<PAGE> 1
SCHEDULE 14A
(RULE 14A - 101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant |X|
Filed by a party other than the registrant |_|
<TABLE>
<S> <C>
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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
COMPUTATIONAL SYSTEMS, INCORPORATED
- --------------------------------------------------------------------------------
(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 transactions applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
|_| Fee paid previously with preliminary materials:
-----------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE> 2
[LOGO]
Dear Shareholder:
It is my pleasure to extend to you a cordial invitation to attend the
Annual Meeting of Shareholders of Computational Systems, Incorporated (the
"Company") to be held at 4:00 p.m., Eastern time, on Thursday, April 24, 1997,
at the Second Floor Assembly Room of the Company, 835 Innovation Drive, in
Knoxville, Tennessee 37932.
Shareholders will be asked to elect seven directors to the Company's
Board of Directors. In addition, we will present a report on the condition and
performance of the Company, and you will have an opportunity to question
management on matters that affect the interests of all shareholders.
We hope you will be able to attend the meeting in person. Whether you
expect to attend or not, we request that you complete and return the enclosed
proxy card in the enclosed post-paid envelope. Your vote is important.
I look forward to seeing you on April 24, 1997.
Sincerely,
/s/ Ronald G. Canada
-----------------------------------
Ronald G. Canada
Chairman and Chief Executive Officer
<PAGE> 3
[LOGO]
--------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders (the
"Annual Meeting") of Computational Systems, Incorporated (the "Company"), will
be held at 4:00 p.m., Eastern time, on Thursday, April 24, 1997, at the Second
Floor Assembly Room of the Company, 835 Innovation Drive, in Knoxville,
Tennessee 37932, for the following purposes:
1. To elect seven directors to hold office for a term of one
(1) year and until their successors are elected and qualified; and
2. To transact such other business as may properly come before
the Annual Meeting.
The Board of Directors has fixed the close of business on March 6,
1997, as the record date for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting.
Your attention is directed to the Proxy Statement accompanying this
notice for a more complete statement regarding matters to be acted upon at the
Annual Meeting.
By the Order of the Board of Directors
/s/ Kenneth R. Piety
--------------------------------------
Kenneth R. Piety, Secretary
Knoxville, Tennessee
March 20, 1997
YOUR REPRESENTATION AT THE ANNUAL MEETING IS IMPORTANT. TO ENSURE YOUR
REPRESENTATION, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY. SHOULD YOU DESIRE TO REVOKE
YOUR PROXY, YOU MAY DO SO AS PROVIDED IN THE ACCOMPANYING PROXY STATEMENT AT ANY
TIME BEFORE IT IS VOTED.
<PAGE> 4
------------------
PROXY STATEMENT
------------------
The accompanying proxy is solicited by the Board of Directors of
Computational Systems, Incorporated (the "Company"), for use at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held on April 24, 1997, and
any adjournments thereof, notice of which is attached hereto.
The purposes of the Annual Meeting are to elect directors and to
transact such other business as may properly be brought before the Annual
Meeting or any adjournment thereof.
A shareholder who signs and returns a proxy may revoke the same at any
time before the authority granted thereby is exercised by attending the Annual
Meeting and electing to vote in person, by filing with the Secretary of the
Company a written revocation or by duly executing a proxy bearing a later date.
Unless so revoked, the shares represented by the proxy will be voted at the
Annual Meeting. Where a choice is specified on the proxy, the shares represented
thereby will be voted in accordance with such specifications. If no
specification is made, such shares will be voted FOR the election of the
director nominees.
The Board of Directors knows of no other matters which are to be
brought to a vote at the Annual Meeting. If any other matter does come before
the Annual Meeting, however, the persons appointed in the proxy or their
substitutes will vote in accordance with their best judgment on such matters.
The Board of Directors has fixed the close of business on March 6, 1997
as the record date for the Annual Meeting. Only record holders of the Company's
common stock, no par value per share (the "Common Stock"), at the close of
business on that date will be entitled to vote at the Annual Meeting. On the
record date, the Company had outstanding 5,002,845 shares of Common Stock.
Holders of the Common Stock will be entitled to one vote for each share of
Common Stock so held, which may be given in person or by proxy duly authorized
in writing.
The representation in person or by proxy of at least a majority of the
outstanding shares entitled to vote is necessary to provide a quorum at the
meeting. The directors shall be elected by a plurality of the votes cast in the
election by the holders of the Common Stock represented and entitled to vote at
the Annual Meeting. Any other matters as may properly come before the meeting or
any adjournment thereof shall be approved by the affirmative vote of a majority
of the votes cast by the holders of Common Stock represented and entitled to
vote at the Annual Meeting. Abstentions and "non-votes" are counted as present
in determining whether the quorum requirement is satisfied. A "non-vote" occurs
when a nominee holding shares for a beneficial owner votes on one proposal, but
does not vote on another proposal because the nominee does not have
discretionary voting power and has not received instructions from the beneficial
owner.
