<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / 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 Section240.14a-11(c) or
Section240.14a-12
CSP INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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.:
0-10843
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
CSP INC.
(A MASSACHUSETTS CORPORATION)
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
JANUARY 12, 1999
Notice is hereby given that the Annual Meeting of Stockholders of CSP Inc.
(the "Company") will be held at the offices of Foley, Hoag & Eliot LLP,
Sixteenth Floor, One Post Office Square, Boston, Massachusetts 02109 on Tuesday,
January 12, 1999, beginning at 10:00 a.m. local time, for the following
purposes:
1. To elect two Class III Directors, each for a three-year term.
2. To transact such further business as may properly come before the
Meeting, or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on November 20, 1998
as the record date for determining the stockholders of the Company entitled to
notice of, and to vote at, said Meeting and any adjournment thereof. Only
stockholders of record on such date are entitled to notice of, and to vote at,
said Meeting or any adjournment thereof.
By Order of the Board of Directors
[LOGO]
Gary W. Levine
CLERK
December 8, 1998
YOUR VOTE IS IMPORTANT
PLEASE SIGN AND RETURN THE ENCLOSED PROXY,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
<PAGE>
CSP INC.
(A MASSACHUSETTS CORPORATION)
------------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 12, 1999
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of CSP Inc. ("CSPI" or the "Company") of proxies for use at
the Annual Meeting of Stockholders to be held on January 12, 1999 (the
"Meeting") and at any adjournment thereof. A form of proxy is enclosed. Any
stockholder executing such a proxy may revoke it at any time insofar as it has
not been exercised. All properly executed proxies that are received by the
Company before the Meeting and that are not revoked will be voted in accordance
with the stockholder's direction at the Meeting. The principal executive offices
of the Company are located at 40 Linnell Circle, Billerica, Massachusetts 01821.
The approximate date on which this Proxy Statement and the form of proxy will be
sent to stockholders is December 14, 1998.
ANNUAL REPORT TO STOCKHOLDERS
The Company's Annual Report for the fiscal year ended August 28, 1998
accompanies this Proxy Statement, but is not incorporated herein and is not to
be deemed a part hereof. All share and per share amounts in this Proxy Statement
have been adjusted to reflect two 11-for-10 stock splits effected in calendar
1998.
ITEM 1. ELECTION OF DIRECTORS
The Company, as a Massachusetts corporation with a class of voting stock
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), has a Board of Directors divided into three classes, as nearly equal in
size as practicable, referred to as Class I, Class II and Class III. The
Directors in each class serve for a term of three years and until their
successors are duly elected and qualified. As the term of one class expires, a
successor class is elected at the annual meeting of stockholders for that year.
There are currently two Class III Directors, whose terms will expire at the
Annual Meeting to be held on January 12, 1999; two Class I Directors, who were
elected or appointed to serve until the annual meeting to be held with respect
to the end of the 1999 fiscal year; and one Class II Director, who was elected
to serve until the annual meeting to be held with respect to the end of the 2000
fiscal year.
Pursuant to the by-laws of the Company, the Board of Directors has fixed the
number of Directors that will constitute the entire Board of Directors at five,
and has nominated two Class III Directors for election at the Annual Meeting to
be held January 12, 1999.
Unless authority is withheld, proxies in the accompanying form will be voted
in favor of electing as Class III Directors, to hold office until the annual
meeting to be held with respect to the end of the 2001 fiscal year and until
their respective successors are elected and qualified, the two Class III
nominees identified in the table below. If the proxy is executed in such a
manner as to withhold authority to vote for one or more nominees for Director,
such instructions will be followed by the persons named in the proxy.
Under the by-laws of the Company, a majority of the shares of the Company's
common stock, par value $.01 per share ("Common Stock"), issued and outstanding
and entitled to vote will constitute a quorum for the Meeting. If a quorum is
present, the vote of the holders of a plurality of the shares of Common Stock
present or represented at the Meeting and entitled to vote is required to elect
Directors. If a quorum is not present at the scheduled time for the Meeting, the
persons named in the proxy will vote to adjourn the Meeting until a later date
when a quorum can be obtained. Pursuant to the Company's
<PAGE>
by-laws, if it is necessary to adjourn the Meeting for that purpose, no notice
of the time and place of the adjourned meeting is required to be given to
stockholders.
In general, votes withheld from any nominee for election as Director,
abstentions, and broker "non-votes" are counted as present or represented for
purposes of determining the presence or absence of a quorum for the meeting. A
"non-vote" occurs when a broker or nominee holding shares for a beneficial owner
does not vote on a proposal because, in respect of such proposal, the broker or
nominee does not have discretionary voting power and has not received
instructions from the beneficial owner. The vote on each matter submitted to
stockholders is tabulated separately. Abstentions are included in the number of
shares present or represented and voting on each matter. Broker "non-votes" are
not so included.
