<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Computer Integration Corp.
- --------------------------------------------------------------------------------
(Name of Registrant)
Computer Integration Corp.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 set forth the amount on which the
filing fee is calculated and state how it was determined:
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
COMPUTER INTEGRATION CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Computer Integration Corp.
The annual meeting (the "Annual Meeting") of stockholders of Computer
Integration Corp. (the "Company"), will be held at the Park Hotel, 220 Rexford
Road, Charlotte, North Carolina 28211 on November 4, 1997 at 9:00 a.m. for the
following purposes:
1. To elect seven directors;
2. To consider and vote upon a proposal to amend the Company's 1994 Stock
Option Plan;
3. To consider and vote upon a proposal to amend the Company's Certificate
of Incorporation to increase its authorized shares of Common Stock from
20 million to 40 million shares.
4. To ratify the Company's selection of the accounting firm of Ernst &
Young LLP as the Company's independent certified public accountants; and
5. To transact such other business as may properly be brought before the
Annual Meeting.
The Board of Directors has fixed the close of business on October 15, 1997
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting.
By Order of the Board of Directors
John E. Paget
President
October 16, 1997
IF YOU DO NOT EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE> 3
COMPUTER INTEGRATION CORP.
2425 CROWN POINT EXECUTIVE DRIVE
CHARLOTTE, NORTH CAROLINA 28227
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
on behalf of the Board of Directors of Computer Integration Corp. (the
"Company") to be voted at the annual meeting of stockholders ("Annual Meeting")
of the Company referred to in the foregoing Notice and is accompanied by a copy
of the Company's Form 10-K for the fiscal year ended June 30, 1997. Unless the
context otherwise requires, the term "Company" includes Computer Integration
Corp. and its wholly-owned operating subsidiary, CIC Systems, Inc. ("Systems").
Shares represented by duly executed proxies received by the Company will be
voted in accordance with the instructions contained therein and, in the absence
of specific instructions, will be voted: (i) FOR the election as directors of
the persons who have been nominated by the Board of Directors; (ii) FOR the
proposed amendment to the Company's 1994 Stock Option Plan; (iii) FOR the
proposal to amend the Company's Certificate of Incorporation ("Certificate") so
as to increase its authorized shares of Common Stock, par value $.001 per share
("Common Stock"), from 20 million to 40 million; (iv) FOR the ratification of
the Company's selection of independent certified public accountants; and (v) in
accordance with the judgment of the person or persons voting the proxies on any
other matter that may properly be brought before the meeting. The execution of a
proxy will in no way affect a stockholder's right to attend the Annual Meeting
and to vote in person. Any proxy executed and returned by a stockholder may be
revoked at any time thereafter either by writing the Secretary of the Company at
the above address or by attending the Annual Meeting and revoking the proxy in
person, except as to any matter or matters upon which, prior to such revocation,
a vote shall have been cast pursuant to the authority conferred by such proxy.
This Proxy Statement and the accompanying proxy are being sent on or about
October 16, 1997 to stockholders entitled to vote at the Annual Meeting. The
entire cost of soliciting proxies hereunder will be borne by the Company and
will be made through the use of the mails. The Company will, upon request,
reimburse brokerage houses and persons holding shares in their names or in the
names of their nominees for their reasonable expenses in sending soliciting
material to their principals.
As of September 30, 1997, the Company had outstanding 14,034,810 shares of
Common Stock which are entitled to vote at the Annual Meeting, each share being
entitled to one vote. Only stockholders of record at the close of business on
October 15, 1997 will be entitled to vote at the meeting. Officers, directors
and certain related stockholders of the Company, collectively owning
approximately 64.6% of the outstanding shares of Common Stock, have indicated
their intention to vote in favor of each of the proposals to be voted upon at
the Annual Meeting and for the election as directors of the persons who have
been nominated by the Board of Directors.
<PAGE> 4
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, as of September 30, 1997 by the
Company's executive officers, directors, director nominees and each person known
by the Company to be the beneficial owner of more than 5% of the Company's
Common Stock. Except as otherwise indicated, the persons named in the table
below have sole voting and investment power with respect to the shares shown as
beneficially owned by such persons, subject to applicable community property
laws. However, as indicated by the notes following the table, certain shares are
deemed to be beneficially owned by more than one person or entity as a result of
attribution of ownership among affiliated persons and entities.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE OF
OF BENEFICIAL BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OWNERSHIP
- ------------------------------------ ----------------- -------------
<S> <C> <C>
Codinvest Limited........................................... 4,672,897 33.0%
Road Town
Tortola, British Virgin Islands
Araldo A. Cossutta.......................................... 2,886,685(1) 19.2
920 5th Avenue
New York, NY 10021
Ronald G. Farrell........................................... 1,205,585(2) 8.5
3030 Wellington Road
Alpharetta, GA 30202
Robert W. Johnson........................................... 1,000,000 7.1
P.O. Box 5415
New York, NY 10185
John E. Paget............................................... 200,000(3) 1.4
165 University Avenue
Westwood, MA 02090
Donald Russell.............................................. 200,000 1.4
101 East Kennedy Boulevard
Suite 3300
Tampa, FL 33602
Frank J. Zappala, Jr........................................ 257,660(4) 1.8
5584 S.W. Quail Hollow
Palm City, FL 34990
Samuel C. McElhaney......................................... 195,010(5) 1.3
8200 Fairview Road
Charlotte, NC 28226
Michael G. Santry........................................... 90,000(6) .06
5950 Berkshire Lane
Suite 1650
Dallas, TX 75225
Matthew S. Waller........................................... 90,000(6) .06
7880 Bent Branch Drive
Suite 150
Irving, TX 75063
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE OF
OF BENEFICIAL BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OWNERSHIP
- ------------------------------------ ----------------- -------------
<S> <C> <C>
Edward A. Meltzer........................................... 45,000(7) .03
165 University Avenue
Westwood, MA 02090
Stephen C. Wright........................................... 0 0
165 University Avenue
Westwood, MA 02090
All executive officers, directors and nominee as a
group (9 persons)......................................... 3,964,355(8) 25.3%
</TABLE>
- ---------------
(1) Includes 456,000 shares of Common Stock issuable upon the conversion of
11,400 shares of Series D Preferred Stock, 500,000 shares of Common Stock
issuable upon the conversion of 125 shares of Series E Preferred Stock,
17,685 shares of Common Stock owned by trusts for which Mr. Cossutta is the
sole trustee and 16,000 shares of Common Stock issuable upon the conversion
of 400 shares of Series D Preferred Stock owned by trusts for which Mr.
Cossutta is the sole trustee. Also includes immediately exercisable options
to purchase (i) 5,000 shares of Common Stock, which are exercisable at $.10
per share and expire on March 30, 1999; (ii) 5,000 shares of Common Stock,
which are exercisable at $1.00 per share and expire on July 12, 2000; (iii)
10,000 shares of Common Stock, which are exercisable at $4.00 per share and
expire on October 12, 2001; (iv) 10,000 shares of Common Stock, which are
exercisable at $1.56 per share and expire on October 30, 2002; and (v)
35,000 shares of Common Stock, which are exercisable at $1.00 per share and
expire on March 28, 2007. Includes 11,000 shares of Common Stock owned by
Mr. Cossutta's wife, as to which shares Mr. Cossutta disclaims beneficial
ownership. Excludes 569,462 shares held in trust, with independent trustees,
for the benefit of Mr. Cossutta's children and by other family members. Mr.
Cossutta has disclaimed beneficial ownership of such shares.
(2) Includes (i) 1,021,585 shares of Common Stock held by RGF Investments, Inc.,
a Georgia corporation ("RGFI"), of which Mr. Farrell is the sole
stockholder, director and executive officer; and (ii) immediately
exercisable options to purchase 118,000 shares of Common Stock, which are
exercisable at $1.10 per share and expire on September 30, 1999. Also
includes 66,000 shares of Common Stock held by Mr. Farrell's wife, as to
which shares Mr. Farrell disclaims beneficial ownership.