The cost of solicitation of proxies will be borne by the Company,
including expenses in connection with preparing, assembling and mailing this
Proxy Statement. Such solicitation will be made by mail, and may also be made by
the Company's regular officers or employees personally or by telephone or
telegram. The Company may reimburse brokers, custodians and nominees for their
expenses in sending proxies and proxy materials to beneficial owners.
This Proxy Statement and the Company's Annual Report to Shareholders
have been mailed on or about March 20, 1997, to all shareholders of record at
the close of business on March 6, 1997.
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains, as of March 6, 1997, certain information
concerning (i) the Named Executive Officers, (ii) the directors of the Company,
including the nominees, (iii) all directors and executive officers as a group,
and (iv) any other person known by the Company to beneficially own more than 5%
of the outstanding Common Stock of the Company, which information has been
furnished to the Company by the individuals named.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY PERCENT
NAME POSITION OWNED(1) OF CLASS(1)
---- -------- -------- -----------
<S> <C> <C> <C>
Ronald G. Canada.................................. Chairman, Chief Executive 1,131,748(2) 22.59%
Officer and Director
Kenneth R. Piety.................................. Vice Chairman, Vice 600,559(3) 11.99%
President and Director of
Engineering, Secretary and
Director
Carlo Gorla....................................... President and Chief 300 *
Operating Officer; Director
Nominee
Bryan J. Collier.................................. Vice President of Finance 77,741(4) 1.55%
and Chief Financial Officer
Kevin E. Carey.................................... Vice President of Mergers 15,664(5) *
and Acquisitions
John J. Cioffi.................................... Director 70,377 1.41%
Richard E. Ray.................................... Director 12,000(5) *
William S. Rukeyser............................... Director 12,000(6) *
James F. Smith, Jr................................ Director 17,000(6) *
Thomas A. Valunas, Jr............................. Director 12,000(6) *
Eagle Asset Management, Inc....................... Beneficial Owner 445,890(7) 8.91%
The Kaufmann Fund, Inc............................ Beneficial Owner 374,000(8) 7.48%
All directors and executive officers as a group
(11 persons).................................. 2,068,324(9) 40.67%
</TABLE>
- ----------------------------
* Represents less than 1% of the Common Stock outstanding.
(1) Pursuant to the rules of the Securities and Exchange Commission,
certain shares of the Company's Common Stock which a beneficial owner
has the right to acquire within 60 days of March 6, 1997, pursuant to
the exercise of stock options are deemed to be outstanding for the
purpose of computing the percentage ownership of such owner but are not
deemed outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Includes 6,044 shares which may be acquired upon the exercise of
outstanding options and 53,000 shares that Mr. Canada beneficially owns
as trustee for various trusts for the benefit of Dr. Piety's children.
The address for Mr. Canada is 835 Innovation Drive, Knoxville,
Tennessee 37932.
2
<PAGE> 6
(3) Includes 5,236 shares which may be acquired upon the exercise of
outstanding options. The address for Dr. Piety is 835 Innovation Drive,
Knoxville, Tennessee 37932.
(4) Includes 1,670 shares which may be acquired upon the exercise of
outstanding options.
(5) Includes 7,000 shares which may be acquired upon the exercise of
outstanding options.
(6) Includes 2,000 shares which may be acquired upon the exercise of
outstanding options.
(7) Based on information contained in Schedule 13G filed by Eagle Asset
Management, Inc. ("EAM") with the Securities and Exchange Commission.
The address for EAM is 880 Carillon Parkway, St. Petersburg, Florida
33733-0520.
(8) Based on information contained in Schedule 13G filed by The Kaufmann
Fund, Inc. ("Kaufmann") with the Securities and Exchange Commission.
The address for Kaufmann is 140 East 45th Street, 43rd Floor, New York,
New York 10017.
(9) Includes an aggregate of 82,950 shares which may be acquired upon the
exercise of outstanding options.
PROPOSAL 1: ELECTION OF DIRECTORS
Under the terms of the Company's Charter, the members of the Board of
Directors are elected at the Annual Meeting of the Shareholders and serve until
the next Annual Meeting and until their successors are duly elected and
qualified, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
Unless contrary instructions are received, it is intended that the
shares represented by proxies solicited by the Board of Directors will be voted
in favor of the election as directors of all seven nominees. Each nominee has
consented to be a candidate and to serve, if elected. While the Board has no
reason to believe that any nominee will be unable to accept nomination or
election as a director, if such an event should occur, the persons named in the
form of proxy have advised the Company that they will vote for such substitute
or substitutes as shall be designated by the current Board of Directors.
The nominees for election shall be elected by a plurality of the votes
cast by the shares of Common Stock entitled to vote at the Annual Meeting.
