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 / / 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 Section 240.14a-11(c) or Section 240.14a-12 WPI Group, Inc. (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box) /x/ No Fee Required / / Fee computed on table below per Exchange Act Rules 14a- 6(i) (1) and 0-11 (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11 (a) (2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No. (3) Filing Party: (4) Date Filed: WPI Group, Inc. Annual Meeting of Shareholders to be held February 9, 1999 THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS The undersigned hereby appoints Michael Foster and Dennis Deegan, and each of them, with power of substitution, as proxies, to vote the Common Stock of the undersigned at the Annual Meeting of Shareholders of the Company to be held on February 9, 1999, and at any adjournment thereof. The matters listed on the back of this card are described in the proxy statement. The proxies will vote: (1) as you specify on the reverse side, (2) as the Board of Directors recommends if you do not specify a choice on the matters listed on the reverse side, and (3) according to their best judgment upon any other business which may properly come before the meeting or any adjournment thereof. PLEASE VOTE, DATE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE Please sign this proxy exactly as your name appears on the books of the Company. Joint owners should sign personally. Trustee and other fiduciaries should indicate the capacity in which they sign, and where more than one name appears, a majority must sign. If a corporation, this signature should be that of an authorized officer who should state his or her title. HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS? - - ----------------------------- --------------------------- - - ----------------------------- --------------------------- - - ----------------------------- --------------------------- X PLEASE MARK VOTES AS IN THIS EXAMPLE With - For All WPI GROUP, INC. For hold Except 1. Election of Directors. [ ] [ ] [ ] Michael Foster, Dennis Deegan, John Allard, Stephen Carlotti, Paul Giovacchini, Irving Gutin, Steven Shulman and Bernard Tenenbaum. If you do not wish your shares voted "For" a particular nominee, mark the "For All Except" box and strike a line through that nominees name. Your shares will be voted for the remaining nominee(s). For Against Abstain 2. The approval of adoption of an [ ] [ ] [ ] an amendment to the Company's Bylaws, increasing the maximum number of directors that may serve on the Company's board. For Against Abstain 3. In their discretion, the [ ] [ ] [ ] proxies are authorized to vote upon any other business which may properly come before the meeting. Please be sure to sign and date this Proxy. Date Mark box at right if comments address change Shareholder sign here Co-owner sign here have been noted on the reverse side of this card. DETACH CARD WPI GROUP, INC. Dear Shareholder: Please take note of the important information enclosed with this Proxy Ballot. There are a number of issued related to the management and operation of your Company that require your immediate attention and approval. These are discussed in detail in the enclosed proxy materials. Your vote counts, and you are strongly encouraged to exercise your right to vote your stock. Please mark the boxes on the proxy card to indicate how your stock shall be voted. Then sign the card, detach it and return your proxy vote in the enclosed postage paid envelope. Your vote must be received prior to the Annual Meeting of Shareholders, February 9, 1999. Thank you in advance for your prompt consideration of these matters. Sincerely, WPI Group, Inc. [LOGO] NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To be held February 9, 1999 TO THE SHAREHOLDERS: The annual meeting of shareholders of WPI Group, Inc. will be held at the Company's corporate headquarters at 1155 Elm Street, Manchester, New Hampshire, on Tuesday, February 9, 1999 at 10:00 a.m., local time, for the following purposes: 1. To elect eight directors to the Board of Directors. 2. To approve an amendment to the Company's Bylaws, increasing the maximum number of directors that may serve on the Company's board. 