(3) Includes immediately exercisable options to purchase 200,000 shares of
Common Stock, which are exercisable at $1.41 per share and expire on July
24, 2007.
(4) Includes 40,000 shares of Common Stock issuable upon the conversion of 1,000
shares of Series D Preferred Stock. Also includes immediately exercisable
options to purchase (i) 5,000 shares of Common Stock, which are exercisable
at $.10 per share and expire on March 30, 1999; (ii) 5,000 shares of Common
Stock, which are exercisable at $1.00 per share and expire on July 12, 2000;
(iii) 10,000 shares of Common Stock, which are exercisable at $4.00 per
share and expire on October 12, 2001; (iv) 10,000 shares of Common Stock,
which are exercisable at $1.56 per share and expire on October 30, 2002; and
(v) 35,000 shares of Common Stock, which are exercisable at $1.00 per share
and expire on March 28, 2007. Includes 62,830 shares of Common Stock owned
by Mr. Zappala's wife, as to which shares Mr. Zappala disclaims beneficial
ownership.
(5) Includes immediately exercisable options to purchase (i) 10,000 shares of
Common Stock, which are exercisable at $1.56 per share and expire on October
30, 2002 and (ii) 50,000 shares of Common Stock, which are exercisable at
$1.50 per share and expire on December 9, 2006. Includes 50,000 shares of
Common Stock by Mr. McElhaney's wife, as to which shares Mr. McElhaney
disclaims beneficial ownership.
(6) Includes immediately exercisable warrants to purchase 90,000 shares of
Common Stock, which are exercisable at $1.13 per share and expire on June
30, 2004.
(7) Includes immediately exercisable options to purchase 20,000 shares of Common
Stock, which are exercisable at $1.50 per share and expire on January 15,
2002.
(8) Includes an aggregate of (i) 528,000 shares of Common Stock underlying
immediately exercisable options; (ii) 180,000 shares of Common Stock
underlying immediately exercisable warrants; (iii) 512,000 shares of Common
Stock issuable upon the conversion of 12,800 shares of Series D Preferred
Stock; and (iv) 500,000 shares of Common Stock issuable upon the conversion
of 125 shares of Series E Preferred Stock.
3
<PAGE> 6
ITEM 1 -- ELECTION OF DIRECTORS
At the Annual Meeting, seven directors are to be elected to hold office
until the next annual meeting and until their respective successors have been
elected and qualified. It is the intention of the persons named in the enclosed
form of proxy to vote for the election as directors of the persons named in the
table below.
At the 1996 annual meeting of stockholders held on October 30, 1996, Ronald
G. Farrell, Frank J. Zappala, Jr., Araldo A. Cossutta, Samuel C. McElhaney and
Ronald G. Assaf were elected to the Company's Board of Directors. Mr. Assaf
resigned on January 16, 1997 and Mr. Farrell resigned on July 8, 1997.
The following are the persons nominated to be directors of the Company,
their respective ages, the year in which each was originally elected a director
and, where applicable, the office of the Company held by the director. Each
director elected will hold office until the next annual meeting of stockholders,
expected to be held in October 1998, and until their respective successors have
been duly elected and qualified:
<TABLE>
<CAPTION>
NAME AGE POSITION SINCE
---- --- -------- -----
<S> <C> <C> <C>
Samuel C. McElhaney.................... Chairman and Director of Strategic April 11, 1995
45 Planning and Development
John E. Paget.......................... 48 President, CEO and Director July 24, 1997
Araldo A. Cossutta..................... 71 Director May 24, 1994
Donald Russell......................... 45 Director Nominee
Michael G. Santry...................... 49 Director July 24, 1997
Matthew S. Waller...................... 35 Director July 24, 1997
Frank J. Zappala, Jr................... 64 Director May 24, 1994
</TABLE>
SAMUEL C. MCELHANEY has been a director of the Company since April 11, 1995
and Chairman of the Board since August 19, 1997. Mr. McElhaney was an Executive
Vice President of Systems from July 1994 to June 1996, CEO and President of the
Company and Systems from December 4, 1996 to August 19, 1997 and has been
Director of Strategic Planning and Development of Systems since August 19, 1997.
Prior to the acquisition of Dataprint, Inc. by the Company in July 1994, Mr.
McElhaney served as its President, Chief Executive Officer and Chairman of the
Board since its founding by Mr. McElhaney in 1979.
JOHN E. PAGET has been a director of the Company since July 24, 1997 and
Chief Executive Officer and President of the Company and Systems since August
19, 1997. From May 1995 to August 1997, Mr. Paget served as the Director, Field
Service and Operations, for Compaq Computer Corporation. From May 1992 until
January 1995, Mr. Paget was Vice President, Multivendor Customer Services for
Digital Equipment Corporation. From 1989 until 1992, Mr. Paget served in various
positions with Intelogic Trace, Inc., most recently as President and Chief
Operating Officer. From 1969 to 1989, Mr. Paget served in a number of positions
at Xerox Corporation, most recently as General Manager -- Xerox Service Business
(TPM).
ARALDO A. COSSUTTA has served as a director of the Company since May 24,
1994. Mr. Cossutta served as a director of Systems from March 1993 to July 1994.
In 1973, Mr. Cossutta formed, and has since served as principal of, Cossutta &
Associates, Architects, P.C., located in New York, New York and Araldo Cossutta
& Associates, Architects, located in Dallas, Texas, which are engaged in large
scale, mixed use, commercial development projects in North America and Europe.
From 1956 to 1973, Mr. Cossutta was with I.M. Pei & Partners in New York, New
York, most recently as one of the four general partners of that firm.
DONALD RUSSELL is a director nominee. Mr. Russell has been Principal and
Chairman of the Investment Committee of CEA Capital Partners USA, L.P., a
private equity fund, since May 1996 and served as a director of Communications
Equity Associates from 1994 to 1996. From 1978 to 1993, Mr. Russell served in
various capacities, including, from November 1988 to December 1993, as
President, with CEA's New York affiliate, CEA, Inc. In that capacity, Mr.
Russell directed CEA, Inc.'s investment banking services in cable
4
<PAGE> 7
television and broadcasting. Mr. Russell is also a director of Visual Services
Inc., CableSoft, HCP Diagnostics, L.P. and Knowledgeworks.
MICHAEL G. SANTRY has been a director of the Company since July 24, 1997.
Mr. Santry founded Chartwell Group, Inc. in 1996 and has served as its Chairman
of the Board since that time. Since 1987, Mr. Santry has served as Chairman of
ATC Communications Group, Inc. (NASDAQ-NMS:"ATCT"), a publicly traded company
that provides outsourced teleservices to Fortune 500 companies. From 1987 until
1996, Mr. Santry also served as ATC's Chief Executive Officer.
MATTHEW S. WALLER has been a director of the Company since July 24, 1997.
Mr. Waller serves as the Chief Financial Officer of ATC, a position he has held
since March 1997. From February 1993 until March 1997, Mr. Waller served in
various capacities in the Corporate Finance Department of Principal Financial
Securities, Inc., most recently as Senior Vice President and Head of the
Technology Banking Group.
FRANK J. ZAPPALA, JR. has served as a director of the Company since May 24,
1994 and was Chairman of the Board from January 7, 1997 to August 19, 1997. Mr.
Zappala served as a director of Systems from March 1993 to July 1994. Mr.
Zappala has been retired since 1983 and is a private investor. Since 1987, Mr.
Zappala has served as a director of First City Company, a privately held real
estate management and development company located in Pittsburgh, Pennsylvania
and, until April 1997, as a director of First United Bancorp located in Boca
Raton, Florida, a publicly held company traded on Nasdaq.
