<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
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
</TABLE>
<TABLE>
<C> <S>
CSP INC.
- ------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
GARY W. LEVINE
- ------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/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:
----------------------------------------------------------
</TABLE>
<PAGE>
CSP INC.
(A MASSACHUSETTS CORPORATION)
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
JANUARY 11, 2000
Notice is hereby given that the Annual Meeting of Stockholders of CSP Inc. (the
"Company") will be held at the executive offices of the Company, 40 Linnell
Circle, Billerica, Massachusetts 01821 on Tuesday, January 11, 2000, beginning
at 9:00 a.m. local time, for the following purposes:
1. To elect two Class I 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 19, 1999
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
November 30, 1999
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 11, 2000
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 11, 2000 (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 at the Meeting
in accordance with the stockholder's direction. 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 November 30, 1999.
ANNUAL REPORT TO STOCKHOLDERS
The Company's Annual Report for the fiscal year ended August 27, 1999
accompanies this Proxy Statement, but is not incorporated herein and is not to
be deemed a part hereof.
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 I Directors, whose terms will expire at the Annual
Meeting to be held on January 11, 2000; one Class II Director, who was elected
or appointed to serve until the annual meeting to be held with respect to the
end of the 2000 fiscal year; and two Class III Directors, who were elected to
serve until the annual meeting to be held with respect to the end of the 2001
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 I Directors for election at the Annual Meeting to be
held January 11, 2000.
Unless authority is withheld, proxies in the accompanying form will be voted
in favor of electing as Class I 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 I 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.
3
<PAGE>
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 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 I 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>
Sandford D. Smith (52)....................... Director of CSPI since 1993; President of
Class I Therapeutics 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 (61)...................... Director since July 1998; from 1995 to his
Class I retirement in March 1999 served as Vice
President for Asia, Africa 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; 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.
</TABLE>
4
<PAGE>
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 is a Class II
Director, whose term expires in 2001. Messrs. Lupinetti and James are Class III
Directors, whose terms expire in 2002.
<TABLE>
<CAPTION>
NAME, AGE AND CLASS BUSINESS AFFILIATIONS
- ------------------- ---------------------------------------------
<S> <C>
J. David Lyons (61).......................... Director of CSPI since March 1997; President
Class II of Aubin 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.
Alexander R. Lupinetti (54).................. Director of CSPI since 1996; Chairman of the
Class III Board of Directors since 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 Systems, Inc.
subsidiaries of Stratus Computer Inc., from
1987 to 1996.
C. Shelton James (60)........................ Director of CSPI since 1994; President of
Class III Fundamental Management 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 DRS
Technologies, Concurrent Computer
Corporation, Cyberguard Corp., and S.K.
Technologies; Trustee of Clarkson University.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE NOMINEES FOR DIRECTOR
LISTED IN THIS PROXY STATEMENT.
5
<PAGE>
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Company's Board of Directors met four times during the fiscal year ended
August 27, 1999 ("fiscal 1999"). Each Director has attended at least 75% of all
Board meetings and applicable committee meetings, except Mr. Smith, who attended
two of the four Board meetings.
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 three times during
fiscal 1999. 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 1999.
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 100 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 1,100
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 26,620. 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
executive officers during fiscal 1999 and whose annual compensation exceeds
$100,000 for fiscal 1999:
6
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------- --------------------------
NAME AND PRINCIPAL POSITION FISCAL OPTION ALL OTHER
(AT AUGUST 27, 1999) YEAR SALARY BONUS GRANTS COMPENSATION
- ----------------------------------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Alexander R. Lupinetti............. 1999 $251,125 $ 63,393 60,500 $ 60,861(1)
Chairman, President and Chief 1998 $240,960 $200,000 53,240 $ 7,535(2)
Executive Officer 1997 $183,477 $ 40,000 79,860 $ 3,875(2)
John Clary......................... 1999 $124,487 $ 1,800 -- $200,012(3)
Former President of 1998 $194,970 $ 59,369 12,100 --
MODCOMP Inc. 1997 -- -- -- --
Gary W. Levine..................... 1999 $125,271 $ 18,253 6,050 $ 34,809(4)
Vice President of Finance 1998 $118,486 $ 60,000 -- $ 4,659(5)
and Chief Financial Officer 1997 $ 92,104 $ 10,000 2,662 $ 3,366(5)
Michael M. Stern.(6)............... 1999 $126,000 $ 20,790 1,210 $ 51,076(7)
Vice President of Operations 1998 $124,166 $ 36,288 -- $ 46,513(8)
1997 $120,702 $ 10,863 1,331 $ 40,535(9)
Michael Mort....................... 1999 $107,308 $ 10,865 2,420 $ 3,219(11)
President, Scanalytics 1998 $ 99,231 $ 4,800 -- $ 3,000(11)
1997 $ 20,385(10) -- -- --
James A. Waggett................... 1999 $106,071 $ 11,490 1,210 $ 51,997(12)
Vice President 1998 $100,095 $ 30,528 $ 46,319(13)
1997 $ 91,935 $ 9,242 1,000 $ 41,529(14)
</TABLE>
- ------------------------
(1) This amount is comprised of a $5,000 contribution by the Company to
Mr. Lupinetti's 401(k) plan and $55,861 for a split dollar life insurance
policy for the benefit of Mr. Lupinetti.