Shareholders have no right to vote cumulatively for directors, but rather each
shareholder shall have one vote for each share of Common Stock held by such
shareholder for each director.
The following persons are the nominees for election as a director of
the Company at the Annual Meeting:
Ronald G. Canada
Kenneth R. Piety
Carlo Gorla
Richard E. Ray
William S. Rukeyser
James F. Smith, Jr.
Thomas A. Valunas, Jr.
The following is a brief summary of the business experience of each of
the executive officers and directors of the Company, including the nominees.
Ronald G. Canada, 41, founded the Company in 1984 and has served as
Chairman and Chief Executive Officer and as a director since its inception and
is a key member of the Company's engineering and product development team. Prior
thereto, Mr. Canada was a technical lead engineer at Technology for
3
<PAGE> 7
Energy Corporation ("TEC") in Knoxville, focusing on the development of a
comprehensive surveillance system for rotating machinery.
Kenneth R. Piety, 48, has served as Vice President and Director of
Engineering since 1991, and Vice Chairman since 1994. Dr. Piety has been a
director of the Company since its inception in 1984 and Secretary since 1985.
Dr. Piety has been involved in the development of all of the Company's products.
Prior to joining the Company in 1985, Dr. Piety worked as a development engineer
at TEC and at the Oak Ridge National Laboratory.
Carlo Gorla, 55, has served as President and Chief Operating Officer of
the Company since July 1996 and as President of CSI Services, Incorporated, a
wholly-owned subsidiary of the Company since November 1996. Prior to that time,
Mr. Gorla served as President of Best International from June 1995 to June 1996;
President of Sola Electric from February 1995 to June 1995; and President of
Sola International from January 1993 to January 1995. Each of these three
companies is a power conditioning equipment firm. From May 1991 to December
1992, Mr. Gorla held the position of Corporate Vice President of A.B.B. USA, an
electrotechnical equipment manufacturing company.
Bryan J. Collier, 57, has served as Vice President of Finance since
1993. Mr. Collier served as a director of the Company from 1987 to 1993. Prior
to joining the Company as an officer, Mr. Collier worked as a business
consultant for Millennium Associates, Inc., a Knoxville-based business
consulting firm, from 1988 to 1993. Prior to that time, Mr. Collier was
Treasurer and Secretary of Plasti-Line, Inc., a publicly-owned sign
manufacturing company located in Knoxville, Tennessee.
Kevin E. Carey, 59, currently serves as Vice President of Mergers and
Acquisitions of the Company and as Acting President of Paragon Services, a
division of CSI Services, Incorporated. From August 1996 to December 1996, he
served the Company as Vice President of Marketing and Sales, and from June 1994
to August 1996, Mr. Carey served the Company as its Director of Marketing and
Sales. Prior to June 1994, Mr. Carey owned and managed The Carey Group Ltd., a
consulting and business development company serving Fortune 100 clients.
E. Forrest Pardue, 43, serves in various capacities with respect to new
product development for the Company. He currently serves as President of STATUS
Technologies, Incorporated, a wholly-owned subsidiary of the Company. From 1992
until 1996, Mr. Pardue was President of MachineView, Inc., a former wholly-owned
subsidiary of the Company. From 1985 to 1992, Mr. Pardue served as Director of
Sales and Marketing for the Company.
John J. Cioffi, 58, served as President and Chief Operating Officer of
the Company from 1993 to July 1996 and currently serves as a director of the
Company. Prior to joining the Company, Mr. Cioffi founded and served as the
President of Crown Consulting, a Knoxville-based strategic planning and general
management consulting firm, from 1988 to 1993. Prior to 1988, Mr. Cioffi served
as Senior Vice President of Marketing of Plasti-Line, Inc.
Richard E. Ray, 65, has served as a director of the Company since April
1994, and he currently serves as Chairman of the Audit Committee. Mr. Ray is
President of Richard E. Ray and Associates, a business consulting firm. Prior to
1992, Mr. Ray served as Manager of Tennessee Operations of Aluminum Company of
America ("Alcoa"), a publicly-owned manufacturer of aluminum products. Mr. Ray
also serves as a director of First Tennessee Bank-Knoxville, a retail bank,
and of North American Royalties, Inc., a manufacturer of gray and ductile iron
castings.
4
<PAGE> 8
William S. Rukeyser, 57, has served as a director of the Company since
1994. Mr. Rukeyser is a contributing editor of CNN Financial News and is
President of William Rukeyser, Inc., a Knoxville-based firm engaged in media and
other business consulting activities. From 1988 to 1994, Mr. Rukeyser was a
senior partner in Whittle Communications, serving as editor-in-chief of the
Knoxville-based company's publications and broadcasts and as Chairman and Chief
Executive Officer of Whittle Books. Prior to such time Mr. Rukeyser worked at
Time, Inc. serving as founding managing editor of Money magazine and managing
editor of Fortune magazine.