On July 24, 1997, pursuant to an agreement dated May 15, 1997 (the
"Agreement"), between the Company and Chartwell Group, Inc., a Texas corporation
("Chartwell") the Company sold 6,950,000 shares of Common Stock to certain
individuals and entities designated by Chartwell. The Agreement 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 subsequently assigned its right to nominate up to three
directors to Codinvest Limited ("Codinvest"), a principal stockholder of the
Company, and the right to nominate one director to the other buyers designated
by Chartwell (collectively, the "Assignees"). Codinvest nominated three members
of the Board of Directors (John E. Paget, Michael G. Santry, and Matthew S.
Waller), each of whom took office on July 24, 1997. On July 8, 1997, Ronald G.
Farrell resigned from the Board of Directors. The other three seats on the Board
continue to be occupied by Araldo A. Cossutta, Samuel C. McElhaney and Frank J.
Zappala, Jr., each of whom was elected at the last annual meeting of
shareholders.
The Assignees have chosen Donald Russell, one of the Assignees, as their
Board nominee.
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.
In connection with the Agreement, the Company's Board of Directors approved the
appointment of John E. Paget as President and Chief Executive Officer. Mr. Paget
took office on August 19, 1997. Mr. Paget replaced Samuel C. McElhaney, who
continues to serve on the Company's Board of Directors and is a nominee for
reelection.
Each director will serve on the Board of Directors for a period of one year
or until his successor shall have been elected and qualified.
BOARD AND BOARD COMMITTEE MEETINGS
The Board of Directors has established an Audit Committee, a Stock Option
and Compensation Committee, an Investors Relation Committee, and a Business
Development Committee. The members of the Audit, Business Development and Stock
Option and Compensation Committees are Messrs. McElhaney, Cossutta and Zappala.
The Audit Committee, whose Chairman is Mr. Zappala, reviews the engagement of
the independent accountants, the scope of the annual audit undertaken by the
independent accountants and the adequacy of the Company's internal control
procedures, including those related to affiliated parties. The Stock Option and
Compensation Committee, whose Chairman is Mr. Cossutta, reviews and recommends
to the full Board of Directors all aspects of the compensation program for the
executive officers and makes recommendations to the full Board of Directors with
respect to the award of stock options under the Company's 1994 Stock Option
Plan, as amended. The Business Development Committee, whose Chairman is
5
<PAGE> 8
Mr. McElhaney, reviews and analyzes business combination and investment
opportunities. The Investor Relations Committee, which was formed on August 19,
1997 with Mr. Santry as its initial member, will act as the Company's liaison
with the investment banking community.
During the fiscal year ended June 30, 1997, there were 12 meetings held by
the Board of Directors, one meeting of the Audit Committee, three meetings of
the Stock Option and Compensation Committee and 14 meetings of the Business
Development Committee. All directors attended at least 75% of the meetings of
the Board and the respective committees on which they serve.
COMPENSATION OF DIRECTORS
Each of the Company's non-employee directors receives an annual director's
fee of $15,000, paid quarterly, plus $1,000 for each board meeting attended,
$750 for each committee meeting attended and reimbursement for travel and
lodging expenses incurred in connection with attending such meetings. Non-
employee members of the Business Development Committee receive $750 for
attendance at meetings held in conjunction with regular or special Board
meetings, $2,500 for attendance at meetings not held in conjunction with Board
meetings and $500 for participation in telephone meetings which require advance
preparation. Mr. Farrell did not receive any additional compensation for serving
on the Board of Directors during the fiscal year ended June 30, 1997.
Each of Messrs. Cossutta, Zappala and Assaf received options to purchase
10,000 shares of Common Stock in connection with their election to the Company's
Board of Directors in 1995 and 1996 pursuant to the Company's 1994 Stock Option
Plan, as amended (the "Plan"). Mr. McElhaney similarly received options to
purchase 10,000 shares of Common Stock on his election to the Board in October
1996. Each of the options awarded in October 1995 became exercisable on October
12, 1996 at an exercise price of $4.00 per share and expire on October 12, 2001.
Each of the options awarded in 1996 became exercisable on October 30, 1997 at an
exercise price of $1.56 per share and will expire on October 30, 2002.
In March 1997, each of Messrs. McElhaney, Cossutta and Zappala were awarded
additional options to purchase 35,000 shares of Common Stock at an exercise
price of $1.00 per share. Those options vested immediately and expire on March
11, 2007.
In July 1997, upon their initial election to the Board, each of Messrs.
Santry and Waller received options to purchase 10,000 shares of Common Stock at
an exercise price of $1.4065 per share. Those options will vest on July 24, 1998
and will expire on July 24, 2003.
According to the formula set forth in the Plan, in each year that a
non-employee director is newly elected to the Board of Directors of the Company,
and on the anniversary of each succeeding re-election, he or she will receive an
option having a six-year term to purchase 10,000 shares of Common Stock at a
purchase price equal to the then current market price. Such options will not be
exercisable for a one-year period commencing with the date of grant. The
provisions of the Plan which govern grants of options to non-employee directors
may not be amended more than once in any six-month period, other than to comply
with changes in the Internal Revenue Code of 1986, as amended (the "Code"), the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or other
applicable federal or state law.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Federal securities laws require the Company's directors, certain of its
officers, and persons owning beneficially more than ten percent (10%) of a
registered class of the Company's equity securities, to file initial reports of
ownership and reports of changes in ownership with the Commission. The Company
is required to disclose any failure of persons, who at any time during the
fiscal year, were directors, officers required to report, or more than ten
percent (10%) beneficial owners, to file timely those reports during the year
ended June 30, 1997 or prior years. The Company undertakes the responsibility to
file all required reports on behalf of its directors and officers. To the
Company's knowledge, based solely upon information furnished to the Company by
its directors and certain of its officers, during the fiscal year ended June 30,
1997, all of the
6
<PAGE> 9
Company's directors, officers required to report, and greater than ten percent
(10%) beneficial owners, made all such filings on a timely basis, except for the
following: Forms 3, for Edward A. Meltzer, an officer of the Company, and
Stephen C. Wright, an officer of Systems, were not filed on a timely basis, and
a Form 4 for Araldo Cossutta, a director of the Company, was not filed on a
timely basis.
POSSIBLE INCREASE IN THE SIZE OF THE BOARD OF DIRECTORS
The Board of Directors is presently considering increasing the size of the
Board of Directors from seven to eight members. Pursuant to the Company's
bylaws, the number of directors may be increased by a majority vote of the Board
of Directors, and any vacancies created by such increase in the number of
directors may be filled by a majority vote of the remaining directors. Pursuant
to the Agreement, Messrs. Cossutta, McElhaney and Zappala have the ability to
select an additional Board member and the remaining directors would be obligated
to vote in favor of that selection. Directors elected in such manner would hold
office until the next annual meeting of stockholders.
A final decision has not been made to increase the size of the Board of
Directors, and no person has been identified as of the date hereof to fill any
vacancy created by such an increase.
7
<PAGE> 10
EXECUTIVE OFFICERS
The following are the executive officers of the Company as of September 30,
1997, their respective ages, the year in which each was first elected an officer
and the office of the Company held by each. Each executive officer will hold
office until the expiration or termination of his employment agreement.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John E. Paget............................. 48 President and Chief Executive Officer of the Company
and Systems
Stephen C. Wright......................... 53 Chief Operating Officer of Systems
Edward A. Meltzer......................... 48 Chief Financial Officer, Secretary and Treasurer of
the Company and Systems
</TABLE>
John E. Paget's biography is included under the heading "Election of
Directors".
Stephen C. Wright has served as the Chief Operating Officer of Systems
since November 1996. From 1989 to 1995, Mr. Wright worked for Intelligent
Electronics, a distributor and reseller of computer hardware, in various
positions including President of the Demand Fulfillment Division and President
of Intellogistics, a wholly-owned subsidiary offering third party outsourcing
services. From 1995 to November 1996, Mr. Wright was a private consultant.
Edward A. Meltzer has served as the Chief Financial Officer, Secretary and
Treasurer of the Company and Systems since February 1997. From 1985 to 1995, Mr.
Meltzer held various positions with Intelligent Electronics, including Vice
President and Chief Financial Officer from 1992 to 1995. From 1995 to February
1997, Mr. Meltzer was a private consultant.
