-sponsored market
development programs. There can be no assurance that the Company will be able to
continue to compete successfully in the microcomputer industry.
The computer industry is characterized by rapid product improvement and
technological change resulting in relatively short product life cycles and rapid
product obsolescence. The Company's policy is to minimize levels of inventory
and to resell such inventory as quickly as possible to minimize its risk of
being adversely affected by obsolescence. All of the Company's major suppliers
employ practices intended to reduce the risk of product obsolescence by
permitting exchanges of slow-selling or obsolete products for more popular
products and providing advance notice to the Company of new product
developments. If the Company's suppliers do not continue such policies or a
significant amount of the Company's inventory is rendered obsolete as a result
of unforeseen new product developments, the Company's business and operating
results would be adversely affected. Furthermore, there can be no assurance that
the Company's current and future vendors and suppliers will be able to achieve
the technological advances necessary to remain competitive or that the Company
will be able to obtain authorizations from new vendors to sell new products that
gain market acceptance.
COMPETITION
The Company's product lines of computers, peripherals and related
services compete with products and services of a large number of other industry
participants on local, regional and national levels. The Company competes with
national and regional dealers, integrators, computer superstores, mass
merchants, mail-order resellers, manufacturers' direct sales organizations, and
other value-added resellers on the basis of price, post-sales technical support
and service, speed of delivery and breadth of product lines.
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Direct telemarketing and mail-order organizations have developed as
important alternative distribution channels. In addition, computer "superstores"
and mail-order distributors offer purchasers a relatively low cost, minimal
service alternative to traditional supply sources. These distribution channels
benefit from heightened product awareness and price sensitivity on the part of
users, the emergence of standardization within the industry, and increased
interchangeability of peripherals. As microcomputer users have become more
computer literate, their dependence on local dealers for basic information and
demonstrations has diminished.
Many of the Company's competitors have significantly greater financial,
technical and marketing resources than the Company and many of such competitors
market their products principally on the basis of price rather than valued-added
service. There can be no assurance that the Company will be able to continue to
compete successfully.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon several key executives and operating
personnel, including John E. Paget, President and Chief Executive Officer of the
Company; Stephen C. Wright, Chief Operating Officer of the Company's wholly
owned subsidiary (CIC Systems, Inc. ("CICS"); Edward A. Meltzer, Chief Financial
Officer of the Company; and Samuel C. McElhaney Director of Strategic Planning
and Development of CICS. The loss of any of these individuals could have an
adverse effect on the Company. Although the Company has entered into employment
agreements with each of these individuals, there is no assurance that the
Company will be able to retain their respective services or attract new
qualified personnel, if required.
CONTROLLING STOCKHOLDERS
Three stockholders and one group of stockholders (which group is
subject to the Voting Agreement discussed below) control an aggregate
of approximately 70% of the voting stock of the Company. In May 1997, the
Company agreed to sell 6,950,000 shares of its Common Stock, and an additional
300,000 shares of Common Stock issuable upon the exercise of the Warrants, to
Chartwell Group, Inc. ("Chartwell"). Chartwell assigned its right to purchase
6,950,000 shares to third parties: the right to purchase 4,672,897 shares was
assigned to Codinvest Limited ("Codinvest") and the right to purchase 2,277,103
shares was assigned to seven other investors (the "Other Assignees"). As of the
date of this Prospectus, Codinvest owns approximately 33%, the Other Assignees,
collectively, own approximately 16% and one of the Other Assignees individually
owns approximately 7% of the Company's issued and outstanding Common Stock.
The agreement with Chartwell provides that, until July 24, 1998, the
Company will use its best efforts to cause and maintain the election to the
Company's Board of Directors of up to four nominees of Chartwell reasonably
satisfactory to the Company, and further provides that the Board of Directors
will consist of no more than eight members during such one year period.
Chartwell assigned its right to nominate up to three directors to Codinvest and
the right to nominate one director to the Other Assignees. The Board consisted
of three members and, consequently, Codinvest nominated three members of the
Board of Directors. The Other Assignees have chosen a director nominee, whose
election will be voted upon at the Company's Annual Meeting on November 4,
1997. In addition, in the agreement with Chartwell, the Company granted to
Chartwell, and Chartwell thereafter assigned to Codinvest, the right to
designate the President and Chief Executive Officer, subject to the approval of
the Company's Board of Directors. This designee, John E. Paget, has signed an
employment agreement with the Company. See "--Dependence on Key Personnel."
Ronald G. Farrell, a former Director, Chief Executive Officer and
President of the Company currently beneficially owns approximately 8% of the
Company's issued and outstanding Common Stock (1,205,085 shares, including
currently exercisable options to purchase 118,000 shares).
