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PROSPECTUS
7,240,878 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
7,240,878 Shares (the "Shares") of the common stock, $.001 par value per share
(the "Common Stock"), of Computer Integration Corp. (the "Company"), consisting
of: (i) 5,401,271 Shares offered by former stockholders of the Company's
wholly-owned subsidiary, CIC Systems, Inc., a Delaware corporation ("CICS"), who
acquired such Shares in an exchange of shares with the Company's predecessor,
NEG, Inc., a Nevada corporation ("NEG") (see "Selling Stockholders"); (ii)
761,434 Shares issuable upon conversion of 19,035.85 shares of the Company's
Series D, 9% Cumulative Convertible Redeemable Preferred Stock (the "Series D
Preferred Stock"); (iii) 500,000 Shares of Common Stock issuable upon conversion
of 125 shares of Series E, 9% Cumulative Convertible Redeemable Preferred Stock
(the "Series E Preferred Stock"); (iv) 515,000 Shares offered by the holder of
shares acquired in connection with the Company's acquisition of the assets of
Cedar Computer Center, Inc., an Iowa corporation; (v) 8,173 shares offered by an
additional selling stockholder; and (vi) 55,000 Shares, issuable upon the
exercise of 55,000 warrants, offered by certain of the Company's market makers
and a consultant to the Company (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 eligible to offer an additional 7,250,000 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 year 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
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 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 Crown Point
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 $4.6 million in 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
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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 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.
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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 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
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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.
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 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 certain warrants, to Chartwell Group, Inc.
("Chartwell"). Chartwell assigned its right to purchase 6,950,000 such 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
Company's 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, took office
on August 19, 1997 and has signed an employment agreement with the Company. See
"-- Dependence on Key Personnel."
Ronald G. Farrell, a former Director, Chief Executive Office and President
of the Company currently beneficially owns approximately 8% of the Company's
issued and outstanding Common Stock (1,205,585 shares, including currently
exercisable options to purchase 118,000 shares).
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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
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 1,167,936 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
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. As of June 30, 1997, the Company does
not meet the net tangible assets, net income or market capitalization
requirement. 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.
8
<PAGE> 9
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, the
Company will have 15,296,054 shares of Common Stock outstanding. Pursuant to a
separate prospectus dated October 6, 1997, certain additional selling
stockholders are currently eligible to offer an additional 7,250,000 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 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,
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, 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.
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, 55,000 represent shares
underlying the Warrants, which are exercisable at a price of $4.108332 per
share. No assurance can be given that any the Warrants will be exercised.
However, in the event that all of the Warrants are exercised, the Company would
receive proceeds of $225,958. 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.
9
<PAGE> 10
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.
All amounts, as presented, assume that all issued and outstanding shares of
Series D and Series E Preferred Stock have been converted into Common Stock.