8
<PAGE> 11
COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth for each of the fiscal years 1995 through
1997, the compensation awarded to, earned by or paid to the Company's Chief
Executive Officer, and the Company's other most highly compensated executive
officers, whose total annual salary and bonus exceeded $100,000 for services
rendered in all capacities to the Company during the fiscal year ended June 30,
1997 (collectively the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Samuel C. McElhaney 1997 $ 94,506 $ -0- $ 5,231(1)
Former President and 1996 190,750 30,000 13,643(1)
Chief Executive Officer 1995 250,000 -0- 16,766(1)
Ronald G. Farrell 1997 $171,412 $ 56,290 $158,106(3)(4)
Former Chairman of the Board of 1996 300,300 448,215(2) 14,117(3)(4)
Directors, President and 1995 278,000 107,968 13,400(3)(4)
Chief Executive Officer
Stephen Wright 1997 $156,462 $100,000 $ 6,403(5)
Chief Operating Officer 1996 -0- -0- -0-
of Systems 1995 -0- -0- -0-
Edward A. Meltzer 1997 $ 76,058 $ 27,799 $ 2,538(6)
Chief Financial Officer 1996 -0- -0- -0-
Secretary and Treasurer 1995 -0- -0- -0-
John F. Chiste 1997 $ 91,356 $ 56,290 $172,510(7)
Former Chief Financial Officer 1996 139,100 102,287(2) 8,063(7)
Secretary and Treasurer 1995 121,175 57,188 6,893(7)
</TABLE>
- ---------------
(1) Consists of auto allowance of $5,231, $12,000 and $16,766 in fiscal 1997,
1996 and 1995, respectively, and employer contributions to Mr. McElhaney's
401(k) deferred compensation plan in fiscal 1996 in the amount of $1,643.
Mr. McElhaney was the Company's President and Chief Executive Officer from
December 4, 1996 until his resignation on August 19, 1997. Mr. McElhaney is
currently the Company's Director of Strategic Planning and Development. See
"Compensation Committee Interlocks and Insider Participation" for a
discussion of certain other payments.
(2) Includes a one time discretionary bonus of $255,000 and $25,000 paid to Mr.
Farrell and Mr. Chiste, respectively, in connection with the acquisition of
Cedar Computer Center, Inc. Mr. Farrell was the Company's President and
Chief Executive Officer until his resignation on December 4, 1996. Mr.
Chiste was the Company's Chief Financial Officer until December 31, 1996.
(3) Consists of consulting fees of $157,159 in fiscal 1997, an automobile
allowance of $1,000 per month and an employer contribution to Mr. Farrell's
401(k) deferred compensation plan in fiscal 1997, fiscal 1996 and fiscal
1995 in the amounts of $847, $2,117 and $1,400, respectively.
(4) RGF, a company wholly-owned by Mr. Farrell, was paid an acquisition fee in
fiscal 1995 of $308,000 in connection with the acquisitions of Copley
Systems Corporation and Dataprint, Inc. In addition, the Company has made
certain payments on behalf of RGF, relating to overhead and rent for offices
leased by RGF and subleased to the Company by RGF, in the aggregate amounts
of $22,729, $34,093 and $35,361 for fiscal 1997, fiscal 1996 and fiscal
1995, respectively, which amounts approximate the rental expense incurred by
RGF under its primary lease for such offices. See "Compensation Committee
Interlocks and Insider Participation" below.
(5) Consists of an automobile allowance of $5,192 and an employer contribution
to Mr. Wright's 401(k) deferred compensation plan of $1,211.
(6) Consists of an automobile allowance of $2,538.
9
<PAGE> 12
(7) Consists of severance payments of $154,378 in fiscal 1997, an auto allowance
of $17,166 for fiscal 1997 and $500 per month for all of fiscal 1996 and
fiscal 1995 and an employer contribution to Mr. Chiste's 401(k) deferred
compensation plan in fiscal 1997, fiscal 1996 and fiscal 1995 in the amounts
of $466, $2,063 and $893, respectively.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On July 15, 1997, Mr. McElhaney entered into an employment agreement with
Systems to serve as Director of Strategic Planning & Development for a term
ending on June 30, 1999. Pursuant to the employment agreement, Mr. McElhaney
receives base compensation of $156,000 per year. Mr. McElhaney is also entitled
to a bonus ranging from $0 to $54,600, subject to the attainment by the Company
of certain sales and income targets. If Systems terminates the employment
agreement without cause or Mr. McElhaney terminates the employment agreement
during the 180-day period immediately following a change of control, Mr.
McElhaney is entitled to receive base compensation for a period of twelve months
following such termination, provided, that such compensation would be
discontinued in the event Mr. McElhaney earns income by rendering services to,
or on behalf of, any other person during such twelve month period. For a period
of two years following the term of the agreement, Mr. McElhaney may not compete,
directly or indirectly, with Systems.
Systems entered into an employment agreement with Mr. Farrell on August 1,
1992, which agreement was modified on July 12, 1994 and June 12, 1995, to extend
the term thereof from December 31, 1996 to December 31, 1999. Pursuant to such
employment agreement, Mr. Farrell received base compensation of $171,412,
$300,300 and $278,000 during the years ended June 30, 1997, 1996 and 1995. Mr.
Farrell also was entitled to receive a bonus equal to 5% of the pre-tax income
of Systems for each fiscal year during the term of the agreement, but in no
event greater than 100% of his annual base compensation. On December 4, 1996,
Mr. Farrell and the Company terminated the employment agreement and Mr. Farrell
resigned as an officer of the Company and Systems. Pursuant to the terms of a
consulting agreement entered into as of December 4, 1996, the Company pays Mr.
Farrell a monthly consulting fee of $31,250 through November 1998 and forgave
$105,760, or 50%, of the principal and accrued interest under a promissory note
from Mr. Farrell to the Company.
Systems entered into an employment agreement with Mr. Wright, commencing
November 4, 1996 and ending on October 31, 1997, to serve as Chief Operating
Officer of Systems. Pursuant to the employment agreement, Mr. Wright received
total base compensation of $16,000 per month and bonus compensation of $100,000.
The agreement also provided that Mr. Wright was entitled to receive a bonus of
2% of the pre-tax income of the Company for the fiscal quarters ending March 31,
1997 and June 30, 1997, subject to the Company realizing pre-tax income of
$250,000 in each such fiscal quarter.
On July 15, 1997, Mr. Wright entered into a new employment agreement with
Systems, for a term ending on June 30, 2000, to serve as Chief Operating Officer
of Systems. Pursuant to the new employment agreement, Mr. Wright receives base
compensation of $198,000 per year. Mr. Wright is also entitled to a bonus
ranging from $0 to $95,500, subject to the attainment by the Company of certain
sales and income targets. If Systems terminates the employment agreement without
cause or Mr. Wright terminates the employment agreement during the 180-day
period immediately following a change of control, Mr. Wright is entitled to
receive base compensation for a period of twelve months following such
termination, provided, that such compensation would be discontinued in the event
Mr. Wright earns income by rendering services to, or on behalf of, any other
person during such twelve month period. For a period of one year following the
term of the agreement, Mr. Wright may not compete, directly or indirectly, with
Systems.
On July 15, 1997, Mr. Meltzer entered into an employment agreement with
Systems to serve as Secretary, Treasurer and Chief Financial Officer of the
Company and Systems for a term ending on June 30, 1999. Pursuant to the
employment agreement, Mr. Meltzer receives base compensation of $181,000 per
year. Mr. Meltzer is also entitled to a bonus ranging from $0 to $58,100,
subject to the attainment by the Company of certain sales and income targets. If
Systems terminates the employment agreement without cause, Mr. Meltzer
terminates the employment agreement during the 180-day period immediately
following a change of control or the employment agreement is not renewed for a
period of at least one year upon the expiration of the initial term, Mr. Meltzer
is entitled to receive base compensation for a period of twelve months following
10
<PAGE> 13
such termination, provided, that such compensation would be discontinued in the
event Mr. Meltzer earns income by rendering services to, or on behalf of any
other person during such twelve month period. For a period of one year following
the term of the agreement, Mr. Meltzer may not compete, directly or indirectly,
with Systems.
