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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9/A
(Rule 14d-101)
Solicitation/Recommendation Statement Under
Section 14(d)(4) of the Securities Exchange Act of 1934
(Amendment No. 1)
CSI COMPUTER SPECIALISTS, INC.
(Name of Subject Company)
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Csi Computer Specialists, Inc.
(Name of Person Filing Statement)
Common Stock, Par Value $0.001 Per Share
(Title of Classes of Securities)
12631103
(CUSIP Number of Class of Securities)
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Robert V. Windley
CSI Computer Specialists, Inc.
904 Wind River Lane, Suite 100
Gaithersburg, Maryland 63101
(301) 921-8860
(Name, address and telephone number of person authorized to
receive notices and communications on behalf of
the person filing statement)
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With a copy to:
Denise R. Brown, Esq.
Shaw Pittman
2300 N Street, N.W.
Washington, DC 20037
(202) 663-8000
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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This Amendment No. 1 (the "Amendment") amends and supplements the
solicitation/recommendation statement on Schedule 14D-9 filed by CSI Computer
Specialists, Inc., a Delaware corporation (the "Company") on April 26, 2000,
relating to the offer made by Interactive Systems, Inc., a Virginia corporation
("ISI"), disclosed in a Tender Offer Statement on Schedule TO filed with the
Commission on April 26, 2000 (the "Schedule TO"). The Schedule TO is being
amended to include Mr. Donald C. Weymer, ISI's founder, Chief Executive Officer,
President, a Director and 98% shareholder, as a bidder. ISI, together with Mr.
Donald C. Weymer, is offering to purchase all of the outstanding shares of
Common Stock (the "Common Shares") not already owned by Mr. Weymer at a purchase
price of $1.00 per Common Share, net to the seller in cash, without interest
thereon, less applicable withholding taxes, if any, and upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated April 26,
2000 (the "Offer to Purchase"), and in the related Letter of Transmittal (which,
together with the Offer to Purchase, as amended or supplemented from time to
time, constitutes the "Offer") copies of which were previously filed as Exhibits
(a)(1) and (a)(2) to the Schedule TO.
Item 2. Identity and Background of Filing Person
Paragraph (b), "Tender Offer," is hereby amended in its entirety to read as
follows:
This Statement relates to the tender offer by Interactive Systems,
Inc., a Virginia corporation ("ISI"), and Mr. Donald C. Weymer
(together with ISI, the "Purchaser") to purchase all outstanding Common
Shares of CSI at a purchase price of $1.00 per Common Share, net to the
seller in cash (less any required withholding taxes), without interest,
on the terms and subject to the conditions set forth in the Offer to
Purchase, dated April 26, 2000 (the "Offer to Purchase"), and in the
related Letter of Transmittal (the "Letter of Transmittal," which,
together with the Offer to Purchase, as they may be amended or
supplemented from time to time, constitute the "Offer"), copies of
which are filed as Exhibits (a)(1) and (a)(2) herewith, respectively,
and are incorporated herein by reference in their entirety. Mr. Donald
C. Weymer, ISI's founder, Chief Executive Officer, President, a
Director and 98% shareholder, already owns approximately 32% of the
outstanding Common Shares. The Offer is described in a Tender Offer
Statement on Schedule TO, dated April 26, 2000 (the "Schedule TO"),
which was filed with the Securities and Exchange Commission on April
26, 2000.
The Schedule TO states that the principal executive offices of ISI
are 1777 North Kent Street, Arlington, Virginia 22209.
ITEM 3. Past Contacts, Transactions, Negotiations and Agreements
Item 3 is hereby amended in its entirety to read as follows:
Except as described or referred to in this Item 3, there exists on
the date hereof no material agreement, arrangement or understanding and
no actual or potential conflict of interest between CSI and either (i)
CSI's executive officers, directors or affiliates or (ii) ISI or any of
its respective executive officers, directors or affiliates.
(a) Certain Arrangements Between CSI and the Purchaser
The information set forth in the "INTRODUCTION," "SPECIAL FACTORS
-- Background of the Tender Offer," "SPECIAL FACTORS -- Purpose and
Plans," "SPECIAL FACTORS -- Interests of Certain Persons," "THE TENDER
OFFER -- Information Concerning ISI," and "THE TENDER OFFER - Source
and Amount of Funds" of the Offer to Purchase is incorporated herein by
reference.
(b) Interests of Certain Persons in the Offer
In considering the recommendations of the CSI Board (as defined
and described below) with respect to the Offer, stockholders should be
aware that certain officers and directors of ISI and CSI have interests
in the Offer which are described below and which may present them with
certain potential conflicts of interest.
The Purchaser's Affiliation with CSI. Mr. Donald C. Weymer owns approximately
98% of ISI's equity securities and is ISI's founder, Chief Executive Officer,
President and a Director. In addition, Mr. Weymer owns 1,195,000 of the Common
Shares, representing approximately 32% of the outstanding Common Shares, and
serves as the Company's Chairman of the Board of Directors, Chief Executive
Officer and Secretary. ISI does not own any of the Common Shares directly.