3. To transact such other business as may properly come before the Annual Meeting and adjournment thereof. The Board of Directors has fixed December 7, 1998 as the record date for determining the holders of Common Stock entitled to notice of and to vote at the meeting. BY ORDER OF THE BOARD OF DIRECTORS Michael Tule, Vice President, General Counsel and Secretary January 15, 1999 YOUR VOTE IS IMPORTANT On behalf of the Board of Directors we urge you to promptly mark, sign, date and return the accompanying proxy in the enclosed envelope even if you plan to attend the Meeting. This will not prevent you from voting in person, but will assure that your vote is counted if you are unable to attend the Meeting. WPI GROUP, INC. PROXY STATEMENT INTRODUCTION The accompanying proxy is solicited by the Board of Directors of WPI Group, Inc., 1155 Elm Street, Manchester, New Hampshire 03101 (the "Company"). Copies of this Proxy Statement and the accompanying proxy are being mailed on or about January 15, 1999 to the holders of record of the Common Stock on December 7, 1998 (the "Record Date"). The proxy may be revoked by a shareholder at any time prior to its use by giving notice of such revocation to the Secretary of the Company, by appearing at the meeting and voting in person or by returning a later dated proxy. The expense of this solicitation shall be paid by the Company. Some of the officers and regular employees of the Company may solicit proxies personally and by telephone. Proxies will be voted in accordance with stockholders' directions. If no directions are given, proxies will be voted in favor of the eight persons named as nominees under the caption "Election of Directors". There is no reason to believe that any nominee for director will not be a candidate or unwilling to serve, but if either event occurs it is intended that the shares represented by the proxies will be voted for any substitute nominee designated by the Board of Directors. The Company will treat abstentions and broker non-votes as present at the Annual Meeting solely for the purpose of determining whether or not a quorum exists. Abstentions and broker non-votes will have no effect on the outcome of the election of directors or to the proposal to amend the Company's bylaws. The affirmative vote of a majority of the votes cast at the Annual Meeting is required for the election of directors and for the approval of the proposed amendment to the Company's bylaws. At the meeting, each stockholder will be entitled to one vote for each share of stock standing in his or her name on the books of the Company at the close of business on the Record Date. The Company had 6,031,404 shares of Common Stock outstanding on the Record Date. The presence at the meeting in person or by proxy of the holders of a majority of the shares of Common Stock outstanding on the Record Date will constitute a quorum. BOARD OF DIRECTORS The Board of Directors held seven meetings during the last fiscal year. Each of the directors attended 75% or more of the aggregate total number of Board meetings and total number of meetings of Committees on which the director served. There are two committees of the Board, the Audit Committee and the Stock Option/Compensation Committee. The Audit Committee, consisting of Paul Giovacchini, Peter Danforth and Stephen Carlotti held four meeting during the last fiscal year. The Audit Committee reviews the scope of and the results of the audit by the independent public accountants, makes recommendations to the Board as to the selection of independent public accountants for each fiscal year, and reviews the adequacy of the Company's internal accounting and financial controls. The Stock Option/Compensation Committee, consisting of Irving Gutin, Steven Shulman and Bernard Tenenbaum held one meeting during the last fiscal year. The Stock Option/Compensation Committee is responsible for reviewing and making recommendations to the Board on matters concerning the administration of the employee incentive plans and the compensation of executive officers of the Company. The Company does not have a nominating committee. Directors serve for one year and thereafter until their successors are duly elected and qualified. Directors who are not employees of the Company receive an annual fee of $14,000 and $250 for each committee meeting attended; committee chairmen receive an additional $500 annual fee for each committee they chair. Directors may elect to take all or a portion of their annual retainer in shares of Company common stock. Officers serve at the discretion of the Board of Directors. Mr. Foster, Mr. Deegan and Mr. Allard do not receive any directors' fees. - 2 - MANAGEMENT AND PRINCIPAL SHAREHOLDERS The following table sets forth certain information regarding beneficial ownership of the Common Stock as of December 7, 1998 by (i) each person who is known by the Company to beneficially own more than 5% of the outstanding shares of Common Stock; (ii) each of the Company's directors; and (iii) all directors and officers of the Company as a group: Number of Shares Name and Address Beneficially Owned Percentage Beneficially Owned - - ---------------- ------------------ ------------------------------ Michael Foster (1) 707,937 11.7% 1155 Elm Street Manchester, NH 03101 Dennis Deegan (2) 113,666 1.9% 1155 Elm Street Manchester, NH 03101 John