(2) This amount represents contributions by the Company to Mr. Lupinetti's
401(k) plan.
(3) This amount represents severance compensation for Mr. John Clary, former
president of MODCOMP Inc. who retired from the company in April 1999.
Pursuant to Mr. Clary's employment contract, he was to be paid one year's
salary.
(4) This amount is comprised of a $3,763 contribution by the Company to
Mr. Levine's 401(k) plan and $31,046 for a split dollar life insurance
policy for the benefit of Mr. Levine.
(5) These amounts represent contributions by the Company to Mr. Levine's 401(k)
plan.
(6) Mr. Stern ceased to be an executive officer when he resigned his position as
Vice President of Operations on September 21, 1999. He continues with the
Company on a part-time basis, working on special projects in manufacturing
and engineering.
(7) This amount is comprised of a $3,782 contribution by the Company to
Mr. Stern's 401(k) plan and the accrual of a $47,294 under the Company's
supplemental retirement income plan.
(8) This amount is comprised of a $4,852 contribution by the Company to
Mr. Stern's 401(k) plan and the accrual of $41,661 under the Company's
supplemental retirement income plan.
(9) This amount is comprised of a $3,899 contribution by the Company to
Mr. Stern's 401(k) plan and the accrual of a $36,636 under the Company's
supplemental retirement plan.
7
<PAGE>
(10) Mr. Mort's 1997 salary reflects the period from June 1997, when the
corporation hired Mr. Mort through August 1997.
(11) This amount represents a contribution by the Company to Mr. Mort's 401(k)
plan.
(12) This amount is comprised of a $2,987 contribution by the Company to
Mr. Waggett's 401(k) plan and the accrual of $49,010 under the Company's
supplemental retirement income plan.
(13) This amount is comprised of a $3,146 contribution by the Company to
Mr. Waggett's 401(k) plan and the accrual of $43,173 under the Company's
supplemental retirement income plan.
(14) This amount is comprised of a $3,564 contribution by the Company to
Mr. Waggett's 401(k) plan and the accrual of $37,965 under the Company's
supplemental retirement income plan.
OPTION GRANTS TABLE. The following table sets forth certain information
regarding stock options granted during the fiscal year ended August 27, 1999 by
the Company to the executive officers named in the Summary Compensation Table:
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------- ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
OPTIONS GRANTED EXERCISE PRICE OPTION TERMS (2)
OPTION EMPLOYEES IN PER SHARE EXPIRATION -----------------------
GRANTS FISCAL YEAR ($/SH)(1) DATE 5% 10%
-------- --------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alexander Lupinetti................. 60,500 60.4% $6.40 10/6/08 $243,660 $617,483
Gary W. Levine...................... 6,050 6.0% $6.40 10/6/08 $ 24,366 $ 61,748
Michael M. Stern.................... 1,210 1.1% $6.40 10/6/08 $ 4,873 $ 12,350
James A. Waggett.................... 1,210 1.1% $6.40 10/6/08 $ 4,873 $ 12,350
Michael Mort........................ 2,420 2.2% $6.40 10/6/08 $ 9,746 $ 24,699
</TABLE>
- ------------------------
(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, Levine, Mort and Waggett were also granted options to acquire
75,000, 10,000, 4,000 and 1,000 shares, respectively, at a per share exercise
price of $5.00, being the fair market value of a share of the Common Stock on
October 19, 1999, the date of the grant.