Each of the nominees for Director is currently a member of the Board of
Directors. Although the Company expects each nominee to accept nomination and to
serve if elected, if a nominee is unable to serve at the time of election, then
proxies will be voted for some other person or the Board of Directors may fix
the number of Directors at a lesser number.
NOMINEES
Listed below are the nominees for Class III Director with information
showing the age of each, the year each was first elected a Director of the
Company, and the business affiliations of each.
<TABLE>
<CAPTION>
NAME, AGE AND CLASS BUSINESS AFFILIATIONS
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
Alexander R. Lupinetti (53)............... Director of CSPI since 1996; Chairman of the Board of Directors since
Class III January 1998; Chief Executive Officer and President of CSPI since
October 1996; President and Chief Executive Officer of each of TCAM
Systems Inc., Shared Systems Corporation and SoftCom Sytems, Inc.,
subsidiaries of Stratus Computer Inc., from November 1987 to
September 1996; Northeastern General Manager for the Engineering and
Scientific Division of International Business Machines, Inc. from
1984 to 1987.
C. Shelton James (59)..................... Director of CSPI since 1994; President of Fundamental Management
Class III Corporation, which is engaged in the management of investment
partnerships, since 1993, Executive Vice President from 1990 to 1993;
Chief Executive Officer and Chairman of the Board of Elcotel, Inc.
since May 1991; Director of NAI Technologies, Concurrent Computer
Corporation, Cyberguard Corp. and S.K. Technologies; Trustee of
Clarkson University.
</TABLE>
DIRECTORS
Listed below are the continuing Directors of the Company, with information
showing the age of each, the year each was first elected a Director of the
Company, and the business affiliations of each. Mr. Lyons
2
<PAGE>
is a Class II Director, whose term expires in 2001. Messrs. Smith and Williams
are Class I Directors, whose terms expire in 2000.
<TABLE>
<CAPTION>
NAME, AGE AND CLASS BUSINESS AFFILIATIONS
- ------------------------------------------------------ ---------------------------------------------------------
<S> <C>
Sandford D. Smith (51)................................ Director of CSPI since 1993; President of Therapeutics
Class I International of Genzyme Corp., a biopharmaceutical
company, since February, 1997; President of Specialty
Therapeutics of Genzyme Corp., from April 1996 to
February, 1997; President and Chief Executive Officer of
Repligen Corporation from 1987 to 1996; Director of Ariad
Pharmaceuticals, Inc. and Chemex Pharmaceuticals, Inc.
Robert M. Williams (60)............................... Director since July 1998; Vice President for Asia, Africa
Class I and the Near East of International Executive Corps, a
company that directs technology and business programs as
a contractor for the US Foreign Aid Program since1995;
consultant to RM Williams Associate Technology, from 1993
to 1995; Vice President of Worldwide development,
Industrial Sector Division for International Business
Machine Corp., and served in various positions from 1963
to 1993.
J. David Lyons (60)................................... Director of CSPI since March 1997; President of Aubin
Class II International, Inc., an executive search firm, from 1996
To present; Executive Vice President at National Data
Corp. from 1993 to 1996; Executive Vice President Sales
and Marketing, Syncordia from 1991 to 1993.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE NOMINEES FOR DIRECTOR
LISTED IN THIS PROXY STATEMENT.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Company's Board of Directors met four times during the fiscal year ended
August 28, 1998 ("fiscal 1998").
The Board of Directors has an Audit Committee and a Compensation Committee,
but does not have a nominating committee or other committee performing similar
functions. The Audit Committee consists of Messrs. James and Williams and is
responsible for recommending the selection of the Company's independent
accountants, reviewing the scope of the annual examination of the Company's
financial statements, reviewing the report of the independent accountants,
reviewing the independent accountant's recommendations to management concerning
auditing, accounting and tax issues, aiding the Board in discharging its
responsibility in financial reporting and related matters and reviewing the fees
of the independent accountants. The Audit Committee met twice during fiscal
1998. The Compensation Committee consists of Messrs. Lyons, James and Smith and
is responsible for determining the compensation of the executive officers and
management of the Company and administering the Company's stock option plans and
granting stock options to employees and other persons eligible thereunder. The
Compensation Committee met twice during fiscal 1998.
3
<PAGE>
COMPENSATION OF DIRECTORS
Each Director who is not an employee of the Company receives a quarterly fee
of $440 to serve as a Director, a quarterly fee of $138 for each committee of
the Board of which he is a member and a fee of $550, plus expenses, for each
meeting of the Board which he attends.