Allard 40,400 * 1155 Elm Street Manchester, NH 03101 Stephen Carlotti (3) 3,334 * 1500 Fleet Center Providence, RI 02903 Peter Danforth (4) 16,667 * 21 Old Coach Road New London, NH 03257 Paul Giovacchini (5) 6,667 * 55 Ferncroft Road Danvers, MA 01923 Irving Gutin (6) 17,037 * One Tyco Park Exeter, NH 03833-1108 Steven Shulman (7) 19,834 * Liberty Lane Hampton, NH 03842 Bernard Tenenbaum (8) 9,762 * 767 5th Avenue 48th Floor New York, NY 10053 Pilgrim Baxter and 384,200 6.37% Associates (9) 1255 Drummers Lane, Suite 300 Wayne, PA 19067 Hathaway & 352,100 5.83% Associates, Ltd. (10) 119 Rowayton Avenue Rowayton, CT 06853 All executive 984,969 16.3% officers and directors as a group (11) (14 persons) - 3 - * Less than one percent (1) Includes 99,280 shares of the Company's common stock which Mr. Foster has the right to acquire within 60 days of the date hereof pursuant to the exercise of stock options. (2) Includes 94,666 shares of the Company's common stock which Mr. Deegan has the right to acquire within 60 days of the date hereof pursuant to the exercise of stock options. (3) Includes 3,334 shares of the Company's common stock which Mr. Carlotti has the right to acquire pursuant to exercise of stock options. (4) Includes 6,667 shares of the Company's common stock which Mr. Danforth has the right to acquire pursuant to exercise of stock options. (5) Includes 6,667 shares of the Company's common stock which Mr. Giovacchini has the right to acquire pursuant to the exercise of stock options. (6) Includes 6,667 shares of the Company's common stock which Mr. Gutin has the right to acquire pursuant to the exercise of stock options. (7) Includes 3,334 shares of the Company's common stock which Mr. Shulman has the right to acquire pursuant to the exercise of stock options. (8) Includes 6,667 shares of the Company's common stock which Mr. Tenenbaum has the right to acquire pursuant to the exercise of stock options. (9) According to a Schedule 13G filed with the Securities and Exchange Commission (the "Commission") on February 17, 1998, Pilgrim Baxter & Associates, a Commission-registered investment adviser with its principal place of business at 1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19067, has shared voting power with Harold Baxter and Gary Pilgrim but sole dispositive power with respect to the 384,200 shares of Common Stock. (10) According to a Schedule 13G filed with the Commission for the period ending September 30, 1998, Hathaway & Associates, Ltd., a Commission-registered investment adviser located at 119 Rowayton Avenue, Rowayton, Connecticut 06853, has sole voting and dispositive power with respect to the 352,100 shares of Common Stock. (11) Includes 275,782 shares of the Company's Common Stock which certain officers and directors have a right to acquire within 60 days of the date hereof pursuant to the exercise of stock options which are deemed to be outstanding for the purpose of computing the percentage ownership of officers and directors as a group. ELECTION OF DIRECTORS (Item 1 on Proxy) Eight directors are to be elected at the Meeting to serve one-year terms until the 2000 annual meeting of shareholders and until their respective successors are elected and shall qualify. The persons named in the accompanying proxy intend to vote for the election of Michael Foster, Dennis Deegan, John Allard, Stephen Carlotti, Paul Giovacchini, Irving Gutin, Steven Shulman and Bernard Tenenbaum, unless authority to vote for one or more of such nominees is specifically withheld in the proxy. The Board of Directors is informed that all nominees are willing to serve as directors, but if any of them should decline to serve or become unavailable for election as a director at the meeting, the persons named in the proxy will vote for such nominee or nominees as may be designated by the Board of Directors, unless the Board of Directors reduces the number of directors accordingly. - 4 - The following table sets forth, as of December 7, 1998, information as to the nominees, including their recent employment, positions with the Company, other directorships and age. Officer or Name Age Director Since Position with the Company Michael Foster 63 1988 Chairman of the Board of Directors and Chief Executive Officer Dennis Deegan 54 1988 Director, President and Chief Operating Officer John Allard 33 1998 Director, Senior Vice President, Business Development Stephen Carlotti 56 1997 Director Paul Giovacchini 41 1990 Director Irving Gutin 66 1994 Director Steven Shulman 57 1997 Director Bernard Tenenbaum 43 1994 Director Michael Foster, Chairman of the Board of Directors and Chief Executive Officer of the Company since 1988, led the management buy-out of the Company from Walker Magnetics Group, Inc. in October 1988. Since 1997, he has been a director of