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North & Webster Sends Letter To CSP Inc. Stockholders

NEW YORK, Feb. 1, 2013 /PRNewswire/ -- North & Webster, LLC ("North & Webster") announced today that it has sent a letter to the stockholders of CSP Inc. (Nasdaq: CSPI) ("CSP" or the "Company") urging them to vote the GOLD Proxy card to support an open and transparent sale process for the Company by electing North & Webster's director nominees, James Bussone, J.K. Hage III, Samuel A. Kidston, and Erik Thoresen.  By voting the GOLD proxy for the North & Webster nominees, stockholders will be able to demonstrate that they support an immediate process be undertaken to sell the Company to the highest bidder.  North & Webster beneficially owns 133,266 shares, representing approximately 4% of the Company's outstanding common stock.

The full text of the letter follows:

January 31, 2013

Dear Fellow CSP Inc. Stockholder:


North & Webster, LLC, together with its affiliates ("we" or "North & Webster"), currently owns approximately 4% of the outstanding common stock of CSP Inc. ("CSP" or the "Company"), making us one of the Company's largest stockholders. On November 7, 2012, we sent a private letter to the board of directors of CSP (the "Board") offering to acquire all of the shares of common stock of CSP that we do not already own for $5.50 per share in cash (the "Proposal"). At the time, our Proposal represented a 15% premium to the 60-day moving average and was higher than CSP's 3-year high. We based this offer on publicly available information and informed the Board that it is subject to change based on further due diligence. Our Proposal was designed to be the opening offer in a process that would involve (i) a reputable investment bank hired by the Board, (ii) discussions and negotiations with multiple potential purchasers and (iii) ultimately, a value maximizing transaction that would benefit all stockholders.

Unfortunately, instead of engaging with us, the Board decided to completely ignore us.  The Board (1) refused to return any of our phone calls, (2) refused to meet with us, and (3) in a proxy filing made just two days after Christmas and with full notice of our intention to run a slate of directors at the 2013 Annual Meeting, set a retroactive record date and an annual meeting date window that we believe were designed to frustrate our ability to give you a choice of an alternate slate of directors at the 2013 Annual Meeting.  In CSP's own proxy materials it has indicated the Company intends to spend approximately $250,000 in stockholder funds in excess of what it would typically spend on an annual meeting all to avoid conducting a sale process.  Ask yourself why, in the face of our acquisition offer and proxy contest, the Board hasn't given stockholders any reasons why now is not the right time to explore a sale of the Company. 



We believe CSP is desperately in need of change.  Since 1994, it appears CSP has been operating without a coherent plan.  During such time, CSP has conducted a string of value-destroying acquisitions that have left stockholders with a company consisting of two disparate businesses that lack synergies, all the while enriching management and the Board with over $24.5 million in compensation.

Below is a sample of CSP's troubling acquisition strategy:
  • In March, 2000, the Company invested $2 million in stockholder capital in Vertical Buyer, Inc. Just over a year later, the Company recorded an impairment charge of $1.2 million on this transaction, writing off 60% of the cost of the investment as worthless.
  • On May 30, 2003, CSP acquired Technisource Hardware, Inc. (CSP director and current Chairman Shelton James was CEO of a subsidiary of Technisource Hardware at the time of the transaction), for $2.68 million in cash. $2.8 million in goodwill was created in the transaction.
  • On Sept. 25, 2008, the Company acquired R2 for $2.4 million and recorded approximately $1.1 million in goodwill for the transaction.
  • As of the 10K dated 12/29/2008 the Company had goodwill "of approximately $2.8 million" in connection with the acquisition of certain assets of Technisource Hardware on May 30, 2003, and "approximately $1.1 million" in connection with the acquisition of the assets of R2, for total goodwill of $3.9 million.
  • One year later in the 10K filed on 12/22/2009, the Company took a full impairment of all of its goodwill as of September 30, 2009, where the Company wrote down the full cost of the Technisource Hardware acquisition, and all goodwill related to R2 (which was acquired one year earlier).

These three acquisitions cost stockholders approximately $7 million, yet the Company wrote off over $5 million in these costs, in one case writing off the full cost of an acquisition only one year after the purchase! 

The Company has underperformed for 20 years. $10,000 invested in the Company twenty years ago would be worth $11,083 while that same $10,000 invested five years ago would be worth $7,348. Likewise, $10,000 invested in the NASDAQ Composite Index over the same time period would be worth $49,175 and $11,054 over those same time periods.

We believe CSP is a company that operates two disparate businesses with no apparent synergies and where the future prospects of value creation at CSP in the hands of the current Board is a serious question and concern.

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