In addition, each non-employee Director receives 200 shares of CSP Inc.
Common Stock annually as additional compensation. These shares cannot be sold
for one year from the date of issuance. Each non-employee Director also receives
an annual non-discretionary grant of a non-statutory option to purchase 1,210
shares of Common Stock on the last business day of January in each year. The
aggregate number of shares that may be issued to all non-employee Directors
pursuant to this arrangement is 24,200. These non-discretionary options have an
exercise price per share equal to the fair market value of the Common Stock on
the date of grant, are not exercisable until after six months following such
date, have a term of three years and are fully vested after six months.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following Summary Compensation Table sets
forth certain information regarding compensation paid or accrued by the Company
with respect to the Company's Chief Executive Officer and the Company's most
highly compensated officers other than the Chief Executive Officer who served as
officers during fiscal 1998 and whose annual compensation exceeds $100,000 for
fiscal 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION ------------------------
NAME AND PRINCIPAL POSITION FISCAL ---------------------- OPTION ALL OTHER
(AT AUGUST 28, 1998) YEAR SALARY BONUS GRANTS COMPENSATION
- ----------------------------------------------------- ----------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Alexander R. Lupinetti............................... 1998 $ 240,960 $ 200,000 48,400 $ 7,535(1)
Chairman, President and Chief 1997 $ 183,477 $ 40,000 72,600 $ 3,875(1)
Executive Officer 1996 -- -- -- --
John Clary........................................... 1998 $ 194,970 $ 59,369 12,100 --
President of MODCOMP Inc. 1997 -- -- -- --
1996 -- -- -- --
Gary W. Levine....................................... 1998 $ 118,486 $ 60,000 -- $ 4,659(2)
Vice President of Finance and Chief Financial Officer 1997 $ 92,104 $ 10,000 2,420 $ 3,366(2)
1996 $ 111,173 0 -- $ 3,042(2)
Michael M. Stern..................................... 1998 $ 124,166 $ 36,288 -- $ 46,513(3)
Vice President of Operations and Treasurer 1997 $ 120,702 $ 10,863 1,210 $ 40,535(4)
1996 $ 120,020 0 -- $ 36,065(5)
Bradley Stamp........................................ 1998 $ 135,217 $ 10,080 -- $ 3,944(6)
Vice President of Sales 1997 $ 94,104 -- 2,420 $ 3,408(6)
1996 $ 88,667 -- -- $ 3,108(6)
</TABLE>
- ------------------------
(1) These amounts represent contributions by the Company to Mr. Lupinetti's
401(k) plan.
(2) These amounts represent contributions by the Company to Mr. Levine's 401(k)
plan.
(3) This amount is comprised of a $4,852 contribution by the Company to Mr.
Stern's 401(k) plan and the accrual of a $41,661 under the Company's
supplemental retirement income plan.
(4) This amount is comprised of a $3,899 contribution by the Company to Mr.
Stern's 401(k) plan and the accrual of $36,636 under the Company's
supplemental retirement income plan.
(5) This amount is comprised of a $3,908 contribution by the Company to Mr.
Stern's 401(k) plan and the accrual of a $32,157 under the Company's
supplemental retirement income plan.
(6) This amount represents a contribution by the Company to Mr. Stamp's 401(k)
plan.
4
<PAGE>
OPTION GRANTS TABLE. The following table sets forth certain information
regarding stock options granted during the fiscal year ended August 28, 1998 by
the Company to the executive officers named in the Summary Compensation Table:
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------- ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
OPTIONS GRANTED EXERCISE PRICE OPTION TERMS(2)
OPTION EMPLOYEES IN PER SHARE EXPIRATION ----------------------
GRANTS FISCAL YEAR ($/SH) (1) DATE 5% 10%
--------- ----------------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alexander Lupinetti.......................... 48,400 93.6% $ 6.61 10/31/07 $ 201,229 $ 829,926
John Clary................................... -- -- -- -- -- --
Gary W. Levine............................... -- -- -- -- -- --
Michael M. Stern............................. -- -- -- -- -- --
Bradley Stamp................................ -- -- -- -- -- --
</TABLE>
None of the other officers received a stock option grant in fiscal 1998.
- ------------------------
(1) Stock options were granted at an exercise price equal to the fair market
value of the Company's Common Stock on the date of the grant. The stock
options expire ten years from the date of grant.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation of the
Company's Common Stock over the term of the options. These numbers are
calculated based on rules promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimates of future stock price
growth. Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent on the timing of such exercise and sale of the shares
and the future performance of the Company's Common Stock. There can be no
assurances that the rates of appreciation assumed in this table can be
achieved or that the amount shown will be received by the individual.