Mr. Robert V. Windley, ISI's Executive Vice President and a Director, also
serves as the Company's Acting Chief Financial Officer. Mr. Windley has an
exercisable option to purchase
100,000 Common Shares.
In addition, Ms. Lynn M. Weymer, ISI's Secretary and a Director, is the daughter
of Mr. Donald C. Weymer. Ms. Weymer beneficially owns 65,000 Common Shares.
Stock and Option Ownership of CSI and ISI Directors and Executive
Officers. The information set forth in "SPECIAL FACTORS -- Interests of
Certain Persons -- Beneficial Ownership of Shares" of the Offer to
Purchase is incorporated herein by reference.
The CSI Board (as defined below) was aware of these actual and
potential conflicts of interest and considered them along with the
other matters described below in Item 4, "The Solicitation or
Recommendation -- Reasons for the Recommendation."
Item 4. The Solicitation or Recommendation
Section (b), "Reasons for the Recommendation," is hereby amended in its
entirety to read as follows:
Background of the Offer. The Company commenced operations in 1994
and has operated at a loss every year since 1996. In 1997, in an effort
to rebound from its 1996 losses, the Company began to implement a
strategy of growth and acquisition that the CSI Board anticipated would
expand the Company's technological expertise and customer base. As part
of this strategy, the Company acquired three computer services
companies, Cintronix, Inc. ("Cintronix"), Advanced Network Systems and
Phoenix Service, Inc. ("Phoenix Service") in 1997. The Company's
management had hoped that the acquisitions of Cintronix and Advanced
Network Systems would further the Company's goal of developing regional
clusters of sales and service representatives to improve customer
service and to gain greater market penetration. The expected
integration of these two acquisitions and the projected increase in
marketing and decrease in costs due to economies of scale failed to
occur during 1998. Only the Phoenix Service acquisition provided
significant expansion in growing the Company's customer base
profitably. As a result of the poor performance of the two
acquisitions, in 1998 the Company took a one-time charge of
approximately $1.7 million to write down the carrying value of the
acquired companies due to the impairment of the related assets,
primarily goodwill.
On May 19, 1998, the Company was notified by the Nasdaq Stock
Market that the Common Shares, which were traded on the SmallCap
Market, had failed to maintain a closing bid price greater than or
equal to $1.00 per Common Share. Although the Company was granted a
temporary exception to the minimum bid price requirement, the
requirement was still not met by the end of the exception period,
August 18, 1998. The Common Shares were delisted from the SmallCap
Market on August 24, 1998.
In an effort to provide liquidity for CSI's shareholders during
this period of financial downturn, in June 1998 the Company contacted
Ferris, Baker, Watts, Incorporated ("Ferris Baker") regarding a
potential merger of the Company or sale of all or part of the Common
Shares. On June 23, 1998, after negotiations, the Company retained
Ferris Baker as its financial advisor to seek out prospective
purchasers and to assist the Company in the negotiation of any proposed
transactions.
Over the course of the ensuing 12 months, Ferris Baker contacted
25 prospective buyers in the computer hardware industry, including
Decision One, Anacomp, STK, Amdahl and Unisys. While many of the
prospective candidates that were approached responded favorably upon
initial contact, none of the negotiations materialized into an offer
for the Common Shares or the Company's assets.
After the termination of the contract with Ferris Baker, the
Company made further attempts from July 1999 to February 2000 to pursue
transactions that would provide its shareholders with liquidity.
Discussions and negotiations were held with Span Optics, COSI Computer
Outsourcing, Anacomp, El Camino, Strategia and VariLease, none of which
materialized into an offer for the Common Shares or the Company's
assets.
Since December 1998, the Company has had difficulty obtaining
financing to meet its short-term working capital requirements and has
had to rely on funding from affiliates. The Company was able to obtain
a credit facility, which includes a revolving line of credit, with
Crestar Bank in 1997 to fund its operations. The credit facility
expired in October 1998 and continued under a forbearance agreement
until May 1999, so that Crestar Bank could reevaluate the Company's
financial operations. Crestar Bank decided not to extend the credit
facility for another year. However, Crestar Bank extended the credit
line while the Company attempted to obtain alternative financing. The
Company attempted without success to establish a new line of credit
with several lenders, including IBM Credit Corporation, FINOVA
Distribution, FINOVA Special Credit Division and Sandy Spring National
Bank ("Sandy Spring"). In October 1999, Crestar Bank reduced the credit
line from $2,000,000 to $1,750,000. On March 6, 2000, Crestar Bank
notified the Company of its intention to terminate the revolving credit
line by reducing the line from $1,750,000 to $1,500,000 on March 17,
2000, and $100,000 per week thereafter until the credit line reaches
zero. The Company cannot continue to operate under this financing
arrangement and could face bankruptcy if it is unable to secure
alternative financing for its operations and the repayment of the
credit facility. The credit line is secured by substantially all of the
Company's assets. At April 24, 2000, there was $1,500,000 outstanding
under the credit line.