James F. Smith, Jr., 67, has served as a director of the Company since
1993. Mr. Smith is also a director of First American Corp. ("First American"), a
bank holding company, and from 1991 through December 1994, Mr. Smith served as
Chairman of the Board of First American and of First American National Bank.
From February 1991 until November 1991, Mr. Smith served as President and Chief
Executive Officer of First American and First American National Bank, and from
May 1990 until February 1991, as Interim Chairman of the Board, President and
Chief Executive Officer of those companies. Prior to that time, Mr. Smith served
as Vice Chairman of First American and First American National Bank.
Mr. Smith is also a director of Pilot Corporation and Plasti-Line, Inc.
Thomas A. Valunas, Jr., 53, has served as a director of the Company
since 1993 and is Chairman of the Compensation Committee. Mr. Valunas serves as
Treasurer of M4 Environmental Management, Inc. ("M4"), an Oak Ridge, Tennessee
company engaged in the recycling business. Prior to joining M4 in 1995,
Mr. Valunas was the President of Tennessee Innovation Center, Inc. ("TIC"), a
wholly-owned subsidiary of Martin-Marietta Corporation engaged in venture
capital financing.
The Board of Directors held six meetings during the fiscal year ended
December 31, 1996. The Board of Directors has an Audit Committee and a
Compensation Committee. Both Committees are compromised of Messrs. Ray,
Rukeyser, Smith and Valunas. The Audit Committee meets with the Company's
independent auditors to review the Company's financial statements. It is the
function of this committee to ensure that the Company's financial statements
accurately reflect the Company's financial position and results of operations.
The Audit Committee held one meeting during fiscal 1996.
The purpose of the Compensation Committee is to establish, among other
things, salaries, bonuses and other compensation for the Company's officers, and
to administer the Company's Stock Option and other employee benefit plans. The
Compensation Committee met three times during fiscal 1996.
All incumbent directors attended more than 75% of the meetings of the
Board of Directors and the respective committees of which they are members. The
Board does not have a nominating committee.
5
<PAGE> 9
EXECUTIVE COMPENSATION
The following table summarizes the compensation earned by or paid to
the Chief Executive Officer of the Company and the Company's other four most
highly compensated executive officers who were serving as executive officers of
the Company during the Company's last fiscal year and received over $100,000 in
salary and bonus for the year (together with the Chief Executive Officer, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-----------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND FISCAL SALARY BONUS OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
------------ ------------- ------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Ronald G. Canada 1996 $199,493 $38,600(2) 2,490 $ 0
Chairman and Chief 1995 197,980 64,638(2) 16,160 0
Executive Officer 1994 178,120 32,040(2) 8,015 0
Kenneth R. Piety 1996 185,906 33,196(2) 2,142 3,517(4)
Vice-Chairman and Vice 1995 170,673 56,020(2) 14,005 4,620(4)
President of Engineering 1994 156,360 28,018(2) 31,940(3) 3,972(4)
and Secretary
John J. Cioffi(1) 1996 113,523 18,191(2) 0 4,492(4)
President and Chief 1995 146,528 49,556(2) 12,389 4,330(4)
Operating Officer 1994 133,702 24,564(2) 6,140 3,978(4)
Bryan J. Collier 1996 109,678 24,125(2) 1,556 4,394(4)
Vice President of Finance 1995 98,111 33,396(2) 8,349 3,415(4)
and Chief Financial 1994 89,667 16,554(2) 4,135 2,690(4)
Officer
Kevin E. Carey 1996 105,988 15,745(2) 0 4,793(4)
Vice President of Mergers 1995 92,250 28,736(2) 0 2,992(4)
and Acquisitions 1994 40,568 5,998(2) 0 1,217(4)
</TABLE>
- -------------------------
(1) During fiscal year 1996, Mr. Cioffi served as President and Chief
Operating Officer from January to July 15.
(2) The dollar amount listed represents a cash bonus received by the Named
Executive Officer for the fiscal year.
(3) Represents options to purchase 6,940 shares granted as part of Dr.
Piety's incentive compensation and options to purchase 25,000 shares
granted to Dr. Piety under the 1987 Incentive Stock Option Plan.
(4) Represents contributions made by the Company on behalf of Dr. Piety and
Messrs. Cioffi, Collier and Carey to the Company's 401(k) plan.
6
<PAGE> 10
The following table summarizes certain information regarding stock
options earned by the Named Executive Officers during 1996.