Messrs. Lupinetti, Clary, Levine, Stern, and Stamp were also granted options
to acquire 50,000, 5,000, 5,000, 1,000 and 2,000 shares, respectively, at a per
share exercise price of $7.75, being the fair market value of a share of the
Common Stock on October 7, 1998, the date of grant.
FISCAL YEAR-END OPTION TABLE. The following Fiscal Year-End Option Table
sets forth certain information regarding stock options held as of August 28,
1998 by the executive officers named in the Summary Compensation Table.
5
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR- END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED -------------------------- --------------------------
NAME ON EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Alexander R. Lupinetti........................ 0 18,150 102,850 $ 25,882 $ 131,663
John Clary.................................... 0 3,025 9,075 $ 5,564 $ 16,690
Gary W. Levine................................ 0 13,310 2,420 $ 27,104 $ 5,701
Michael M. Stern.............................. 0 7,684 1,512 $ 7,157 $ 3,282
Bradley Stamp................................. 0 10,862 3,327 $ 13,552 $ 5,901
</TABLE>
- ------------------------
(1) Value is based on the last sales price of Common Stock ($7.73) on Friday,
August 28, 1998, the last day prior to the end of fiscal 1998 for which a
trade in the Common Stock was reported by the NASDAQ National Market, less
the applicable option exercise price. These values have not been and may
never be realized. Actual gains, if any, will depend on the value of the
Common Stock on the date of the sale of the shares.
401(K) PLAN
The Company has a defined contribution profit-sharing plan pursuant to
Section 401(k) of the Internal Revenue Code for the benefit of its employees,
including officers. The Board of Directors of the Company determines from year
to year whether and to what extent the Company will contribute to the 401(k)
plan by making matching contributions to the plan or by making profit-sharing
contributions to the plan, allocated in proportion to each eligible employee's
compensation, as a percentage of the compensation of all eligible employees.
During fiscal year 1998, the matching contribution by the Company was set at 50%
of contributions by eligible employees up to a maximum of 6% of salary.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan under Section 423 of the
Internal Revenue Code pursuant to which participating employees may utilize
payroll deductions to purchase shares of the Company's Common Stock at a
discount from fair market value
SUPPLEMENTAL RETIREMENT INCOME PLAN
In addition to the foregoing, the Company has a nonqualified supplemental
retirement income plan pursuant to which the Company provides additional
retirement benefits to 12 present or former employees, all of whom are or were
highly compensated or supervisory employees long employed by the Company,
including two of the Company's current executive officers. Under the plan, the
Company will pay to each participant, generally over a 10 or 15 year period
commencing upon termination of employment with the Company for any reason after
a specified normal retirement date, a series of monthly payments based on, among
other things, a factor based on such participant's salary as of January 1, 1985
and years of service with the Company (the "Normal Retirement Benefit"). In the
event of termination of employment prior to the normal retirement date, the
Company will pay, in a series of monthly payments, the actuarial equivalent of
the Normal Retirement Benefit (based on the participant's age at the time of
termination of employment) to a participant (i) whose employment with the
Company is terminated after a specified early retirement date as defined in the
plan, (ii) whose employment is otherwise terminated with the consent of the
committee that administers the plan, or (iii) in the sole discretion of the
committee, whose employment is terminated prior to the normal retirement date by
reason of disability. Reduced benefits are paid to any participant whose
employment with the Company is terminated for any reason
6
<PAGE>
other than retirement, disability or death. The annual benefits payable under
the plan upon retirement at the normal retirement date of Mr. Stern is $57,155.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board is composed of three Directors,
Messrs. Lyons, James and Smith. The Compensation Committee also administers the
Company's stock option plan. This Committee is charged with the responsibility
of reviewing and approving executive officers' compensation and approving all
discretionary grants of stock options under the Company's stock option plan. The
following describes the compensation programs in effect during fiscal 1998.
COMPENSATION POLICY
The Company's compensation policies are designed to pay executives an annual
salary that is industry competitive and an annual bonus that is based both on
the performance of the Company and on individual goals established for each of
the executives for the fiscal year. The Company also has longer term incentives
based on stock options. All three components of compensation are reviewed
annually by the committee to ensure salaries remain competitive, bonuses reward
performance and stock options provide continued incentives.
Salaries for executive officers are based on the duties and responsibilities
of the position held by the executive compared with executive officers of other
companies in the industry. Salaries are reviewed and established annually.