Unless otherwise indicated by footnote, 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. With respect to each Selling Stockholder, the number
of shares of Common Stock owned at September 30, 1997 does not include shares
for which such stockholder disclaims beneficial ownership.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF SHARES OF COMMON
SHARES OF COMMON COMMON STOCK OWNED
COMMON STOCK OFFERED STOCK AFTER THE
SELLING STOCKHOLDER STOCK OWNED HEREBY RETAINED OFFERING
- ------------------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Patricia Andersson, Trustee for Assaf Family
Trust FBO Kristen A. Assaf(1).................. 69,579 69,579 0 0
Patricia Andersson, Trustee for Assaf Family
Trust, FBO Derek Assaf(1)...................... 69,579 69,579 0 0
Ronald G. Assaf(2)............................... 33,500 33,500 0 *
James Cappiello.................................. 140,658 140,658 0 0
Araldo A. Cossutta(3)............................ 2,875,685 2,810,685 65,000 *
C. Patricia Cossutta Arostegui(3)................ 11,000 11,000 0 0
Donna Cossutta(3)................................ 4,000 4,000 0 0
Renee Cossutta, Trustee for Louis Cossutta
Trust(3)....................................... 285,732 285,732 0 0
Renee Cossutta, Trustee for Renee Cossutta
Trust(3)....................................... 275,732 275,732 0 0
Bruce Cowen...................................... 190,824 190,824 0 0
Current Exchange, Inc............................ 515,000 515,000 0 0
Donald Drum(4)................................... 15,000 15,000 0 0
Catherine Edwards................................ 4,000 4,000 0 0
Bonnie L. Farrell(5)............................. 66,000 66,000 0 0
Gene and Othelia Farrell(5)...................... 20,000 20,000 0 0
Richard Farrell(5)............................... 7,500 7,500 0 0
Fechtor, Detwiler & Co., Inc.(6)................. 25,000 25,000 0 0
Barbara Fox...................................... 86,330 86,330 0 0
Bob Grady........................................ 13,330 13,330 0 0
Ronald J. Haan................................... 78,358 78,358 0 0
Ray Hatch........................................ 10,430 10,430 0 0
Marko Jagodic.................................... 5,000 5,000 0 0
Rado Jagodic..................................... 5,000 5,000 0 0
Richard Kimmel, Trustee.......................... 96,329 96,329 0 0
Richard Kletter.................................. 38,164 38,164 0 0
Howard LeWine.................................... 12,582 12,582 0 0
Jerome LeWine.................................... 38,164 38,164 0 0
James Lineberger................................. 268,070 268,070 0 0
May Louie........................................ 14,000 14,000 0 0
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF SHARES OF COMMON
SHARES OF COMMON COMMON STOCK OWNED
COMMON STOCK OFFERED STOCK AFTER THE
SELLING STOCKHOLDER STOCK OWNED HEREBY RETAINED OFFERING
- ------------------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Derek S. McElhaney(7)............................ 17,986 10,010 7,976 *
Ellen P. McElhaney(7)............................ 10,000 10,000 0 0
Jane F. McElhaney(7)............................. 5,000 5,000 0 0
Thomas L. McElhaney(7)........................... 10,000 10,000 0 0
Michael Moskowitz(8)............................. 354,136 354,136 0 0
RAS Securities(9)................................ 15,000 15,000 0 0
RGFI(10)......................................... 1,139,585 1,021,585 118,000 *
Keith A. Richardson, Jr.(7)...................... 5,000 5,000 0 0
Jeffrey Schmier, Trustee for Jason & Stephen
Schmier........................................ 96,329 96,329 0 0
Joanne Senall.................................... 8,173 8,173 0 0
Gary and Beverly Sheridan........................ 20,000 20,000 0 0
SWK, Inc......................................... 15,265 15,265 0 0
Frank H. Slovenec(11)............................ 8,623 8,623 0 0
Doug Wearren..................................... 101,063 101,063 0 0
Adrian Woodruff.................................. 78,994 78,994 0 0
Martin Yaged..................................... 33,164 33,164 0 0
Frank J. Zappala(12)............................. 194,830 129,830 65,000 *
Maureen Zappala(13).............................. 62,830 62,830 0 0
Richard Zappala(13).............................. 76,330 76,330 0 0
--------- --------- ------- --
7,526,854 7,240,878 255,976 *
========= ========= ======= ==
</TABLE>
- ---------------
* Less than 1.0%
(1) Trusts for the benefit of the children of former Director Ronald Assaf, who
disclaims beneficial ownership of the shares of Common Stock in trust. See
Note 2 below.
(2) Mr. Assaf is a former Director of the Company. Mr. Assaf has disclaimed
beneficial ownership of an aggregate of 139,158 shares of Common Stock held
in trust for his children.
(3) Mr. Cossutta is a Director of the Company. C. Patricia Cossutta Arostequi
is Mr. Cossutta's wife. Includes currently exercisable options to purchase
65,000 shares of Common Stock. Also includes 33,685 shares of Common Stock
owned by Mr. Cossutta as trustee, which shares are being offered hereby.