Foilmark, Inc., a Massachusetts-based manufacturer of metallic foils and foil stamping machinery. Dennis Deegan has been a Director of the Company, and has been President and Chief Operating Officer since June 1996. Mr. Deegan served as Executive Vice President, Treasurer and Chief Financial Officer of the Company from 1988 to June 1996. John Allard has been a Director of the Company and Senior Vice President, Business Development since August, 1998. From December 1992 to August 1998, Mr. Allard served as President, Chief Executive Officer and Director of Allard Nazarian Group, Inc. which included Jewell Electrical Instruments, a manufacturer of avionics components, subsystems, and panel meters, and Granite State Manufacturing, a contract manufacturing service. From December 1992 to December 1996, Mr. Allard also served as a Director of The Aerospace Displays Systems Group located in Hatfield, Pennsylvania. Stephen Carlotti has been a director of WPI since September 1997. He has been a partner of the law firm of Hinckley, Allen & Snyder since 1992. From February 1996 to November 1996, he served as a Vice Chairman of AMTROL, Inc. He has been a director of Fleet National Bank since 1986. Paul Giovacchini has been a Director of the Company since September 1990. Mr. Giovacchini has been a Senior Investment Manager for Signal Capital Corporation, a Massachusetts-based investment firm, since August 1990. Since 1995, Mr. Giovacchini has also been a partner of Seacoast Capital Partners, L.P., a federal licensee under the Small Business Investment Act of 1958. Irving Gutin has been a Director of the Company since February 1994. Mr. Gutin has been Senior Vice President of Tyco International (U.S.), Inc., formerly Tyco International, Ltd. a New Hampshire-based international manufacturer of fire protection and flow control products, electronic and electrical components and packaging materials since 1988. - 5 - Steven Shulman has been a Director of WPI since September 1997. He has been Managing Director of Latona Associates, Inc. since 1995 and a principal of the Hampton Group, an investment banking firm, since 1984. He has served as a director of Beacon Properties Corporation since 1995, Ermanco Incorporated since 1987 and Corinthian Directories, Inc. since 1995. He has been a director and Chairman of Terrace Holdings, Inc. since 1997. In addition, he serves as Vice Chairman of the Board of Stevens Institute of Technology. Bernard Tenenbaum has been a Director of the Company since July 1994. Since April 1997, Mr. Tenenbaum has been President of the Children's Leisure Products Group of The Jordan Company, a leveraged buyout firm based in New York. From 1993 to 1997, Mr. Tenenbaum was Vice President, Corporate Development, of Russ Berrie & Company, a New Jersey-based gift company. He was also President and CEO of R.B.T. Company, a division of Russ Berrie & Company. From 1988 to 1992, he was a Founding Director and Professor of Entrepreneurial Studies at the George Rothman Institute of Entrepreneurial Studies, Fairleigh Dickinson University. - 6 - EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation for services in all capacities to the Company for the fiscal years ended September 27, 1998, September 28, 1997 and September 29, 1996 of those persons who were at September 27, 1998 (i) the Chief Executive Officer and (ii) each of the four most highly compensated executive officers of the Company other than the Chief Executive Officer, (with the Chief Executive Officer, collectively, the "Named Officers"). Summary Compensation Table Annual Compensation (1) ----------------------- All Other ------------- Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) - - --------------------------- ---- ---------- --------- ---------------- Michael Foster 1998 400,036 - 23,855 (3) Chairman and CEO 1997 325,000 - 25,028 1996 280,317 213,000 18,050 Dennis Deegan 1998 250,016 - 6,685 (4) President and COO 1997 200,044 - 16,654 1996 153,257 84,000 14,230 John Allen (2) 1998 175,032 - 11,378 (5) Vice President Industrial Technology 1997 150,020 - 11,271 1996 123,380 20,000 10,025 Timothy Jones 1998 175,032 - 11,378 (6) Vice President Information Solutions 1997 150,020 - 11,616 1996 124,738 20,000 8,913 John Powers 1998 135,522 - 10,848 (7) Vice President and CFO 1997 - - - 1996 - - - (1) Excludes perquisites and other personal benefits, the aggregate annual amount of which was less than the lesser of $50,000 or 10% of the total of annual salary and bonus reported. (2) Mr. Allen resigned his position with the Company as of June 19, 1998. (3) Includes $20,000 life insurance premium paid by the Company, $3,200 contribution to the Company's 401(k) plan and $655 for group term life coverage. (4) Includes $2,380 life insurance premium paid by the Company, $3,200 contribution to the