Various industry salary surveys are reviewed and provided to the Committee to
review in establishing the new compensation. Each executive has a performance
review prepared by the Chief Executive Officer. During this review the officer's
performance over the prior year is assessed and goals are established for the
next year. This information is communicated to the Compensation Committee and,
based on this review and salary surveys, the annual salary for the executive is
established for next year.
Executive officers and key management employees participate in the bonus
plan. Payments under the plan are contingent on the Company meeting its sales
and net earnings objectives for the fiscal year. Based on the extent to which
the Company achieves those objectives, each participant other than the Chief
Executive Officer receives an executive bonus of up to 30% of their annual
salary, and the Chief Executive Officer receives up to 50%, of his regular
annual salary, if the Company meets the revenue and profit goals and they have
met their individual objectives. If Company exceeds the sales and profit goals,
the bonus percentage increases. If, in addition, the officer or employee
achieves his individual goals established by the Company, the balance of the
bonus will be paid. The Committee reviews both the individual and Company goals
annually. In fiscal 1998 Messrs. Alexander Lupinetti, John Clary, Gary Levine,
Bradley Stamp, and Michael Stern were paid a bonus by the Company. Messrs.
Lupinetti, Clary, Levine, Stamp and Stern received bonuses of $200,000, $59,369,
$60,000, $10,080 and $36,288, respectively, based on the sales and profits of
Company and the attainment of individual objectives. Approximately 24.8% of the
Company's compensation to executives in fiscal 1998 was in the form of bonuses.
The Company from time to time grants stock options to some or all of its
executives and key employees as a means of creating a long-term incentive and
benefit. Such stock options are generally granted at the fair market value of
shares of Common Stock on the date of grant. Thus, no benefit will accrue to the
executive or key employee from the stock option grant until the Common Stock
appreciates. This creates a long-term goal for appreciation of the Common Stock
which coincides with the interests of the stockholders.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Company has an employment agreement with Mr. Lupinetti dated September
12, 1996 (the "Employment Agreement"), pursuant to which Mr. Lupinetti became
Director, Chief Executive Officer and President of the Company effective October
1, 1996. Under the terms of the agreement,
7
<PAGE>
Mr. Lupinetti's initial base salary was $200,000 per year with eligibility for
bonus compensation of $40,000 based on the achievement of certain goals or an
executive bonus of up to 50% of his salary based on the attainment of certain
financial objectives. In addition, the Company granted Mr. Lupinetti options to
aquire up to 72,600 shares of Common Stock at an exercise price of $6.30 per
share, the fair market value of the Common Stock on the date of grant. Such
options vest under normal circumstances at a rate of 25% a year commencing after
one year of service. However, if the Company is acquired by a way of sale of
substantially all of its assets or by merger, such options will fully vest at
the time of such acquisition. The Company also has provided Mr. Lupinetti with
an automobile. In the event Mr. Lupinetti's employment is terminated by the
Company other than for cause (as defined), Mr. Lupinetti is entitled to 12
months of severance pay at his then effective annual salary per month. Based on
the achievements accomplished in fiscal 1997, the Compensation Committee
approved increasing Mr. Lupinetti's base salary to $250,000 on October 31, 1997.
Mr. Lupinetti was also granted 48,400 options to acquire Common Stock under the
Company's 1991 Stock Option Plan at an exercise price per share of $6.61, the
fair market value of the Common Stock on the date of the grant. Mr. Lupinetti
participated in the Executive and Key Management Bonus Plan. Payments under the
plan are contingent on the Company meeting its sales and net earnings objective
for the year. Based on the Company exceeding those objectives in fiscal 1998,
Mr. Lupinetti received 44% of his annual compensation as a bonus. Mr.
Lupinetti's salary will remain the same for fiscal 1999 and he will again be
eligible for the bonus plan, which is based on achieving revenue and earnings
per share objectives.
COMPENSATION COMMITTEE
J. DAVID LYONS
C. SHELTON JAMES
SANDFORD D. SMITH
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
J. David Lyons, C. Shelton James, and Sandford D. Smith served on the
Compensation Committee during fiscal 1998. Persons serving on the Compensation
Committee had no relationships with the Company other than their relationship to
the Company as Directors entitled to the receipt of standard compensation as
Directors and members of certain committees of the Board and their relationship
to the Company as stockholders. No person serving on the Compensation Committee
or on the Board of Directors is an executive officer of another entity for which
an executive officer of the Company serves on the board of directors or on that
entity's compensation committee.