FISCAL YEAR-END OPTION TABLE. The following Fiscal Year-End Option Table sets
forth certain information regarding stock options held as of August 27, 1999 by
the executive officers named in the Summary Compensation Table.
8
<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 VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alexander R. Lupinetti............ -- -- 53,240 140,360 $24,051 $30,467
Gary W. Levine.................... 1,250 $4,920 15,928 6,050 $18,948 --
Michael M. Stern.................. -- -- 7,684 1,512 $ 5,577 --
James A. Waggett.................. -- -- 6,107 2,893 $ 1,210 --
Michael Mort...................... -- -- 2,420 -- -- --
</TABLE>
- ------------------------
(1) Value is based on the last sales price of Common Stock $6.25 on Friday,
August 27, 1999, the last day prior to the end of fiscal 1999 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 1999, 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
9
<PAGE>
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 other than retirement,
disability or death. The annual benefits payable under the plan upon retirement
at the normal retirement date of Messrs. Waggett and Stern is $51,142 and
$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 plans. 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 1999.
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%, and the Chief
Executive Officer receives up to 50%, of his regular annual salary if the
Company meets the revenue and profit goals and he has met his individual
objectives. If Company exceeds the sales and profit goals, the bonus
10
<PAGE>
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 1999 Messrs. Alexander Lupinetti, John Clary, Gary Levine, Michael Mort
and James Waggett were paid a bonus by the Company for meeting certain sales and
net earnings objectives and some specific achievement goals for Mr. Mort and
Messrs. Stern and Waggett. Messrs. Lupinetti, Clary, Levine, Stern, Mort and
Waggett received bonuses of $63,396, $1,800, $18,253, $20,790, $10,865 and
$11,490 respectively, based on the sales and profits of Company and the
attainment of individual objectives. Approximately 10.3% of the Company's
compensation to executives in fiscal 1999 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,
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
acquire up to 79,860 shares of Common Stock at an exercise price of $5.73 per
share, the fair market value of the Common Stock on the date of grant. 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. 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 meeting objectives in fiscal 1999, Mr. Lupinetti received 20% of his
annual compensation as a bonus. Mr. Lupinetti's base compensation was increased
from $250,000 to $267,500, effective October 21, 1999. Mr. Lupinetti's base
salary was last increased in October, 1997. Mr. Lupinetti was also granted
75,000 options to acquire Common Stock under the Company's 1997 Stock Option
Plan at an exercise price per share of $5.00, the fair market value of the
Common Stock on the date of the grant. He will again be eligible for the bonus
plan which is based on achieving revenue and earning 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 1999. 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
11
<PAGE>
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, 1994. 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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
<S> <C> <C> <C> <C> <C>
AMONG CSP INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
THE RUSSELL 2000 INDEX, THE NASDAQ COMPUTER MAUNFACTURER
INDEX,
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
CSP INC. NASDAQ STOCK RUSSELL 2000 NASDAQ NASDAQ
MARKET (U.S.) COMPUTER COMPUTER &
MANUFACTURER DATA PROCESSING
8/26/94 $100 $100 $100 $100 $100
8/25/95 $131 $135 $121 $175 $156
8/30/96 $85 $152 $134 $209 $180
8/29/97 $90 $212 $173 $332 $265
8/28/98 $105 $200 $142 $403 $293
8/29/99 $94 $371 $180 $931 $565
</TABLE>
12
<PAGE>
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
$275,0000 and an executive bonus based on the attainment of certain financial
objectives. The Company granted Mr. Lupinetti options to acquire up to 79,860
shares of Common Stock under the Company's 1991 Incentive Stock Option Plan at
an exercise price of $5.73 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. John Clary, formerly the President of MODCOMP, Inc. left the company
during April 1999. Pursuant to his employment contract, Mr. Clary was paid
$200,012 in severance pay, which was equal to one year's salary 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 19, 1999
upon each matter which may come before the Meeting. At the close of business on
November 19, 1999, there were 3,559,178 shares of Common Stock issued and
outstanding.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of November 19, 1999
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........................................ 675,551(3) 18.0%