Systems entered into an employment agreement with Mr. Chiste commencing
January 1, 1993, which agreement was subsequently modified to extend the term to
February 28, 1997. Under the employment agreement, Mr. Chiste received base
compensation of $91,356, $139,100 and $121,175 during the years ended June 30,
1997, 1996 and 1995, respectively. Mr. Chiste's base compensation was increased
to $143,000 on an annualized basis through December 31, 1996. The agreement, as
modified, also provided that Mr. Chiste was entitled to a bonus of 2% of the
pre-tax net income of Systems for each fiscal year during the term of the
agreement, but in no event exceeding a maximum of 75% of his annual base
compensation. For a period of two years after termination of his employment
agreement, Mr. Chiste may not directly or indirectly compete with Systems. Mr.
Chiste's employment agreement with Systems ended upon his resignation on
December 31, 1996. Commencing February 14, 1997 and on the first day of each
month thereafter through July 1, 1997, Mr. Chiste received a severance payment
of $30,833 (or a total of $185,211).
The Company has obtained a directors and officers liability insurance
policy with a policy limit of $5 million for the benefit of its directors and
officers. Under the policy, such persons are insured against certain liabilities
incurred in the discharge of their duties, solely in their capacity as directors
and officers of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's executive officers have employment agreements governing their
compensation. The salaries of the Company's executive officers were determined
by the entire Board of Directors, based on recommendations of the Stock Option
and Compensation Committee, and are also set forth in employment agreements. The
Board currently consists of John E. Paget, the Company's President and Chief
Executive Officer, Samuel C. McElhaney, the Company's Chairman, and four
non-employee directors, Araldo A. Cossutta, Frank J. Zappala, Jr., Michael G.
Santry and Matthew S. Waller. The Stock Option and Compensation Committee
currently consists of Samuel C. McElhaney, a former President and Chief
Executive Officer of the Company and currently the Director of Strategic
Planning and Development, and two non-employee directors, Araldo A. Cossutta and
Frank J. Zappala, Jr.
The Company subleased offices for its corporate headquarters in Boca Raton,
Florida, from R.G. Farrell, Inc. ("RGF"), a Florida corporation wholly-owned by
Mr. Farrell, for an aggregate annual rent of $32,400, which amount approximated
the annual rent incurred by RGF under its primary lease. The Company's sublease
expired on February 28, 1997. The Company believes that the terms of the
sublease from RGF were at least as favorable as those which the Company could
obtain from an independent third party for similar space.
On May 15, 1996, the Company's Board of Directors approved a personal loan
to Mr. Farrell in the principal amount of $200,000 with interest accruing at an
annual rate of 5.76%. The loan was secured by shares of Common Stock owned by
RGFI. Pursuant to the terms of his Consulting Agreement (see "Executive
Officers -- Employment Agreements, Termination of Employment and
Change-in-Control Arrangements"), on April 23, 1997 Mr. Farrell repaid $105,760,
or 50%, of the outstanding principal and interest on that note and the Company
forgave the remaining $105,760 of principal and interest.
As successor by merger to Dataprint, Inc., the Company leases offices for
its Southeast Region headquarters in Charlotte, North Carolina from Mr.
McElhaney and his wife, Jane McElhaney, for an aggregate annual rent of
$264,000. The Company believes that the terms of the sublease from the
McElhaneys, which will expire on August 30, 1998, are at least as favorable as
those which the Company could obtain from an independent third party for similar
space.
Four of the Company's directors, Messrs. Cossutta, Zappala, Santry and
Waller, have contractual registration rights with respect to 256,000, 40,000,
90,000 and 90,000 shares of Common Stock, respectively.
11
<PAGE> 14
The Company has satisfied its initial registration obligations by registering
for sale all such shares of Common Stock with the Securities and Exchange
Commission.
STOCK OPTION AND COMPENSATION COMMITTEE REPORT
Executive Compensation Policy -- The Company's overall compensation
philosophy is as follows:
- Attract and retain quality talent, which is critical to both the
short-term and long-term success of the Company;
- Foster a performance-oriented environment, where compensation is based
upon corporate performance as measured by achievement of short- and long-term
objectives, taking into account economic conditions and competitive compensation
levels;
- Create a mutuality of interest between executive officers and
shareholders through compensation structures that share the rewards and risks of
strategic decision making; and
- Promote a cohesive, team oriented ethic among members of senior
management in order to maintain the competitive advantage of efficiently
integrating diverse business capabilities.
Base Compensation -- The Stock Option and Compensation Committee's approach
to base compensation is to offer competitive salaries in comparison to those of
other computer equipment resellers. Increases in base compensation will be based
on the competence and performance of the Company's executives and take into
account the performance of the Company.
The Committee's policy is to enter into employment agreements with the
Company's principal executive officers. In determining the compensation payable
under such employment agreements, the Committee examines market compensation
levels and trends observed in the labor market. Market information is used as a
frame of reference for compensation decisions. The salary of all officers is
determined by the Board acting as a whole based on the recommendations of the
Committee.
The Committee believes that it is appropriate to specifically tie a portion
of the compensation of its executive officers to the performance of the Company
and its subsidiaries. Consequently, as discussed above, each executive officer's
salary has two components, base salary and bonus compensation. Bonus
compensation is determined based on the Company's attainment of certain sales
and income targets established by the Board and, under certain circumstances,
may be based upon specific accomplishments of the executive.
The Committee also believes that stock ownership enhances management's
focus on maximizing stockholder value. Consequently, the Company has also
adopted an incentive stock option plan for its officers and employees. The
administrators of that plan will allocate options to employees, including
executive officers, based on an evaluation of their relative levels of
responsibility for, and contribution to, the Company's operating results (in
relation to the Company's other optionees) and the number of options then owned
by the employee.
CEO Compensation -- As indicated above, on August 1, 1992, Systems entered
into an employment agreement with Mr. Farrell, which was subsequently amended on
July 12, 1994 and June 12, 1995. The terms of such agreement, including the base
salary and bonus compensation thereunder, were ratified by the Board of
Directors, with Mr. Farrell abstaining. See "Employment Agreements -- Employment
Agreements, Termination and Change-In-Control Arrangements" for information
concerning Mr. Farrell's compensation.
As Chairman and Chief Executive Officer, Mr. Farrell's total compensation
was more directly related to corporate performance than other executive
officers. Mr. Farrell founded the Company in July 1992. Since that time, the
Company's net sales increased from $0 in 1992 to approximately $418 million for
the fiscal year ended June 30, 1997. That growth was attributable to both
acquisitions and internal growth. On March 30, 1993, the Company acquired Copley
Systems Corporation ("Copley") of Westwood, Massachusetts. Effective July 1,
1994, the Company acquired Dataprint, Inc. ("Dataprint") of Charlotte, North
Carolina. Effective July 1, 1995, the Company acquired the assets of Cedar
Computer Center, Inc. ("Cedar") of Des Moines, Iowa. Copley, Dataprint and Cedar
were each, respectively, one of the largest dealers of Hewlett-
12
<PAGE> 15
Packard computer products in the northeastern, southeastern and
mid-western/western United States. Mr. Farrell identified the acquisition
candidates, negotiated the terms of the acquisitions and obtained the necessary
debt and equity financing to consummate the transactions. Accordingly, Mr.
Farrell's base and bonus compensation, as established pursuant to the formula
set forth in his employment agreement, increased by approximately 42% from
fiscal 1994 to fiscal 1995 and by approximately 28% from fiscal 1995 to fiscal
1996. In fiscal 1995 and 1996, respectively, approximately 25% and 27% of Mr.
Farrell's total compensation pursuant to his employment agreement was
represented by discretionary and performance bonuses. RGF, a company
wholly-owned by Mr. Farrell, was paid one-time acquisition fees of $308,000 and
$125,000, respectively, in connection with the acquisitions of Copley and
Dataprint.