Certain other stockholders (some of whom are directors and executive
officers of the Company) have entered into a voting agreement which expires on
December 31, 1997, (the "Voting Agreement"), pursuant to which they have agreed
to vote those shares of Common Stock owned by them during the term of the Voting
Agreement (currently 3,593,506 shares) in the manner directed by Samuel C.
McElhaney, the Company's former Chief Executive Officer. The shares covered by
the Voting Agreement represent approximately 26% of the Company's Common Stock,
or approximately 31% of the shares of Common Stock that would be outstanding if
all securities owned by such persons that are convertible into Common Stock
(representing at present 1,167,976 shares of Common Stock) were so converted.
ABSENCE OF ACTIVE PUBLIC MARKET
Prior to this Offering, there has been no active public market for the
Common Stock. Although the Common Stock is listed on the Nasdaq SmallCap Market
under the symbol "CICC," trading in the Common Stock has been sporadic and there
can be no assurance that the Company will be able to maintain such listing or
that an active public trading market will develop for the Common Stock, or if
developed, that such market will be sustained.
NASDAQ SMALLCAP MARKET MAINTENANCE STANDARDS; DISCLOSURE RELATING TO LOW-PRICED
STOCKS
The Common Stock is listed on the Nasdaq SmallCap Market. In order to
continue to be listed on the Nasdaq SmallCap Market, the Company must maintain
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either: $2 million in net tangible assets (total assets less total liabilities
and goodwill); $500,000 in net income for two of the last three years; or market
capitalization of at least $35 million. Continued inclusion also requires 300
shareholders, two authorized Nasdaq market-makers and a minimum bid price of
$1.00 per share. As of June 30, 1997 the Company does not meet the net tangible
assets, net income or market capitalization requirements. If the Company is not
able to obtain an appropriate waiver of these requirements, the failure to
maintain the maintenance standards of the Nasdaq SmallCap Market may result in
the delisting of the Common Stock on such market. In such event, trading, if
any, in the Common Stock may then continue to be conducted on the
over-the-counter market in what are commonly referred to as the "pink sheets,"
or on the OTC Electronic Bulletin Board. As a result of trading in the
over-the-counter market, an investor may find it more difficult to dispose of,
or to obtain accurate quotations as to the market value of, the Common Stock.
In addition, delisting could result in the Common Stock being subject
to additional rules adopted by the Commission governing "penny stock," which is
generally defined by such rules as any equity security that has a market price
of less than $5.00 per share, subject to certain exceptions, including an
exception for securities authorized for quotation on the Nasdaq SmallCap Market.
For any transaction involving penny stock, unless exempt, the rules require the
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the Commission relating to the penny stock market. Disclosure also
has to be made about commissions payable to broker-dealers and registered
representatives, and current quotations for the securities. Monthly account
statements must also be sent to purchasers of penny stock disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. In addition, the penny stock rules require
broker-dealers who sell penny stock to persons other than established customers
or accredited investors to make a special suitability determination of the
proposed purchaser and to obtain the written consent of such prospective
purchaser to the transactions prior to sale. As a result of the foregoing
requirements, the application of the penny stock rules to the Common Stock may
have an adverse effect on the ability of broker-dealers to sell the Common
Stock.
VOLATILITY OF COMMON STOCK PRICE
The stock market has experienced significant price and volume
fluctuations in recent years and there has been significant volatility in the
market prices of securities of computer distributors and manufacturers. The
trading price of the Common Stock may also be subject to significant
fluctuations in response to variations in operating results. Various factors and
events, including announcements by the Company, its suppliers or its
competitors, concerning technological innovations or new commercial products, as
well as public concern about the stability of the economy in general, may have a
significant impact on the trading price of the Common Stock. The sale or
attempted sale of a large amount of the Common Stock into the market may also
have a significant impact on the trading price of the Common Stock.
ABSENCE OF DIVIDENDS
The Company has never paid any dividends on its Common Stock and does
not contemplate or anticipate distributing any cash dividends with respect to
the Common Stock in the foreseeable future. Pursuant to the Credit Facility with
its principal lender, the Company is prohibited from paying any dividends on its
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Assuming conversion of the Series D and Series E Preferred Stock,
defined below, the Company will have 15,296,054 shares of Common Stock
outstanding. Pursuant to a separate prospectus dated October 7, 1997, certain
additional selling stockholders are currently offering an additional 7,240,878
shares of Common Stock for sale. The Company has reserved 1,800,000 shares for
issuance upon the exercise of options granted under the Plan, 1,286,922 of
which have been granted and 793,037 of which are immediately exercisable or
exercisable within 60 days of the date hereof. In addition, the Company has
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<PAGE> 9
granted an additional 1,000,000 options, subject to the approval by the
stockholders of the Company at the 1997 annual stockholders' meeting of an
amendment to the Plan (the "Plan Amendment") increasing the number of options
reserved for issuance to 4,000,000. The Company has also reserved 355,000 shares
for issuance upon the exercise of certain warrants. All of shares of Common
Stock to be issued and outstanding upon such exercises, assuming adoption of the
Plan Amendment, will be freely tradeable, without restriction or further
registration under the Securities Act. The owners of the shares of Common Stock
covered by the Voting Agreement have agreed not to sell any such shares without
the prior written consent of Mr. McElhaney during the term of that agreement.