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE OR APPRECIATION FOR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION OPTION TERM(2)
-------------------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ---------------------- ------------- --------------- ------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
RONALD G. CANADA 2,490(1) 1.45% $21.18 12/31/01 $ 14,571 $ 32,197
KENNETH R. PIETY 2,142(1) 1.25% 21.18 12/31/01 12,534 27,697
JOHN J. CIOFFI - - - - - -
BRYAN J. COLLIER 1,556(1) 0.91% 19.25 12/31/06 10,187 23,111
KEVIN E. CAREY 2,500(3) 1.45% 14.75 01/25/02 12,541 28,451
</TABLE>
- -------------------
(1) Represents options granted to the Named Executive Officers as part of
their incentive compensation for fiscal year 1996. The options were
granted at fair value on the date of grant for Mr. Collier and 110% of
fair market value for Mr. Canada and Dr. Piety.
(2) No more than 25% of the total options granted to Mr. Canada and Dr.
Piety are exercisable in any one year. None of the options reflected
may be exercised until one year from the date of grant.
(3) The options were granted at fair value on the date of grant for Mr.
Carey.
7
<PAGE> 11
The following table summarizes certain information with respect to
stock options issued to the Named Executive Officers under the Company's various
stock option plans as to the number of shares covered by both exercisable and
unexercisable stock options and options exercised during the fiscal year ended
December 31, 1996. Also reported are the values for the "in-the-money" options,
which represent the positive spread between the exercise price of any such
existing stock options and the year-end fair market value of the Common Stock.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED
ON VALUE OPTIONS HELD AT
EXERCISE (#) REALIZED ($) DECEMBER 31, 1996
------------ ------------ -----------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C> <C> <C>
Ronald G. Canada 2,004 $ 27,755 0 24,661
KENNETH R. PIETY 7,985 117,467 0 40,102
JOHN J. CIOFFI 34,934 487,003 0 1,174
BRYAN J. COLLIER 20,827 309,271 0 33,213
KEVIN E. CAREY 6,000 111,000 6,500 22,500
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY
OPTIONS AT
DECEMBER 31, 1996 (1)
---------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C>
Ronald G. Canada $ 0 $120,010
KENNETH R. PIETY 0 403,034
JOHN J. CIOFFI 0 0
BRYAN J. COLLIER 0 406,756
KEVIN E. CAREY 100,875 317,250
</TABLE>
- ------------------
(1) Based on the closing price of the Company's Common Stock on The Nasdaq
Stock Market at December 31, 1996 of $19.25 per share.
DIRECTOR COMPENSATION
The Company's non-employee directors receive a quarterly fee of $2,000
and reimbursement of expenses. In addition, each of the Company's non-employee
directors have received options to purchase 15,000 shares of the Company's
Common Stock pursuant to the Company's Non-Employee Director Stock Option Plan
(the "Plan"). The non-employee directors may exercise the options with respect
to 5,000 shares in each of the three years beginning on a date set forth in
their option agreements. However, any portion of such 5,000 shares not purchased
in any given one-year period does not carry forward to the next one-year period.
The Company will no longer issue options under the Plan. The Board of Directors
on July 14, 1995 and the shareholders on July 27, 1995 approved the 1995 Amended
and Restated Non-Employee Directors' Stock Option Plan (the "Directors' Plan")
which provides for the issuance of up to 60,000 shares of the Company's Common
Stock. Under the Directors' Plan, each non-employee director of the Company
receives on the date of the Annual Meeting of the Company's shareholders an
option grant for the purchase of 2,000 shares of the Company's Common Stock. All
options granted under the Directors' Plan have an exercise price equal to the
fair market value of the Common Stock at the date of grant, vest one year from
the date of grant and have a term of ten years, subject to the non-employee
director's continued service as a director.
8
<PAGE> 12
SENIOR EXECUTIVE INCENTIVE COMPENSATION PLAN
The Company has established a Senior Executive Incentive Compensation
Plan (the "Bonus Plan") that provides for the payment of cash bonuses and the
granting of stock options under the 1995 Plan based upon criteria set forth in
the Bonus Plan, to Dr. Piety and Messrs. Canada, Gorla, Cioffi and Collier. The
amount of bonuses is determined by the Compensation Committee based upon the
percentage of the annual budgetary financial goal achieved by the Company in the
fiscal year covered. The annual budget goal is determined by the Board of
Directors by assigning different percentage weights to such items of Company
performance as, among others, consolidated gross margin, consolidated budgeted
revenues and consolidated pre-tax profit. No bonuses are payable under the Bonus
Plan unless the Company's consolidated pre-tax profit (an individual item of the
overall annual budget goal) is at least 75% of its budgeted amount for the
fiscal year.
As amended in January 1995, the Bonus Plan provides that the top
executives are eligible for cash bonuses of 10% to 50% of their annual base
salary and a grant of stock options, based upon the Company's achievement of 90%
to 110% of the annual budget. In 1996, Dr. Piety and Messrs. Canada, Gorla,
Cioffi and Collier received cash bonuses of $33,196, $38,600, $15,777, $18,191
and $24,125, respectively, and earned stock options of 2,142 shares, 2,490
shares, 1,018 shares, 0 shares, and 1,556 shares, respectively, pursuant to the
Bonus Plan, which options were granted in January 1997.