PERFORMANCE GRAPH
The following Performance Graph compares the performance of the Company's
cumulative stockholder return with that of a broad market index (the NASDAQ
Stock Market Index) and a published industry index (the NASDAQ Computer
Manufacturers' Index) for each of the most recent five fiscal years. The
cumulative stockholder return for shares of Common Stock and each of the indices
is calculated assuming that $100 was invested on August 31, 1993. The Company
paid no cash dividends during the periods shown. The performance of the indices
is shown on a total return (dividends reinvested) basis. The graph lines merely
connect year-end dates and do not reflect fluctuations between those dates.
8
<PAGE>
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CSP INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ COMPUTER MANUFACTURER INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NASDAQ NASDAQ COMPUTER
<S> <C> <C> <C>
CSP, INC. STOCK MARKET (U.S.) MANUFACTURER
8/27/93 $100.00 $100.00 $100.00
8/26/94 $95.95 $104.10 $104.22
8/25/95 $104.05 $140.21 $182.98
8/30/96 $81.08 $158.07 $217.63
8/29/97 $86.49 $220.54 $345.99
8/28/98 $101.08 $209.80 $421.85
</TABLE>
* $100 invested on 8/27/93 in stock or on 8/31/93 in index--including
reinvestment of dividends.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has an employment agreement with Alexander Lupinetti dated
September 12, 1996 (the "Employment Agreement"), pursuant to which Mr. Lupinetti
became Director, Chief Executive Officer and President of the Company effective
October 1, 1996. Under the terms of the agreement Mr. Lupinetti's initial base
salary was $200,000 and has been increased to $250,0000 and an executive bonus
based on the attainment of certain financial objectives. The Company granted Mr.
Lupinetti options to acquire up to 72,600 shares of Common Stock under the
Company's 1991 Incentive Stock Option Plan at an exercise price of $6.30 per
share, the fair market value of the Common Stock on the date of grant. Such
options vest under normal circumstances at a rate of 25% a year commencing after
one year of service. However, if the Company is acquired by a way of sale of
substantially all of its assets or by merger, such options will fully vest at
the time of such acquisition. The Company also has provided Mr. Lupinetti with
an automobile. Finally, in the event Mr. Lupinetti's employment is terminated by
the Company other than for cause (as defined) Mr. Lupinetti is entitled to 12
months of severance pay at his then effective per month salary.
Mr. Clary has an agreement dated August 26, 1997 which provides that if his
employment is terminated by the Company other than for cause (as defined)
Mr.Clary is entitled to 12 months of severance pay at his then effective monthly
salary.
9
<PAGE>
Manfred Appel, formerly the Chief Financial Officer of MODCOMP, Inc., left
the Company during fiscal 1998. Pursuant to his employment contract, Mr. Appel
was paid $161,150 in severance pay, which was equal to one year's pay at his
then current rate of compensation.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
The Company's only issued and outstanding class of voting securities is its
Common Stock. Holders of the Common Stock are entitled to one vote per share of
such stock held by them of record at the close of business on November 20, 1998
upon each matter which may come before the Meeting. At the close of business on
November 16, 1998, there were 3,267,840 shares of Common Stock issued and
outstanding.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of November 16, 1998
regarding each person known by the Company to own beneficially more than 5% of
the Company's Common Stock, each Director and nominee for Director of the
Company, each executive officer named in the Summary Compensation Table and all
Directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME OWNED (1) OF CLASS (2)
- ------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Heartland Value Fund................................................................. 603,427(3) 17.8%
790 N. Milwaukee Street
Milwaukee, WI 53202
Fundamental Management Corporation................................................... 310,420(4) 9.2%
4000 Hollywood Blvd., Suite 610 N.
Hollywood, FL 33021
Royce Advisory Corp.................................................................. 222,888(5) 6.6%
1414 Avenue of the Americas
New York, NY 10019
Dimensional Fund Advisors Inc........................................................ 279,873(6) 8.3%
1299 Ocean Avenue
Santa Monica, CA 90401
David L. Babson & Co., Inc........................................................... 283,140(7) 8.4%
One Memorial Drive
Cambridge, MA 02142
C. Shelton James (*)................................................................. 314,250(8) 9.3%
c/o Fundamental Management Corporation
4000 Hollywood Blvd., Suite 610 N.
Hollywood, FL 33021
Alexander R. Lupinetti. (*).......................................................... 36,300(9) 1.1%
J. David Lyons....................................................................... 1,410(10) **
Sandford D. Smith.................................................................... 3,830(11) **
Robert M. Williams................................................................... 0 **
James A. Waggett..................................................................... 35,785(12) 1.1%
Michael M. Stern..................................................................... 126,040(13) 3.7%
Gary W. Levine....................................................................... 15,545(14) **
John Clary........................................................................... 3,025(15) **
Bradley Stamp........................................................................ 10,683(15) **
All Directors and executive officers as a group (11 persons)......................... 547,048(16) 16.2%
</TABLE>
- ------------------------
* Nominee for Director.