Mr. Farrell was also granted options to purchase 200,000 shares of Common
Stock during fiscal 1996. The Committee believed that such level of options
placed the proper emphasis on stock appreciation in Mr. Farrell's total
compensation package and further strengthen the alignment of his interests with
those of stockholders.
Mr. Farrell resigned on December 4, 1996 and, therefore, was not entitled
to a bonus for fiscal 1997. Mr. McElhaney served as the Company's President and
Chief Executive Officer, on an interim basis, from December 4, 1996 to August
19, 1997, and received a fixed monthly salary during that period. The Company's
new Chief Executive Officer, John E. Paget, took office on August 19, 1997.
Consistent with the compensation philosophy described above, Mr. Paget will
receive a fixed salary, plus a maximum bonus equal to approximately 56% of the
fixed salary. The bonus will be dependent upon the Company meeting certain sales
and net income targets. Mr. Paget also received options to purchase 1,000,000
shares of Common Stock, which options are contingent upon the approval of the
proposed amendment to the Company's 1994 Stock Option Plan discussed in Item 2
below.
Respectfully submitted by the Stock Option and Compensation Committee:
Araldo A. Cossutta, Chairman
Samuel C. McElhaney
Frank J. Zappala, Jr.
STOCK PERFORMANCE
The Company's Common Stock has been traded on the Nasdaq SmallCap Market
since June 21, 1996 under the symbol CICC. During the period from the
commencement of trading on the Nasdaq SmallCap Market through September 30,
1997, the high and low sale prices for the Common Stock were $5.00 and $0.75,
respectively.
13
<PAGE> 16
COMPARISON OF 12 MONTH CUMULATIVE TOTAL RETURN*
AMONG COMPUTER INTEGRATION CORP., THE S&P 500 INDEX
AND THE S&P TECHNOLOGY SECTOR INDEX
LOGO
*$100 INVESTED ON 6/24/96 IN STOCK OR ON 5/31/96 IN INDEX INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING JUNE 30.
STOCK OPTION GRANTS
The following table sets forth information regarding stock options granted
to the Company's Named Officers during the fiscal year ended June 30, 1997 and
the potential value of such options at the end of their terms, assuming certain
levels of stock price appreciation:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION
FOR OPTION
INDIVIDUAL GRANTS TERM(4)
-------------------------------------------------- ----------------------
PERCENT OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE DATE 5% 10%
---- ---------- ------------- -------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Samuel C. McElhaney.... 10,000(1) 1.7% $ 1.56 10/30/02 $ 5,305 $ 12,036
100,000(2) 16.7% $ 1.50 12/09/06 $ 94,334 $239,061
35,000(3) 5.8% $1.3755 3/11/07 $ 30,277 $ 76,727
Stephen C. Wright...... 40,000(4) 6.7% $ 1.375 11/04/06 $ 34,589 $ 87,656
Edward A. Meltzer...... 40,000(5) 6.7% $ 1.50 1/15/02 $ 16,577 $ 36,631
Ronald G. Farrell...... 0 0 -- -- 0 0
John Chiste............ 0 0 -- -- 0 0
</TABLE>
- ---------------
(1) Will vest in full on October 30, 1997.
(2) 50,000 vested on December 9, 1996 and 50,000 vested on July 4, 1997.
(3) Vested in full on March 11, 1997.
14
<PAGE> 17
(4) Vested in full on July 15, 1997.
(5) 20,000 vested on January 15, 1997 and 20,000 will vest on January 15, 1998.
(6) Dollar amounts represent the potential realizable value of each grant of
options assuming that the market price of the Common Stock appreciates in
value from the date of grant to the expiration date at 5% and 10% annual
rates of return. These calculations are not intended to forecast possible
future appreciation, if any, of the price of Common Stock.
STOCK OPTION EXERCISES AND HOLDINGS
The following table provides certain information concerning the unexercised
options to purchase shares of Common Stock held by the Company's Named Officers
as of June 30, 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT JUNE 30, 1997(#) JUNE 30, 1997(1)
------------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Samuel C. McElhaney...................... 0 60,000 0 0
Stephen C. Wright........................ 0 40,000 0 0
Edward A. Meltzer........................ 20,000 20,000 0 0
Ronald G. Farrell........................ 118,000 0 $ 17,700 $ 0
John F. Chiste........................... 0 0 0 0
</TABLE>
- ---------------
(1) Dollar values are calculated based on the difference between the option
exercise price and $1.25, the closing price of the Common Stock on June 30,
1997 as reported by Nasdaq.
The following table provides certain information concerning stock options
exercised during the fiscal year ended June 30, 1997 by the Named Officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FISCAL YEAR-END AT FISCAL YEAR-
SHARES VALUE (#) END($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------------ ---------------
<S> <C> <C> <C> <C>
Samuel C. McElhaney......................... 85,000 (38,260) 0/60,000 0
Stephen C. Wright........................... 0 0 0/40,000 0
Edward A. Meltzer........................... 0 0 20,000/20,0000 0
Ronald G. Farrell........................... 0 0 118,000/0 $17,700
John F. Chiste.............................. 25,000 12,500 0 0
</TABLE>
EMPLOYEE SAVINGS PLANS
Effective July 1, 1995, Systems adopted a 401(k) plan (the "401(k)") and
the Copley 401(k) was merged with the Systems 401(k). Systems administers the
401(k) and all Systems employees are eligible to participate in the 401(k) upon
completion of one year of service and the attainment of age 21. Voluntary
employee pre-tax contributions may be made to the 401(k) in 1% increments from
1% to 15% of total gross annual compensation. Systems makes matching
contributions of 25% of the first 4% of employee pre-tax contributions. In
addition, as a one-time incentive for employees to enroll, Systems contributed
$600 to the 401(k) for each employee who enrolled on September 1, 1993 (the
"Incentive Bonus"). The employee's account balance, including Systems'
contributions, will be 100% vested at all times. The Incentive Bonus will be
subject to the same vesting schedule as the 401(k)'s vesting schedule. A
participant is entitled to receive a distribution of the vested interest in his
or her account upon retirement, death, permanent disability or termination of
employment.
15
<PAGE> 18
Dataprint had a Profit Sharing Defined Contribution Plan with 401(k)
Savings Plan, whereby Dataprint matched 50% of employee contributions up to 6%
of salary deferrals. Effective July 1, 1995, the separate Systems and Dataprint
401(k) plans were merged into one plan.
Cedar had a 401(k) plan under which all Cedar employees were eligible to
participate upon completion of one year of service and the attainment of age 21.
Effective January 1, 1996, the separate Systems and Cedar 401(k) plans were
merged into one plan.
EMPLOYEE INCENTIVE PLAN
The Company has adopted a 1994 Employee Incentive Plan (the "Employee
Incentive Plan"). Pursuant to the Employee Incentive Plan, key employees of the
Company who have been selected as participants are eligible to receive awards of
various forms of equity-based incentive compensation, including stock
appreciation rights, restricted stock awards, performance shares, performance
units and awards consisting of combinations of such incentives. The Employee
Incentive Plan is administered by the Compensation Committee. No Compensation
Committee member will be eligible to participate in the Employee Incentive Plan.
Subject to the provisions of the Employee Incentive Plan, the Compensation
Committee has sole discretionary authority to interpret the Employee Incentive
Plan and to determine the type of awards to grant, when, if and to whom awards
are granted, the number of shares covered by each award and the terms and
conditions of the award.