The Bonus Plan may be amended, suspended or discontinued at any time.
EMPLOYEE STOCK OPTION PLANS
There are currently outstanding options for the purchase of an
aggregate of 153,385 shares that were granted to officers and employees under
the 1987 Plan. No further options shall be granted under the 1987 Plan. On July
14, 1995, the Board of Directors adopted, and on July 27, 1995 the shareholders
approved, the Computational Systems, Incorporated 1995 Employee Stock Incentive
Plan (the "1995 Plan") for the award of up to 350,000 shares of Common Stock to
officers, key employees, and consultants of the Company.
There are currently outstanding options for the purchase of an
aggregate of 238,392 shares that were granted under the 1995 Plan. The 1995 Plan
is designed to give the Company maximum flexibility in designing stock-based
incentive awards for its employees. Awards under the 1995 Plan may be in the
form of stock options (incentive or nonqualified stock options), stock
appreciation rights, restricted stock and other stock-based awards, but no
awards may be made after July 27, 2005, the tenth anniversary of shareholder
approval of the 1995 Plan. The 1995 Plan is administered by the Compensation
Committee of the Board of Directors.
EMPLOYEE STOCK PURCHASE PLAN
The Company has issued shares of Common Stock under the Company's 1990
Employee Stock Purchase Plan (the "1990 Purchase Plan"). Pursuant to the 1990
Purchase Plan, every qualified employee (employees that work at least 20 hours
per week and more than five months in any given year) of the Company is granted
the right to purchase Common Stock with a value of up to 10% of their annual
base salary. Qualified employees may elect to have up to 10% of their base
salary (but no less than $20 per month) withheld and contributed toward the
purchase of these shares of the Company, at a price determined by the Board of
Directors. The 1990 Purchase Plan grants the Board authority to set the price
for purchases under the 1990 Purchase Plan at as low as 85% of fair value. To
qualify as a Section 423 purchase plan
9
<PAGE> 13
under the Internal Revenue Code, the 1990 Purchase Plan cannot allow purchases
at less than 100% of fair value if an employee owning 5% or more of the total
voting power of the Company's Common Stock participates. To date, no purchases
have been made under the 1990 Purchase Plan at less than 100% of fair value and
one 5% shareholder has participated in the 1990 Purchase Plan. On July 14,
1995, the Board of Directors voted to terminate the 1990 Purchase Plan as of
July 28, 1995 and no further issuances of Common Stock will occur under the
1990 Purchase Plan.
On July 14, 1995, the Board of Directors adopted, and on July 27, 1995
the shareholders approved, the Computational Systems, Incorporated Employee
Stock Purchase Plan (the "New Purchase Plan") for the issuance of up to 150,000
shares of Common Stock to eligible employees. Under the New Purchase Plan, the
eligibility requirements for participation by employees are identical to the
requirements of the 1990 Purchase Plan. Similarly, the mechanics of the New
Purchase Plan mirror the mechanics of the 1990 Purchase Plan. Under the New
Purchase Plan, however, shares of Common Stock will be issued to participants at
a price equal to 95% of the lesser of (i) the market price of the Company's
Common Stock on The Nasdaq National Market on the last trading date of the
purchase period or (ii) the average market price of the Company's Common Stock
on The Nasdaq National Market on the first and last trading dates of the
purchase period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of
Messrs. Ray, Rukeyser, Smith and Valunas, none of whom is an employee or officer
of the Company. No executive officer of the Company served during fiscal 1996 as
a member of a compensation committee or as a director of any entity of which any
of the Company's directors serves as an executive officer. Mr. Valunas, a
director of the Company and Chairman of the Compensation Committee, served as
President of TIC, a Selling Shareholder at the time of the Company's public
offering in August of 1995, and a holder of 15.6% of the Company's outstanding
Common Stock, from July 1989 until January 1995.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions with respect to compensation of the Named Executive Officers
for fiscal 1996 were made by the Compensation Committee of the Board of
Directors, which was comprised of Messrs. Ray, Rukeyser, Smith and Valunas. None
of these persons has at any time been an officer or employee of the Company or
any of its subsidiaries. The Compensation Committee approves compensation
actions and long-term incentive awards to the Named Executive Officers and other
key employees of the Company, and reviews and administers the incentive
compensation, stock option and other compensation plans of the Company.