Mr. Cossutta disclaims beneficial ownership of an aggregate of 565,464
shares of Common Stock held in the aggregate by Donna Cossutta and by Renee
Cossutta in trust.
(4) Represents 15,000 shares of Common Stock issuable upon the exercise of
15,000 warrants.
(5) These persons are family members of former Director, Chief Executive
Officer and President Ronald G. Farrell, including Mr. Farrell's wife,
Bonnie Farrell, his parents Gene and Othelia Farrell and his son, Richard
Farrell. Mr. Farrell has disclaimed beneficial ownership of Common Stock
held by these family members.
(6) Represents shares issuable upon the exercise of 25,000 warrants.
(7) These persons are family members of Samuel C. McElhaney, the former
President and Chief Executive Officer and a current officer and Director of
the Company. Mr. McElhaney has disclaimed beneficial ownership of Common
Stock held by these family members. Includes as to Derek S. McElhaney 7,976
shares of common stock issuable upon exercise of currently outstanding
options.
(8) Mr. Moskowitz is a former consultant to the Company.
(9) Shares issuable upon the exercise of 15,000 warrants.
11
<PAGE> 12
(10) RGFI is wholly-owned by Mr. Farrell, a former Director, Chief Executive
Officer and President of the Company. Includes currently exercisable
options held by Mr. Farrell to purchase 118,000 shares of Common Stock.
(11) Mr. Slovenec is a former President of CIC.
(12) Mr. Zappala is a Director of the Company. Includes currently exercisable
options to purchase 55,000 shares of Common Stock.
(13) Maureen Zappala is the wife of Director Frank Zappala and Richard Zappala
is the brother of Director Frank Zappala. Mr. Zappala has disclaimed
beneficial ownership of the shares of Common Stock held by his wife and
brother.
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.
In order to comply with certain state securities laws, if applicable,
certain shares of Common Stock offered hereby by affiliates of the Company may
be sold in such jurisdictions only through registered or licensed brokers or
dealers. In certain states, such shares of Common Stock may not be sold unless
such shares of Common Stock have been registered or qualified for sale in such
states or an exemption from registration or qualification is available and is
complied with.
12
<PAGE> 13
The public offering of the Shares by the Selling Stockholders will
terminate on the earlier of (1) June 12, 1999, (2) the date on which all Shares
offered hereby have been sold by the Selling Stockholders or (3) as otherwise
required by law. The Selling Stockholders have agreed to discontinue disposition
of the Shares upon receipt of notice from the Company of: (1) any request by the
Commission for amendments or supplements to the Registration Statement or
Prospectus; (2) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or initiation of any proceedings for
that purpose; (3) the representations and warranties of the Company, contained
in agreements executed in conjunction with the registration of the Stock,
ceasing to be true and correct; (4) the receipt by the Company of any
notification with respect to the suspension of the qualification of the Stock
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose; (5) the happening of any event as a result of which the
Prospectus contains any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; (6) the Company's reasonable determination
that a post-effective amendment to the Registration Statement would be
appropriate or that there exist circumstances not yet disclosed to the public
which make further sales under the Registration Statement inadvisable pending
such disclosure and post-effective amendment; and (7) the Company's possession
of material information that it deems advisable not to disclose in a
Registration Statement.
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.
13
<PAGE> 14
======================================================
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED 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 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 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.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Information
by Reference........................ 2
Prospectus Summary.................... 3
Risk Factors.......................... 4
Use of Proceeds....................... 9
Selling Stockholders.................. 10
Plan of Distribution.................. 12
Legal Matters......................... 13
Experts............................... 13
</TABLE>
======================================================
======================================================
7,240,878 SHARES
COMPUTER INTEGRATION CORP.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
OCTOBER 7, 1997
======================================================