Shares of Common Stock covered by a restricted stock award will be issued
to the recipient at the time the award is granted, but will be subject to
forfeiture in the event continued employment and/or other restrictions and
conditions established by the Compensation Committee at the time the award is
granted are not satisfied. A performance unit will provide for the future
payment of cash or the issuance of shares of Common Stock to the recipient if
continued employment or other performance objectives established by the
Compensation Committee at the time of grant are attained. Stock bonus awards,
restricted stock awards and performance unit awards may, in the discretion of
the Compensation Committee, be settled in cash, on each date on which shares of
Common Stock covered by the awards would otherwise have been delivered or become
unrestricted, in an amount equal to the fair market value of such shares on such
date. The Company has reserved 5,000 shares of Common Stock for issuance under
the Employee Incentive Plan. Pursuant to the Employee Incentive Plan, during
1996, the Company issued ten shares of its Common Stock to each of its 445
employees.
ITEM 2 -- AMENDMENT OF 1994 STOCK OPTION PLAN
In April 1994, the Board of Directors of the Company approved the adoption
of the 1994 Stock Option Plan (the "Plan"), which Plan was amended in June 1994,
September 1995 and October 1996. Such amendments to the Plan were approved by
the Company's stockholders in July 1994, October 1995 and October 1996,
respectively. The Board of Directors has adopted, subject to approval by the
affirmative vote of a majority of the shares of Common Stock represented at the
Annual Meeting, in person or by proxy, Amendment No. 3 to the Plan, a copy of
which is annexed hereto as Exhibit A.
GENERAL
Under the Plan, the Company has reserved an aggregate of 1,800,000 shares
of Common Stock for issuance, of which options to acquire 1,286,922 shares are
currently outstanding. The Company is contractually obligated to issue an
additional 1,000,000 options to Mr. Paget, contingent upon the approval of the
proposed amendment to the Plan. The purpose of the Plan is to encourage stock
ownership by certain officers, non-employee directors and key personnel,
including consultants and advisors, of the Company and its wholly-owned
subsidiaries, to give such persons a greater personal interest in the success of
the Company's business, and to provide incentive to continue to advance and
contribute to the Company. The Plan is administered by those members of the
Board of Directors of the Company who are "disinterested persons" within the
meaning
16
<PAGE> 19
of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended,
which committee selects the persons who will be granted options under the Plan,
prescribes the terms and provisions of each option granted (which need not be
identical), specifies the number of shares subject to each option, sets the
option price and determines the maximum period during which options may be
exercised.
Options granted under the Plan may either be options qualifying as
incentive stock options (the "Incentive Options") under Section 422(a) of the
Internal Revenue Code of 1986, as amended, or non-qualifying options
("Nonqualified Options"). Any Incentive Option granted under the Plan must
provide for an exercise price of not less than 100% of the fair market value of
the underlying shares on the date of such grant; provided, however, that the
exercise price of any Incentive Option granted to an eligible employee owning
more than 10% of the outstanding Common Stock of the Company must not be less
than 110% of such fair market value as determined on the date of the grant. The
term of each option and the manner in which it may be exercised is determined by
the Board of Directors, provided that no option may be exercisable more than ten
years after the date of its grant and, in the case of an Incentive Option
granted to an eligible employee owning more than 10% of the Common Stock, no
more than five years after the date of the grant.
The individuals eligible to receive options under the Plan are employees,
non-employee directors, advisors and consultants of the Company and its
subsidiaries. Non-employee directors, advisors and consultants shall only be
eligible to receive Nonqualified Options. Employees are eligible to receive both
Incentive Options and Nonqualified Options. The Company currently has four
non-employee directors and 407 employees who are eligible to participate in the
Plan. In the event that an outstanding option terminates for any reason, the
shares of Common Stock subject to the unexercised portion of such option shall
again be available for grants under the Plan.
Options granted under the Plan are nontransferable and nonassignable by the
optionee, other than by will or the laws of descent and distribution, and are
exercisable during his or her lifetime only by the optionee. No option may be
exercised after the expiration of its term. The Company receives no proceeds
upon the grant of options. Any proceeds received by the Company from the sale of
Common Stock on the exercise of options shall be used for general corporate
purposes.
Upon the occurrence of certain events involving a recapitalization or
reorganization of the Company, the committee will make appropriate adjustments
to the number of shares covered by each outstanding option and the per share
exercise price thereof, in its discretion, to prevent dilution or enlargement of
rights.
The Board of Directors of the Company may at any time suspend or
discontinue the Plan or revise or amend it in any respect whatsoever, provided,
however, that without approval of the stockholders, no revision or amendment
shall increase the number of shares of Common Stock that may be issued under the
Plan, materially increase the benefits accruing to individuals holding options
granted pursuant to the Plan or materially modify the requirements as to
eligibility for participation in the Plan.
The Plan currently provides that each existing non-employee director of the
Company as of October 12, 1995, or any other non-employee as of the date he or
she first becomes a director, shall automatically be granted a Nonqualified
Option to purchase 10,000 shares of Common Stock. A Nonqualified Option to
purchase an additional 10,000 shares of common stock shall be granted to each
such non-employee director on each election to the Board, or one year
anniversary of his or her last election and continued service on the Board (the
"Formula Plan"). All such options granted to non-employee directors will have an
exercise price per share equal to 100% of the fair market value per share of the
Common Stock on the date of such grant, shall not be exercisable for a period of
one year from the date of grant and shall expire on the earlier of (i) six years
from the date of grant or (ii) 30 days after the optionee shall cease to be a
member of the Board.
FEDERAL INCOME TAX CONSEQUENCES
The grant of an Incentive Option or a Nonqualified Option would not result
in income for the grantee or in a deduction for the Company.
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The exercise of a Nonqualified Option would result in ordinary income for
the optionee and a deduction for the Company measured by the difference between
the option price and the fair market value of the shares received at the time of
exercise. Income tax withholding would be required.
The exercise of an Incentive Option would not result in income for the
grantee if the grantee (i) does not dispose of the shares within two years after
the date of grant or one year after the transfer of shares upon exercise and
(ii) is an employee of the Company or a subsidiary of the Company from the date
of grant until three months before the exercise date. If these requirements are
met, the basis of the shares upon later disposition would be the option price.
Any gain will be taxed to the employee as long-term capital gain and the Company
would not be entitled to a deduction. The excess of the market value on the
exercise date over the option price is an item of tax preference, potentially
subject to the alternative minimum tax.
If the grantee disposes of the shares prior to the expiration of either of
the holding periods, the grantee would recognize ordinary income and the Company
would be entitled to a deduction equal to the lesser of the fair market value of
the shares on the exercise date minus the option price or the amount realized on
disposition minus the option price. Any gain in excess of the ordinary income
portion would be taxable as long-term or short-term capital gain.
THE PROPOSED AMENDMENT
Amendment No. 3 would increase the number of shares of Common Stock
reserved for issuance under the Plan from 1,800,000 shares to 4,000,000 shares.
Presently, only 513,078 shares remain available for the grant of new options.
The Company is contractually obligated to issue an additional 1,000,000 options,
subject to approval of the proposed amendment. With the increase, the shares of
Common Stock available for issuance under the Plan will constitute 20.5% of the
total shares of Common Stock outstanding on a fully diluted basis, assuming the
granting of awards for all of the Common Stock available for issuance under the
Plan and the issuance of such Common Stock upon the exercise thereof and
assuming that all options, rights and warrants for Common Stock and all
securities convertible into shares of Common Stock currently outstanding are
exercised or converted.
The Board of Directors believes that the Company's ability to grant
additional stock options is important to the Company's ability to recruit and
retain qualified personnel and directors.
VOTE REQUIRED FOR ADOPTION
For approval of Amendment No. 3 to the Plan, the affirmative vote of a
majority of the shares of Common Stock represented at the Annual Meeting, in
person or by proxy, is required. The Board of Directors recommends a vote FOR
the adoption of Amendment No. 3 to the Plan.