** Owns less than one percent.
10
<PAGE>
(1) Except as otherwise noted, all person and entities have sole voting and
investment power over their shares. All amounts shown in this column include
shares obtainable upon exercise of stock options exercisable within 60 days
of the date of this table.
(2) Computed pursuant to Rule 13d-3 under the Exchange Act.
(3) Heartland Advisors, Inc. ("Heartland") has furnished the Company with a
report on Schedule 13G dated January 23, 1998, in which it is stated that
Heartland is a registered investment advisor, that Heartland has sole
dispositive power with respect to 603,427 shares of the Company's Common
Stock, and that Heartland has sole voting power with respect to 510,070 of
such shares.
(4) Based on information by Mr. James on a report on Form 4 dated August 8,
1998, Fundamental Management Corporation ("FMC") solely controls the voting
and investment of securities owned of record by several limited partnerships
of which FMC is the sole managing general partner. C. Shelton James, a
Director and nominee for Director of the Company, is President of
Fundamental Management Corporation. See footnote 8.
(5) Royce and Associates Inc. ("Royce") and Charles M. Royce have furnished the
Company with a joint report on Schedule 13G dated February 9, 1998, in which
it is stated that Royce is a registered investment advisor and that Royce
has sole voting and investment power with respect to 222,888 of these
shares. The report also states that Mr. Charles M. Royce may be deemed to be
a controlling person and as such may be deemed to own beneficially all of
the shares covered by the report. Mr. Royce disclaims beneficial ownership
of all such shares.
(6) Dimensional Fund Advisors Inc. ("Dimensional"), DFA Investment Dimensions
Group Inc. (the "Fund") and The DFA Investment Trust Company (the "Trust")
have furnished the Company with a joint report on Schedule 13G dated
February 12, 1998, in which Dimensional has advised the Company that it is a
registered investment advisor and that Dimensional has sole dispositive
power with respect to 279,873 shares of the Company's Common Stock and sole
voting power with respect to 170,126 of those shares, and that persons who
are officers of Dimensional are also officers of the Fund and the Trust
(each an open-end investment company registered under The Investment Company
Act of 1940) and in their capacities as officers of the Fund and the Trust,
these persons exercise the voting power with respect to 37,752 and 71,995
shares of the Company's Common Stock, respectively.
(7) David L. Babson & Co., Inc. ("Babson") has furnished the Company with a
report on Schedule 13G dated January 12,1998, in which Babson states that it
is a registered investment advisor, that Babson has sole dispositive power
with respect to 283,140 shares of the Company's Common Stock and that Babson
has sole voting power with respect to those shares.
(8) Includes 310,420 shares directly owned by Fundamental Management
Corporation, as described in footnote 6. Mr. James is President of
Fundamental Management Corporation. Also includes 200 shares owned by Mr.
James and 3,630 shares obtainable upon exercise of stock options.
(9) Includes 36,300 shares obtainable upon exercise of stock options.
(10) Includes 200 shares owned by Mr. Lyons and 1,210 shares obtainable upon
exercise of stock options.
(11) Includes 200 shares owned by Mr. Smith and 3,620 shares obtainable upon
exercise of stock options.
(12) Includes 9,680 shares owned by Mr. Waggett's wife and 4,477 shares
obtainable upon exercise of stock options.
(13) Includes 8,470 shares owned by Mr. Stern's wife. Mr. Stern disclaims
beneficial ownership of these shares. Also includes 7,684 shares obtainable
upon exercise of stock options.
(14) Includes 13,310 shares obtainable upon exercise of stock options.
(15) These shares are obtainable upon exercise of stock options.
(16) Includes 84,128 shares obtainable upon exercise of stock options.
11
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities Exchange Commission. Officers, directors and
greater-than-10% shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely upon a review of Forms 3, 4, 5 and amendments thereto furnished
to the Company during fiscal 1998, and written representations that Form 5 was
required and duly filed with the commission, the Company believes that all
Section 16(a) filing requirements applicable to its officers, directors and
greater-than-10% shareholders were fulfilled in a timely manner.
INFORMATION CONCERNING AUDITORS
The Board of Directors selected the firm KPMG Peat Marwick LLP ("Peat
Marwick") to audit the Company's financial statements for the past fiscal year.
The Company's Board of Directors has not yet selected the Company's independent
public accountant for the current fiscal year. A representative of Peat Marwick
is expected to be present at the Annual Meeting, will have the opportunity to
make a statement if such representative desires to do so and will be available
to respond to appropriate questions.