AUTHORIZATION OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, redemption, voting or
other rights which could adversely affect the voting power or other rights of
the holders of the Company's Common Stock. In the event of issuance, the
preferred stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company, making
removal of the present management of the Company more difficult or resulting in
restrictions upon the payment of dividends or other distributions to the holders
of Common Stock. The possible impact on takeover attempts could adversely affect
the price of the Common Stock.
As of the date of this Prospectus, the Company had authorized 40,000
shares of Series A, 9% Cumulative Convertible Redeemable Preferred Stock, none
of which is issued and outstanding; 250 shares of Series B, Convertible
Preferred Stock, none of which is issued and outstanding (125 shares were
converted on July 21, 1994 into 500,000 shares of Common Stock); 250 shares of
Series C, 9% Cumulative Convertible Redeemable Preferred Stock, none of which is
issued and outstanding; 40,000 shares of Series D, 9% Cumulative Convertible
Redeemable Preferred Stock (the "Series D Preferred Stock"), of which 19,035.85
shares (convertible into 761,434 shares of Common Stock) are issued and
outstanding; and 250 shares of Series E, 9% Cumulative Convertible Redeemable
Preferred Stock (the "Series E Preferred Stock"), of which 125 shares
(convertible into 500,000 shares of Common Stock) are issued and outstanding.
Although the Company has no present intention to issue any additional shares of
its preferred stock, there can be no assurance that the Company will not do so
in the future.
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USE OF PROCEEDS
Except for the proceeds from the exercise of the Warrants, the Company
will not receive any proceeds from the sale of Common Stock offered hereby by
the Selling Stockholders.
Of the shares included in this Prospectus, 300,000 represent shares
underlying the Warrants, which are exercisable at a price of $1.13 per share.
No assurance can be given that any of the Warrants will be exercised.
However, in the event that all of the Warrants are exercised, the Company would
receive proceeds of $339,000. Any proceeds to the Company resulting from the
exercise of any or all of the Warrants may be used for working capital or other
corporate purposes.
SELLING STOCKHOLDERS
The following table sets forth the number of shares of outstanding
Common Stock beneficially owned by the Selling Stockholders as of September 30,
1997. Other than as described below, none of the Selling Stockholders holds any
position or office with, has been employed by, or has had any material
relationship with the Company during the previous three years, except as a
stockholder of the Company. After completion of the Offering, the Selling
Stockholders are expected to own no securities of the Company.
<TABLE>
<CAPTION>
NAME AND POSITION OF SHARES OF COMMON STOCK PERCENT OF CLASS
SELLING STOCKHOLDER OWNED (ALL OF WHICH ARE OWNED PRIOR TO
OFFERED HEREBY) OFFERING
<S> <C> <C>
Codinvest Limited.................................. 4,672,897 33.3%
Robert W. Johnson IV............................... 1,000,000 7.1%
Arthur DelVesco.................................... 427,103 3.0%
John Perry, III.................................... 300,000 2.1%
Thomas D. McCloskey, Jr............................ 200,000 1.4%
Donald Russell..................................... 200,000 1.4%
Director Designee
David Searles...................................... 100,000 (1)
Michael G. Santry.................................. 90,000(2) (1)
Director
Matthew S. Waller.................................. 90,000(2) (1)
Director
Darryl D. Pounds................................... 90,000(2) (1)
Neil J. Burmeister................................. 50,000 (1)
Frank Mermoud...................................... 30,000(2) (1)
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Total.............................................. 7,250,000 50.6%
========= =====
</TABLE>
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(1) Less than 1%.
(2) Represents shares of Common Stock issuable upon the exercise of the
Warrants.
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The Selling Stockholders are assignees of an agreement, dated May 15,
1997 (the "Agreement"), between the Company and Chartwell, pursuant to which
Chartwell agreed to purchase 6,950,000 shares of the Company's Common Stock. The
Selling Stockholders purchased their shares on July 24, 1997.
The Agreement provides that, for one year after the Closing Date, the
Company will use its best efforts to cause and maintain the election to the
Company's Board of Directors of up to four nominees of Chartwell reasonably
satisfactory to the Company, and further provides that the Board of Directors
will consist of no more than eight members during such one year period.