790 N. Milwaukee Street
Milwaukee, WI 53202
Fundamental Management Corporation.......................... 406,462(4) 10.8%
4000 Hollywood Blvd., Suite 610 N.
Hollywood, FL 33021
Dimensional Fund Advisors Inc............................... 306,566(5) 8.2%
1299 Ocean Avenue
Santa Monica, CA 90401
Royce Advisory Corp......................................... 245,177(6) 6.5%
1414 Avenue of the Americas
New York, NY 10019
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME OWNED (1) OF CLASS (2)
- ---- ------------ ------------
<S> <C> <C>
C. Shelton James (*)........................................ 411,955(7) 11.0%
c/o Fundamental Management Corporation
4000 Hollywood Blvd., Suite 610 N.
Hollywood, FL 33021
Alexander R. Lupinetti...................................... 101,640(8) 2.7%
J. David Lyons.............................................. 2,674(9) **
Sandford D. Smith (A)....................................... 5,333(10) **
Robert M. Williams (*)...................................... 1,310(11) **
James A. Waggett............................................ 40,631(12) 1.1%
Michael M. Stern............................................ 114,737(13) 3.1%
Gary W. Levine.............................................. 15,928(14) **
Michael Mort................................................ 605(15) **
All Directors and executive officers as a group (11 703,267(16) 18.7%
persons)..................................................
</TABLE>
- ------------------------
* Nominee for Director.
** Owns less than one percent.
(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 Proxy Statement.
(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 February 4, 1999, in which it is stated that
Heartland is a registered investment advisor, that Heartland has sole
dispositive power with respect to 614,137 shares of the Company's Common
Stock, and that Heartland has sole voting power with respect to 240,487 of
such shares.
(4) Based on information furnished by Mr. James on a report on Form 4 dated
August 13, 1999, 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) 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 11, 1999, in which Dimensional has advised the Company that it is a
registered investment advisor and that Dimensional has sole dispositive
power with respect to 278,696 shares of the Company's Common Stock and sole
voting power with respect to 278,696 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).
(6) 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
14
<PAGE>
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.
(7) Includes 406,462 shares directly owned by Fundamental Management
Corporation, as described in footnote 6. Mr. James is President of
Fundamental Management Corporation.
Also includes 1,731 shares owned by Mr. James and 3,762 shares obtainable
upon exercise of stock options.
(8) Includes shares obtainable upon exercise of stock options.
(9) Includes 243 shares owned by Mr. Lyons and 2,431 shares obtainable upon
exercise of stock options.
(10) Includes 1,571 shares owned by Mr. Smith and 3,762 shares obtainable upon
exercise of stock options.
(11) Includes 110 shares owned by Mr. Williams and 1,200 shares obtainable upon
exercise of stock options.
(12) Includes 10,648 shares owned by Mr. Waggett's wife and 6,824 shares
obtainable upon exercise of stock options.
(13) Includes 9,317 shares owned by Mr. Stern's wife. Mr. Stern disclaims
beneficial ownership of these shares. Also includes 10,116 shares obtainable
upon exercise of stock options.
(14) Includes 10,418 shares obtainable upon exercise of stock options.
(15) These shares are obtainable upon exercise of stock options.
(16) Includes 157,304 shares obtainable upon exercise of stock options.
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 1999, 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 LLP 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 KPMG LLP 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
15
<PAGE>
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 November 30, 1999, so the date by
which proposals were required to be received under Rule 14a-8 will be August 2,
2000.
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 11, 2000. 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 11, 2000
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 nominees were 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.
16
<PAGE>
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 11, 2000, 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 11, 2000
Please Detach and Mail in the Envelope Provided
Please mark your
\X\ votes as in this
example.
FOR ALL WITHHOLD
nominees, AUTHORITY
except as marked for all
to the contrary below. nominees.
Item 1. \ \ \ \ Nominees: Sandford D. Smith
Election of Robert M. Williams
Directors
CLASS I
(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. \ \
SIGNATURE(S)_____________________________________DATE_____________________1998
_________________________________________________DATE_____________________1999
IF HELD JOINTLY
NOTE: Please date, sign exactly as name appears hereon and return promptly. If
the shares are registered in the names of two or more persons, both
should sign. Executors, administrators, trustees, guardians and
corporate officers should add their titles.