SOLICITATION
No compensation will be paid by any person in connection with the
solicitation of proxies. Brokers, banks and other nominees will be reimbursed
for their out-of-pocket expenses and other reasonable clerical expenses incurred
in obtaining instructions from beneficial owners of the Common Stock. In
addition to the solicitation by mail, special solicitation of proxies may, in
certain circumstances, be made personally or by telephone by Directors, officers
and certain employees of the Company, or by American Stock Transfer & Trust
Company, the Company's transfer agent. It is expected that the expense of such
special solicitation will be nominal. All expenses incurred in connection with
this solicitation will be borne by the Company.
DATE WHEN STOCKHOLDER PROPOSALS ARE REQUIRED TO BE FURNISHED
TO THE COMPANY FOR THE NEXT ANNUAL MEETING
In order to be eligible for inclusion in the Company's proxy statement and
form of proxy for the annual meeting scheduled to be held in January 2000,
stockholder proposals must comply with SEC Rule 14a-8 and any other applicable
rules and must be delivered to the Company's principal executive offices at
least 120 days prior to the anniversary date of mailing of this Proxy Statement.
This Proxy Statement was sent on or about December 14, 1998, so the date by
which proposals were required to be received under Rule 14a-8 will be August 16,
1999.
In addition, Section 5 of Article II of the Company's by-laws requires that
a stockholder who wishes to bring an item of business before the annual meeting
must provide notice of such item of business to the Company at its principal
executive offices not less than 90 days before the date for such meeting. For
next year's scheduled annual meeting, the deadline for submission of notice is
October 13, 1999. Section 4 of Article III of the by-laws imposes the same
deadline on the nomination by a stockholder of a candidate for election to the
Board of Directors. Any proposal or nomination submitted after October 13, 1999
will be untimely. The by-laws contain a number of other substantive and
procedural requirements which should be reviewed by any interested stockholder.
MISCELLANEOUS
The Board does not intend to present at the Meeting any business other than
the proposals listed herein, and the Board was not aware, a reasonable time
before mailing this Proxy Statement to stockholders, of any other business which
may be properly presented for action at the Meeting. No stockholder proposals or
stockholder nominee was submitted timely to the Company. If any other business
should come before the Meeting, the persons present will have discretionary
authority to vote the shares they own or represent by proxy in accordance with
their judgment.
12
<PAGE>
8888
PROXY CSP INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of CSP Inc. hereby appoints Alexander Lupinetti
and Gary Levine, and each or either of them, proxies (with power of
substitution to each and to each substitute appointed pursuant to such power)
of the undersigned to vote all shares of stock of the Corporation held by the
undersigned or which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of the Corporation to be held on Tuesday, January 12,
1999, and at any and all adjournments thereof, with all powers the
undersigned would possess if personally present, as indicated below and on
the reverse side hereon upon the matters set forth herein and more fully
described in the Notice and Proxy Statement for said Meeting and in their
discretion upon all other matters which may properly come before said
Meeting. The undersigned hereby revokes all proxies, if any, hitherto given
by him to others for said Meeting.
IF THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES REPRESENTED
HEREBY WILL BE VOTED. IF A CHOICE IS SPECIFIED ON THE REVERSE SIDE HEREOF BY
THE STOCKHOLDER WITH RESPECT TO A MATTER TO BE ACTED UPON, THE SHARES WILL BE
VOTED UPON SUCH MATTER IN ACCORDANCE WITH THE SPECIFICATION SO MADE. IN THE
ABSENCE OF ANY SPECIFICATION, THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED FOR ALL LISTED NOMINEES FOR DIRECTOR.
(Continued and to be signed on the other side)
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
CSP INC.
JANUARY 12, 1999
| Please Detach and Mail in the |
v Envelope Provided v
--- Please mark your --- |
A | X | votes as in this | |
--- example. ---
FOR ALL WITHHOLD
nominees AUTHORITY
except as marked for all
to the contrary below nominees
Item 1.
Election of --- --- Nominees: Alexander R. Lupinetti
Directors: | | | | C. Shelton James
CLASS III --- ---
(INSTRUCTIONS: To withhold authority to
vote for any individual nominee(s), print
the name(s) of such nominee(s) in the
space provided below. To vote for or to
withhold authority for all nominees, see
above.)
- ------------------------------------------
---
Check here if you plan to attend the Annual Meeting. | |
---
<TABLE>
<S> <C> <C> <C>
SIGNATURE(S)________________________________ DATE______________, 1998 ________________________________ DATE______________, 1998
IF HELD JOINTLY
</TABLE>