The overall objectives of the Company's executive compensation program
for fiscal 1996 were to:
- Attract and retain the highest quality talent to lead the
Company
- Reward key executives based on business performance
- Design incentives to maximize shareholder value
- Assure that objectives for corporate and individual
performance are measured
The philosophy upon which these objectives were based is to provide
incentive to the Company's officers to enhance the profitability of the Company
and align closely the financial interests of the
10
<PAGE> 14
Company's officers with those of its shareholders. In order to implement this
philosophy for fiscal 1996, the Compensation Committee reviewed the various
elements of executive compensation, including salaries, incentive compensation
awards and stock option awards under the Incentive Plan. In connection with this
review, the Compensation Committee has in the past, and may from time to time in
the future, retain the firm of Towers Perrin ("Towers"), a nationally known
consulting firm to review for the Compensation Committee the Company's
compensation practices relative to a comparable group of companies of similar
size. The latest such report was prepared for the Company in 1994. The
compensation levels for fiscal 1996 for members of senior management were
established by the Compensation Committee based upon the recommendation of the
Company's Chairman, Ronald G. Canada, and their review of the Towers analysis.
The Compensation Committee set annual salaries for the Named Executive
Officers somewhat below competitive levels so that the Company relies to a
significant degree on annual cash bonuses and long-term stock based incentive
compensation to attract and retain senior management of outstanding abilities
and to motivate them to perform to the full extent of their abilities. Annual
cash bonuses for fiscal 1996 for participating Named Executive Officers, were
based on certain criteria set forth in the Company's Senior Executive Incentive
Compensation Plan (the "Bonus Plan") implemented by the Compensation Committee
during 1994. The Bonus Plan establishes performance criteria for those Named
Executive Officers and gives the Compensation Committee discretion to allocate a
percentage of base salary which would be payable as a cash bonus, plus a number
of stock options that would be granted based on the bonus amount, in the event
the criteria were satisfied. The Bonus Plan provides that payouts based on a
given goal may not begin until such goal is at least 90% achieved and that
maximum payouts for such goal will be reached when it is 110% achieved.
Furthermore, the Bonus Plan provides that no bonuses will be paid if the pre-tax
profit goal is not at least 75% achieved.
Based on the foregoing, the Company's Chairman and Chief Executive
Officer, Ronald G. Canada, was paid a base salary of $199,493 and earned bonuses
under the cash bonus program totaling $38,600. Several performance criteria were
used to determine Mr. Canada's bonus, including, among others, gross margin,
pre-tax profit, net total sales, market value of the Company's Common Stock at
year end, new product sales and new customer sales. Each of these factors was
weighted separately and assigned a percentage of salary if achieved. The maximum
bonus available, if all objectives were achieved, would have been equal to 50%
of Mr. Canada's base salary. Stock options issued based upon criteria set forth
in the Bonus Plan are issued under the Company's 1995 Employee Stock Incentive
Plan (the "Incentive Plan"). Options earned in 1996 under the Bonus Plan were
granted as incentive stock options as of January 1997 as follows: Mr. Canada -
2,490 shares; Dr. Piety - 2,142 shares; Mr. Gorla - 1,018 shares; Mr. Cioffi - 0
shares; Mr. Collier - 1,556 shares; and Mr. Carey - 0 shares. These options were
granted at the fair market value on the date of grant with respect to Messrs.
Gorla and Collier and at 110% of fair market value on the date of grant with
respect to Mr. Canada and Dr. Piety. The options vest in 25% increments annually
commencing one year from the date of grant for Mr. Canada and Dr. Piety and 20%
increments annually commencing one year from the date of grant for Messrs. Gorla
and Collier.
The long-term incentive program for senior management consists of stock
option and other stock-based awards granted under the Incentive Plan. The
Compensation Committee intends to consider granting stock options to members of
senior management, including the Named Executive Officers, annually following a
review of the Company's operating results for the prior fiscal year.
FEDERAL INCOME TAX DEDUCTIBILITY LIMITATIONS
The Compensation Committee believes it is appropriate to take into
account the $1,000,000 limit on the deductibility of executive compensation for
federal income tax purposes enacted as part of the 1993
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<PAGE> 15
Omnibus Budget Reconciliation Act ("OBRA") and to seek to qualify the Company's
long-term compensation awards as performance-based compensation excluded from
the $1,000,000 limit. None of the Company's executive officers has received
compensation that could potentially exceed the applicable limits under OBRA.
The tables set forth under "Executive Compensation," and the
accompanying narrative and footnotes, reflect the decisions covered by the above
discussion.
Richard E. Ray William S. Rukeyser
Thomas A. Valunas James F. Smith, Jr.
12
<PAGE> 16
PERFORMANCE GRAPH
The following graph compares the percentage change in the unaudited
total return on the Company's Common Stock against the total return of the
Nasdaq (U.S. Companies) Index and the Media General (Electronic Instruments)
Index between August 28, 1995 (the date the Company's Common Stock began trading
on The Nasdaq National Market) and December 31, 1996. The graph assumes the
value of the investments in the Company's Common Stock and each index was $100
at August 28, 1995 and that all dividends were reinvested. The base price for
the Company's Common Stock is the initial public offering price of $12.50 per
share.