Company's 401(k) plan and $655 for group term life coverage. (5) Includes $7,800 auto allowance, $3,029 contribution to the Company's 401(k) plan and $549 group term life insurance coverage. (6) Includes $7,800 auto allowance, $3,029 contribution to the Company's 401(k) plan and $549 group term life insurance coverage. (7) Includes $7,800 auto allowance, $2,650 contribution to the Company's 401(k) plan and $398 group term life insurance coverage. - 7 - Option Grants in Last Fiscal Year (Individual Grants) The following table contains information concerning the grant of stock options under the Company's 1995 Stock Option Plan and the 1997 Equity Incentive Plan to the Named Officers during the Company's last fiscal year. Number of % of Total Securities Options Granted Underlying to Employees Exercise Expiration Grant Date Name Options Granted In Fiscal 1998 Price ($) Date Present Value ---- --------------- -------------- --------- ---- ------------- Michael Foster 86,000 (1) 29.0% $8.56 02/10/08 $363,780 (3) Chairman, CEO Dennis Deegan 25,000 (2) 8.44% $11.125 10/31/07 $135,250 (3) President, COO John Allen (4) 15,000 (2) 5.06% $11.125 10/31/07 $ 81,150 (3) Vice President Industrial Technology Timothy Jones 15,000 (2) 5.06% $11.125 10/31/07 $ 81,150 (3) Vice President Information Solutions John Powers 5,000 (2) 1.69% $11.125 10/31/07 $ 27,050 (3) Vice President, CFO (1) Options granted under the WPI Group, Inc. 1997 Equity Incentive Plan at an exercise price equal to the fair market value of the Company's Common Stock on the date of grant. The options vest in 1/4 increments on 2/10/99, 2/10/00, 2/10/01 and 2/10/02. (2) Options granted under the WPI Group, Inc. 1995 Stock Option Plan at an exercise price equal to the fair market value of the Company's common stock on the date of grant. The options vest in 1/3 increments on 10/1/98, 10/1/99 and 10/1/00. (3) The weighted average fair value of options granted to Mr. Foster was $4.23 and the weighted average fair value of the options granted to the remaining named officers was $5.41. The values were estimated on the date of grant using the Black-Sholes option pricing model with the following weighted average assumptions used: Risk free interest rates ranging from 5.49% to 5.72%, expected dividend yield of 0%, expected option lives of 5 years and expected volatilities ranging from 46.94% to 48.54%. (4) Mr. Allen resigned his position with the Company as of June 19, 1998. - 8 - Option Exercises And Fiscal Year End Values The following table contains information with respect to aggregate stock options exercised by the Named Officers during fiscal 1998 as well as unexercised options to purchase the Company's Common Stock granted through September 27, 1998 under the Company's 1995 Stock Option Plan or 1997 Equity Incentive Plan to the Named Officers and held by them at that date. Aggregated Options/SAR Exercises In Last Fiscal Year And Fiscal - - --------------------------------------------------------------- Year End Option Value --------------------- Number of Unexercised Value of Unexercised In-the-Money Options at September 27, 1998 at September 27, 1998 ($) (1) Shares Acquired Value Common Stock Common Stock Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable - - ---- ---------------- ------------ ----------- ------------- ----------- ------------- Michael Foster - - 84,870 132,410 $ 47,044 $ 17,006 Dennis Deegan - - 75,667 46,333 239,667 5,333 John Allen - - 6,667 28,333 1,666 3,333 Timothy Jones - - 11,667 28,333 19,792 3,333 John Powers - - 2,500 7,500 - - (1) Based on the difference between the exercise price of each grant and the closing price of the Company's Common Stock as quoted on the NASDAQ/NMS on September 28, 1997, which was $6.625. The foregoing options were granted under either the 1995 Stock Option Plan (the "1995 Plan") or the 1997 Equity Incentive Plan (the "1997 Plan"). Both plans are administered by the Stock Option/Compensation Committee, which consists of not less than three outside directors. The Committee determines the key employees to whom, and the time or times at which, options will be granted, the number of shares subject to each option and the terms upon which each option may be granted. An aggregate of 550,000 shares of common stock are reserved for issuance under the 1995 Plan and an aggregate of 750,000 shares of common stock are reserved for issuance under the 1997 Plan. Since the adoption of the 1995 Plan on June 6, 1995, options for a total of 550,000 shares of common stock (or all of the shares reserved for issuance) have been granted to selected officers and key employees of the Company. Since the adoption of the 1997 Plan on June 10, 1997, options for a total of 222,500 shares of common stock have been granted to selected officers and key employees of the