Chartwell assigned its right to nominate up to three directors to Codinvest and
the right to nominate one director to the Other Assignees. The Board consisted
of three members and, consequently, Codinvest nominated three members of the
Board of Directors. Codinvest has agreed that, when the Other Assignees have
chosen their director nominee, one of Codinvest's nominees will resign. In
addition, in the Agreement, the Company granted to Chartwell, and Chartwell
thereafter assigned to Codinvest, the right to designate the President and Chief
Executive Officer, subject to the approval of the Company's Board of Directors.
PLAN OF DISTRIBUTION
The Shares may be sold, from time to time, to purchasers directly by
any of the Selling Stockholders. The Selling Stockholders will act independently
of the Company in making decisions with respect to the timing, manner and size
of each sale. Such sales may be made in the Nasdaq SmallCap Market, in
negotiated transactions, through the writing of options on the Shares, or
through a combination of such methods of sale, at market prices prevailing at
the time of sale, prices related to the then-current market price or at
negotiated prices, including pursuant to an underwritten offering or one or more
of the following methods: (a) purchases by a broker-dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; (b)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (c) block trades in which the broker-dealer so engaged will
attempt to sell the shares as an agent, but may position and resell a portion of
the block as a principal to facilitate the transaction. The Selling Stockholders
may also pledge the Shares as collateral for margin accounts and such Shares
could be resold pursuant to the terms of such accounts. The Company has been
advised by the Selling Stockholders that they have not made any arrangement
relating to the distribution of the Shares covered by this Prospectus. In
effecting sales, broker-dealers engaged by the Selling Stockholders may arrange
for other broker-dealers to participate. Such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders and/or the purchasers of the Shares for which such
broker-dealers may act as agent or to whom they may sell as principal, or both
(which compensation shall be negotiated immediately prior to sale and which, as
to a particular broker-dealer, may be in excess of customary compensation). Any
broker-dealer may act as broker-dealer on behalf of one or more of the Selling
Stockholders in connection with the offering of certain of the shares by Selling
Stockholders.
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including certain liabilities under the Securities Act of
1933, as amended (the "Securities Act"). Additionally, the Company will pay the
expenses, estimated to be approximately $7,500 in connection with this Offering,
other than transfer taxes, discounts, commissions, fees or expenses of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Shares, or legal expenses of
any person other than the Company.
There is no underwriter or coordinating broker acting in connection
with this Offering. In offering the Shares covered hereby, the Selling
Stockholders and any broker-dealers and any other participating broker-dealers
who execute sales for the Selling Stockholders may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales, and any profits realized by the Selling Stockholders and the compensation
of such broker-dealer may be deemed to be underwriting discounts and
commissions. In addition, any Shares covered by this Prospectus which qualify
for sale pursuant to Rule 144 under the Securities Act ("Rule 144") may be sold
under Rule 144 rather than pursuant to this Prospectus. All of the Shares
covered by this Prospectus presently qualify for sale pursuant to Rule 144.
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LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby has
been passed upon for the Company by Holland & Knight LLP, Fort Lauderdale,
Florida.
EXPERTS
The consolidated financial statements and the related financial
statement schedules of Computer Integration Corp. appearing in Computer
Integration Corp.'s Annual Report (Form 10-K) for the year ended June 30, 1997,
have been audited by Ernst & Young LLP, independent certified public
accountants, as set forth in their reports thereon included therein and
incorporated herein by reference. The financial statements and schedules
referred to above are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Cedar Computer Center, Inc. incorporated in
this Prospectus by reference from the Company's Form 8-K/A-1 filed with the
Commission on September 11, 1995 have been audited by McGladrey & Pullen, LLP,
independent certified public accountants as stated in their report which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given their authority as experts in accounting and
auditing.
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<TABLE>
<CAPTION>
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<S> <C>
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED 7,250,000 SHARES
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OR PROJECTIONS OF FUTURE PERFORMANCE OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND ANY SUCH OTHER
INFORMATION, PROJECTIONS OR REPRESENTATIONS IF GIVEN
OR MADE MUST NOT BE RELIED UPON AS HAVING BEEN SO COMPUTER INTEGRATION CORP.
AUTHORIZED. THE DELIVERY OF THIS PROSPECTUS OF ANY SALE
HEREUNDER AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL COMMON STOCK
OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
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PROSPECTUS
TABLE OF CONTENTS
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PAGE
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Available Information.................................... 2
Incorporation of Certain Information by Reference........ 2
Prospectus Summary....................................... 3
Risk Factors............................................. 4
Use of Proceeds.......................................... 10
Selling Stockholders..................................... 10
Plan of Distribution..................................... 11
Legal Matters............................................ 12
Experts Matters.......................................... 12
October 7, 1997
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</TABLE>