ITEM 3 -- INCREASE AUTHORIZED SHARES OF COMMON STOCK
THE PROPOSAL
The Company proposes to amend its Certificate of Incorporation to increase
the number of authorized shares of capital stock from 22,000,000 shares to
42,000,000 shares, including an increase in the number of authorized shares of
Common Stock from 20,000,000 shares to 40,000,000 shares (the "Authorized Shares
Amendment"). The Authorized Shares Amendment would be effected by amending
Article Fourth of the Certificate of Incorporation to read as set forth in
Exhibit B. The additional shares of the Company's Common Stock for which
authorization is sought would be a part of the existing class of Common Stock
and, if and when issued, would have the same rights and privileges as the shares
of Common Stock presently authorized.
PURPOSES AND EFFECT OF THE AUTHORIZED SHARES AMENDMENT
The Certificate of Incorporation authorizes the issuances of 22,000,000
shares of capital stock, of which 20,000,000 are shares of Common Stock and
2,000,000 are shares of Preferred Stock. Of the 20,000,000 shares of Common
Stock authorized, as of the record date 14,034,810 shares were issued and
outstanding,
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1,800,000 shares were reserved for issuance pursuant to the Company's 1994 Stock
Option Plan, 355,000 shares were reserved for issuance upon the exercise of
outstanding warrants and 1,261,434 shares were reserved for issuance upon the
conversion of shares of Preferred Stock into shares of Common Stock. Thus, only
2,705,634 shares of Common Stock are presently unissued, unreserved and
available for future issuance.
Under the Authorized Shares Amendment, the Board of Directors would be
authorized to issue up to an additional 20,000,000 shares of Common Stock. The
holders of shares of Common Stock do not have preemptive rights to subscribe to
any of the Company's securities and will not have any such rights to subscribe
to any additional shares of Common Stock which may be issued, if authorized
pursuant to the Authorized Shares Amendment.
The additional shares of Common Stock which would be authorized by the
Authorized Shares Amendment could be issued at the direction of the Board of
Directors from time to time for any proper corporate purpose without further
action by the stockholders. For the foreseeable future, the Company does not
anticipate issuing additional shares of Common Stock other than for the purpose
of raising additional capital or potentially in connection with acquisition of
other companies or assets. Although the Company has completed a number of
acquisitions in recent years and regularly reviews potential acquisition
targets, it has not entered into any agreement or understanding with respect to
any additional acquisitions at this time.
OTHER CONSIDERATIONS
Stockholders should recognize that issuance of additional shares of Common
Stock will, among other things, have a dilutive effect on future earnings per
share of Common Stock and on the percentage of equity ownership and voting
rights of the current holders of shares of Common Stock. However, the Board of
Directors believes that the benefits of providing the Company with the
flexibility to issue shares of Common Stock without further stockholder approval
and delay, outweigh the possible disadvantages of dilution to the current
stockholders of the Company and that it is prudent and in the best interests of
the stockholders to provide the advantage of greater flexibility which will
result from the adoption of the Authorized Shares Amendment.
VOTE REQUIRED FOR ADOPTION
The affirmative vote of a majority of the shares of Common Stock entitled
to vote at the Annual Meeting, in person or by proxy, is required to authorize
the Authorized Shares Amendment. The Board of Directors unanimously recommends
that stockholders vote FOR Proposal 3 -- Authorized Shares Amendment. If the
Authorized Shares Amendment is approved by the stockholders, the Authorized
Shares Amendment will become effective upon the filing of a Certificate of
Amendment to the Certificate of Incorporation with the Secretary of State of
Delaware.
ITEM 4 -- RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
The Board of Directors, upon recommendation of its Audit Committee, has
appointed the firm of Ernst & Young LLP as the Company's certified independent
public accountants with respect to its operations for the fiscal year ending
June 30, 1998, subject to ratification of such appointment by the holders of
Common Stock.
To ratify the selection of Ernst & Young LLP, the affirmative vote of a
majority of the shares of Common Stock represented at the Annual Meeting, in
person or by proxy, is required. The Board of Directors recommends a vote FOR
this proposal.
The Company anticipates that a representative of Ernst & Young LLP will be
present at the Annual Meeting, and such representative will have the opportunity
to make a statement if he or she desires to do so and will be available to
respond to appropriate questions.
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OTHER MATTERS
The Board of Directors is not aware of any other matters to come before the
Annual Meeting. However, if any other matters properly come before the Annual
Meeting, it is the intention of the person named in the enclosed form of proxy
to vote said proxy in accordance with his judgment in such matters.
STOCKHOLDERS' PROPOSALS
Proposals of stockholders to be presented at the annual meeting to be held
in 1998 must be received for inclusion in the Company's proxy statement and form
of proxy by June 18, 1998.
EXHIBITS
The following exhibits are attached hereto and incorporated herein by
reference.
A. Amendment No. 3 to 1994 Stock Option Plan.
B. Form of Authorized Shares Amendment.
Dated: Charlotte, North Carolina
October 16, 1997
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EXHIBIT A
AMENDMENT NO. 3 TO 1994 STOCK OPTION PLAN
RESOLVED, that the first sentence of Section 3 of the Company's 1994 Stock
Option Plan be amended to read in its entirety as follows:
Subject to adjustments pursuant to Section 9 of the Plan, no more than Four
Million (4,000,000) shares in the aggregate of the Company's Common Stock
(the "Reserved Shares") may be issued pursuant to the Plan to eligible
participants.
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EXHIBIT B
AUTHORIZED SHARES AMENDMENT
RESOLVED, that the first sentence of Article FOURTH of the Company's Certificate
of Incorporation be amended to read in its entirety as follows:
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 42,000,000 shares, consisting of 40,000,000
shares of Common Stock, par value $.001 per share ("Common Stock"), and
2,000,000 shares of Preferred Stock, par value $.001 per share ("Preferred
Stock").
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PROXY
COMPUTER INTEGRATION CORP.
The undersigned stockholder hereby appoints Samuel C. McElhaney, the
attorney and proxy of the undersigned, with power of substitution, to vote on
behalf of the undersigned stockholder all the shares of stock of Computer
Integration Corp. (the "Company"), which the undersigned is entitled to vote at
the Annual Meeting of Stockholders of the Company to be held at the Park Hotel,
220 Rexford Road, Charlotte, North Carolina 28211 on November 4, 1997 at 9:00
a.m., local time, and at all adjournments thereof, hereby revoking any proxy
heretofore given with respect to such stock, and the undersigned authorizes and
instructs said proxy to vote as follows:
1. Election of seven directors.
[ ] FOR the election of the nominees listed below (except as marked to the
contrary below):
Samuel C. McElhaney, John E. Paget, Araldo A. Cossutta, Donald Russell, Michael
G. Santry, Matthew S. Waller and Frank J. Zappala, Jr.
[ ] WITHHOLD AUTHORITY to vote for all the nominees listed above.
[ ] WITHHOLD AUTHORITY to vote for individual nominee or nominees listed in
the space provided below.
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2. Approve Amendment No. 3 to the Company's 1994 Stock Option Plan, as amended.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED AND TO BE DATED AND SIGNED ON THE OTHER SIDE)
3. Approve an amendment to the Company's Certificate of Incorporation to
increase its authorized shares of Common Stock from 20 million to 40 million,
together with the resolutions relating thereto.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Ratify the Company's selection of the accounting firm of Ernst & Young LLP as
the Company's independent certified public accountants.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In his discretion, upon such other business as may be properly brought before
the Annual Meeting.
If this Proxy is properly executed and returned, the shares represented
hereby will be voted as instructed. If not otherwise specified, this Proxy will
be voted FOR all of the persons nominated as directors, and FOR each of
proposals 2, 3 and 4.
PLEASE DATE AND SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR BELOW AND RETURN IN
THE ENCLOSED ENVELOPE. IF ACTING AS EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN,
ETC., YOU SHOULD SO INDICATE WHEN SIGNING. IF THE SIGNER IS A CORPORATION,
PLEASE SIGN THE FULL CORPORATE NAME AND THE NAME AND TITLE OF THE DULY
AUTHORIZED OFFICER SIGNING ON SUCH CORPORATION'S BEHALF.
Dated: _________________, 1997
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(Signature of Stockholders)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