Company. Change In Control Plan and Severance Agreements The Board of Directors has adopted a Change in Control Plan covering nine officers and key employees, including the Named Executive Officers. The provisions of the Change in Control Plan only become effective upon the occurrence of an event constituting a change in control of the Company. Under the Change in Control Plan, a "Change in Control" shall be deemed to have occurred if any of the following events occur: (i) any "person" (as such term is defined in Section 13 and 14 under the Exchange Act) except for Michael Foster, directly or indirectly, is or becomes the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act) of 25% or more of the Company's Common Stock; (ii) any change occurs in the composition of WPI's Board of Directors resulting in a majority of the present directors not constituting a majority two years from such date, provided that directors who were elected by or on the recommendation of such present majority shall be excluded; or (iii) any other event that would be required to be reported under Item 1 of Form 8-K pursuant to Section 13 or Section 15(d) of the Exchange Act. A change in control shall not be deemed to have occurred if such change in control results from a distressed sale of WPI due to the Company's material default with respect to any applicable debt covenants with its lender. The Change in Control Plan provides that if, within one (1) year after a change of control of WPI, a Named Executive Officer is discharged without Cause (as defined below) or has resigned for reasons relating to a diminution of responsibilities, compensation or benefits or relocation of place of employment, WPI shall pay to such individual a lump sum severance benefit. For purposes of the Change in Control Plan, "Cause" shall mean - 9 - conviction of certain crimes, willful misconduct or conduct that caused WPI to suffer a substantial loss or damage. Currently, each Named Executive Officer would receive between nine and eighteen months of base salary, plus bonus, depending upon the Named Executive Officer's years of service and status with the Company. At the discretion of the Board of Directors, the vesting of options may be accelerated in the event of a Change in Control. A Named Executive Officer may resign at any time and for any reason within one year of a Change in Control and receive the base salary component only of the lump sum benefit. In addition to being covered by the Change In Control Plan, Mr. Allard has a Severance Agreement with the Company which provides, in relevant part, that if the Company terminates his employment for any reason other than cause, or in connection with a change- in-control, the Company will continue to pay him at his then present salary rate for a period of twelve months. Report of the Compensation Committee During fiscal 1998, the Compensation Committee established the compensation of the Chairman and Chief Executive Officer and the President and Chief Operating Officer of the Company. The criteria for bonus awards of the Chief Executive Officer and Chief Operating Officer in respect of the 1998 fiscal year were determined at a meeting of the Compensation Committee as constituted on August 19, 1997. See "Board of Directors." In determining the individual elements of compensation, the Compensation Committee strives to enable the Company to attract and retain key executives critical to the long-term success of the Company, provide compensation opportunities which are comparable to those offered by similar companies, reward long-term strategic management and the enhancement of stockholder value and create a performance-oriented environment. In order to meet the foregoing objectives, the Compensation Committee has attempted to design and choose components of compensation. The Compensation Committee consulted with outside compensation consultants to assist in this process and provide competitive information, advice and recommendations relating to compensation issues. Compensation packages consist of cash, certain benefits and equity-based compensation. The Company's compensation provides for competitive base salaries which reflect individual performance and level of responsibility. Annual bonuses, when given, are linked to the financial performance of the Company and its subsidiaries as a whole, job performance and the meeting of specific goals. Also included are plans which reward the enhancement of long-term value to the Company's stockholders. The compensation of the above officers for fiscal 1998 was based on the policies described above. Bonus awards are determined on the basis of a formula in which a weighted performance factor is applied to a target award established for each of the above officer's respective salary levels. The weighted performance