In response to the reduction of available funds under the Crestar Bank credit
facility, during fiscal years 1999 and 2000, ISI advanced approximately $375,000
and $595,000, respectively, to the Company to cover operating expenses. ISI
provided the funding to the Company at an interest rate of prime plus 1% per
annum, with principal repayable on ISI's demand. Mr. Donald C. Weymer owns
approximately 98% of ISI's equity securities. Mr. Weymer is ISI's founder, Chief
Executive Officer, President and a Director. In addition, Mr. Weymer owns
approximately 32% of the Common Shares. Mr. Weymer is the Company's Chairman of
the Board of Directors, Chief Executive Officer and Secretary.
In November 1999, ISI began discussions with the Company to assist
it in working out the Crestar Bank credit facility. On March 30, 2000,
ISI entered into an amended and restated loan and security agreement
with its lender, Sandy Spring, to increase ISI's existing line of
credit, provided, among other things, that ISI use a portion of the
funds available to repay the amounts due under the Company's credit
facility with Crestar Bank. The increased line of credit is secured by
ISI's assets and those of ISI's subsidiary, National Conversion
Systems, Inc. It is also personally guaranteed by Mr. Weymer. ISI has
advised us that it intends to repay the amounts owed by the Company
under the Crestar Bank credit facility upon the acceptance for payment
of all Common Shares validly tendered pursuant to the Offer.
In addition to the Offer the Purchaser is making, the Purchaser
proposed to the Company two other acquisition alternatives: a
"two-step" tender offer, which is a tender offer followed by a merger,
or a merger. On March 24, 2000, the CSI Board unanimously agreed that a
tender offer would be in the best interests of the Company and its
shareholders because (i) it would not be as costly and protracted as
the other two transactions proposed by the Purchaser, (ii) it would
enable the Company to pay off the Crestar Bank credit facility, thereby
avoiding a sale of the Company's assets by Crestar Bank to cover the
Company's indebtedness under that credit facility, and (iii) it would
provide liquidity to those Company stockholders who want it at a time
when the Company is experiencing financial difficulty. The CSI Board
also supports the Offer because CSI's accountants, Goldstein
GolubKessler, LLP, recently issued a "going concern opinion" in
connection with their report on the CSI's 1999 financial statements.
Such an opinion was also issued with respect to the CSI's 1998
financial statements.
Other factors considered by the CSI Board in its decision include
(i) that, as of February 29, 2000, the book value of the Company was
$1,791,755, or $0.48 per Common Share; (ii) that the liquidation value
of the Company, which was negative, was estimated at $(1.00) per Common
Share on February 29, 2000; (iii) that market prices of the Common
Shares for the three months prior to the CSI Board meeting ranged
between $0.81 and $0.87 per Common Share; and (iv) that Common Shares
traded on 27 out of the 60 trading days prior to the CSI Board meeting;
and during such period, the total number of Common Shares traded
amounted to less than one-half of 1% of the total outstanding Common
Shares.
In addition, the CSI Board considered retaining a financial
advisor to determine the fairness of the transaction to the
unaffiliated stockholders of the Company. The CSI Board ultimately
decided that, given the Company's poor financial condition, it would
not be in the best interests of the Company or its stockholders to
incur the cost of a financial advisor. The CSI Board believes that its
evaluation process was a fair one because it involved one independent
director, Mr. David A. Chappell, who is not employed by the Company,
owns no Common Shares and, thus, cannot participate in the Offer.
Finally, the CSI Board took no other steps to ensure the procedural and
substantive fairness of the transaction to the unaffiliated
stockholders.
The members of the CSI Board evaluated the Offer in light of their
knowledge of the business, financial condition and prospects of CSI and
after their receipt of the advice of their legal advisors. In light of
the number and variety of factors that the CSI Board considered in
connection with their evaluations of the Offer, the CSI Board did not
find it practicable to assign relative weights to the foregoing
factors, and, accordingly, the CSI Board did not do so.
Section (c), "Intent to Tender," is hereby amended in its entirety to read
as follows:
To the best knowledge of CSI, after making reasonable inquiry,
except for Mr. Donald C. Weymer, who controls ISI, all of CSI's
executive officers, directors or other affiliates currently intend to
tender pursuant to the Offer all Common Shares held of record or
beneficially owned by them as of the date hereof.
Item 8. Additional Information
On May 9, 2000, ISI and the Company issued a press release, the text of
which is filed as Exhibit (a)(8) to Amendment No. 1 to the Schedule TO, and
incorporated herein by reference.
Item 9. Exhibits
Exhibit No. Description
(a)(9) Press release jointly issued by ISI and CSI, dated May 9, 2000
(incorporated by reference to Amendment No. 1 to the Schedule TO, file number
5-58909).
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete, and
correct.
CSI COMPUTER SPECIALISTS, INC.
By: /s/ William F. Pershin
Name: William F. Pershin
Title: President
Dated: May 11, 2000