<TABLE>
<CAPTION>
Media General
Measurement Period Computational NASDAQ (Electronic
(Fiscal Year Covered) Systems, Inc. U.S. Companies Instruments)
<S> <C> <C> <C>
8/28/95 100 100 100
12/95 109 88 100
12/96 135 95 124
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with during the period ended December 31, 1996.
13
<PAGE> 17
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected Coopers & Lybrand,
L.L.P. to serve as independent auditors for the current fiscal year.
Representatives of Coopers & Lybrand, L.L.P. are expected to be present at the
Annual Meeting and will be given the opportunity to make a statement if they
desire to do so and to respond to appropriate questions.
PROPOSALS OF SHAREHOLDERS
Shareholders intending to submit proposals for presentation at the next
Annual Meeting of the Shareholders of the Company and inclusion in the proxy
statement and form of proxy for such meeting should forward such proposals to
Kenneth R. Piety, Secretary, Computational Systems, Incorporated, 835 Innovation
Drive, Knoxville, Tennessee 37932. Proposals must be in writing and must be
received by the Company prior to November 25, 1997. Proposals should be sent to
the Company by certified mail, return receipt requested.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the meeting other than the matters set forth herein. Should any other
matter requiring a vote of shareholders arise, the proxies in the enclosed form
confer upon the person or persons entitled to vote the shares represented by
such proxies discretionary authority to vote the same in accordance with their
best judgment in the interest of the Company.
METHOD OF COUNTING VOTES
Unless a contrary choice is indicated, all duly executed proxies will
be voted in accordance with the instructions set forth on the back side of the
proxy card. Abstentions and broker non-votes will be counted as present for
purposes of determining a quorum. Abstentions and broker non-votes are treated
as votes against the proposals presented to the shareholders other than the
election of directors and the ratification of the appointment of the Company's
accountants. Because directors are elected by a plurality of the votes cast,
abstentions are not considered in the election. A broker non-vote occurs when a
broker holding shares registered in street name is permitted to vote, in the
broker's discretion, on routine matters without receiving instructions from the
client, but is not permitted to vote without instructions on non-routine
matters, and the broker returns a proxy card with no vote (the "non-vote") on
the non-routine matter.
FINANCIAL STATEMENTS AVAILABLE
A copy of the Company's 1996 Annual Report to Shareholders containing
audited financial statements accompanies this Proxy Statement. The Annual Report
does not constitute a part of the proxy solicitation material. Upon written
request to Michele Ciechon, Computational Systems, Incorporated, 835 Innovation
Drive, Knoxville, Tennessee 37932, the Company will provide, without charge,
copies of the Company's Annual Report to the SEC on Form 10-K.
14
<PAGE> 18
<TABLE>
<CAPTION>
Media General
Measurement Period Computational NASDAQ (Electronic
(Fiscal Year Covered) Systems, Inc. U.S. Companies Instruments)
<S> <C> <C> <C>
8/28/95 100 100 100
12/95 109 88 100
12/96 135 95 124
</TABLE>
<PAGE> 19
Appendix A
COMPUTATIONAL SYSTEMS, INCORPORATED
ANNUAL MEETING OF SHAREHOLDERS
APRIL 24, 1997
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR USE AT THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD AT THE SECOND FLOOR ASSEMBLY ROOM OF
THE COMPANY, 835 INNOVATION DRIVE IN KNOXVILLE, TENNESSEE, AT 4:00 P.M. (EST) ON
THURSDAY, APRIL 24, 1997, AND ANY ADJOURNMENT(S) THEREOF. The undersigned hereby
appoints Ronald G. Canada and Kenneth R. Piery or either of them, with full
power of substitution, as attorneys, and hereby authorizes them to represent and
to vote in the name of and as proxy for the undersigned, as designated, all of
the shares of common stock of Computational Systems, Incorporated held of record
by the undersigned on March 6, 1997.
1. ELECTION OF DIRECTORS TO SERVE UNTIL THE 1998 ANNUAL MEETING OF SHAREHOLDERS
AND UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED.
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary below). nominees.
</TABLE>
Ronald G. Canada, Kenneth R. Piety, Carlo Gorla, Richard E. Ray, William S.
Rukeyser, James F. Smith, Jr. and Thomas A. Valunas, Jr.
To withhold authority to vote for any individual nominee, write that
nominee's name in the space below:
- --------------------------------------------------------------------------------
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before this meeting or any adjournment thereof.
(Continued on reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE ELECTION AS DIRECTORS OF THE NOMINEES REFERRED TO IN PROPOSAL 1.
The undersigned revokes any prior proxies to vote the shares covered by this
proxy.
Dated:
--------------------------------,
1997
--------------------------------
Signature
--------------------------------
Signature if Held Jointly
Please sign exactly as name
appears on your share
certificates. Each joint owner
must sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name as authorized. If a
partnership or limited liability
company, please sign in such
organization's name by an
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED REPLY
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