factor is derived as a result of the achievement of certain Company performance targets, including the achievement of a certain level of earnings per share. No bonuses were paid to the above officers in fiscal 1998. Annually, the Compensation Committee reviews with the Chief Executive Officer the individual performance of each of the other executive officers and his recommendations with respect to the appropriate compensation awards. The Stock Option/Compensation Committee also reviews with the Company's Chief Executive Officer the financial and other objectives for each of the executive officers for the following year. The Compensation Committee has not formally addressed the restrictions under Section 162(m) of the Internal Revenue Code because the Compensation Committee does not anticipate paying compensation to its executive officers in an amount to which Section 162(m) would apply. Irving Gutin (Chairman) Steven Shulman Bernard Tenenbaum - 10 - Performance Graph Set forth below is a line graph comparing the yearly percentage change in the total stockholder return on the Company's Common Stock against the total return of the NASDAQ Market Index and a peer group index consisting of companies which manufacture and sell handheld computers and terminals and associated software, electrical equipment products and instrumentation. The peer group was selected with the assistance of the Company's investment bankers and includes the following issuers: Aura Systems, Inc., Applied Cellular Technology, Inc., BEI Technologies, Inc., Fieldworks, Inc., Itron, Inc., Magnetek, Inc., Metrologic Instruments, Inc., Miltope Group, Inc., NAI Technologies, Inc., Percon, Inc., Symbol Technologies, Inc., ScanSource, Inc., Telxon Corp., Unova, Inc. and Woodhead Industries, Inc. The current peer group has been changed from the peer group used last year. Management believes that the current peer group provides a broader cross section of companies in lines of business that are more similar to the Company's line of business. Also set forth below is a line graph showing the above information using last year's peer group. Comparison of Five-Year cumulative Total Returns Performance Report Company Index: CUSIP - 92930K10 Ticker - WPIC SIC - 3620 Exchange - NASDAQ Fiscal year end is 9/30/98 Market Index: NASDAQ Stock Market (US Companies) Peer Index: Companies in self-determined group - 11 AURA AURA SYSTEMS, INC. FWRX FIELDWORKS INCORPORATED ITRI ITRON INC. MAG MAGNETEK INC. MILT MILTOPE GROUP INC. NATL N A I TECHNOLOGIES INC. PRCN PERCON ACQUISITION INC. SCSC SCANSOURCE, INC. SCSCU SCANSOURCE, INC. SBL SYMBOL TECHNOLOGIES, INC. TLXN TELXON CORP. Date Company Index Market Index Peer Index 09/30/93 100.000 100.000 100.000 10/29/93 91.667 102.247 117.892 11/30/93 102.083 99.201 119.905 12/31/93 127.083 101.966 118.838 01/31/94 141.667 105.061 122.474 02/28/94 112.500 104.080 122.326 03/31/94 108.333 97.681 121.780 04/29/94 104.167 96.412 138.957 05/31/94 100.000 96.649 141.403 06/30/94 108.333 93.114 140.842 07/29/94 91.667 95.025 136.906 08/31/94 91.667 101.084 146.438 09/30/94 95.833 100.826 138.722 10/31/94 100.000 102.806 146.583 11/30/94 91.667 99.396 135.929 12/30/94 95.833 99.674 136.492 01/31/95 83.333 100.243 124.468 02/28/95 83.333 105.544 130.294 03/31/95 91.667 108.674 137.820 04/28/95 89.583 112.098 148.689 05/31/95 83.333 114.989 160.366 06/30/95 87.500 124.308 172.382 07/31/95 104.167 133.446 162.844 08/31/95 95.833 136.151 156.249 09/29/95 100.000 139.281 166.498 10/31/95 89.583 138.477 159.113 11/30/95 104.167 141.729 164.984 12/29/95 125.000 140.974 171.139 01/31/96 158.333 141.667 158.791 02/29/96 218.750 147.059 175.597 03/29/96 212.500 147.544 167.790 04/30/96 333.334 159.781 207.592 05/31/96 350.000 167.118 168.825 06/28/96 325.000 159.585 157.321 07/31/96 225.000 145.354 155.117 08/30/96 300.000 153.498 161.102 09/30/96 270.833 165.238 159.927 10/31/96 216.667 163.412 144.172 11/29/96 275.000 173.514 152.852 12/31/96 254.167 173.358 146.392 01/31/97 279.167 185.678 176.579 02/28/97 233.333 175.408 170.437 03/31/97 208.333 163.954 162.150 04/30/97 225.000 169.080 164.263 05/30/97 275.000 188.242 172.894 06/30/97 291.667 194.007 174.471 07/31/97 308.333 214.484 180.723 08/29/97 293.750 214.157 196.629 09/30/97 404.167 226.814 221.677 10/31/97 370.833 215.072 206.613 11/28/97 252.083 216.150 205.522 12/31/97 245.833 212.688 196.024 01/30/98 295.833 219.357 203.529 02/27/98 327.083 239.944 226.227 03/31/98 275.000 248.789 226.433 04/30/98 300.000 253.005 250.322 05/29/98 258.333 239.120 230.377 06/30/98 243.750 255.976 228.403 07/31/98 225.000 253.184 226.279 08/31/98 191.667 203.694 210.140 09/30/98 220.833 231.786 244.931 The index level for all series was set to 100.0 on 09/30/93 Perm# Date Range Company Name TICK CL EX F SIC 12122 09/30/93 - 09/30/98 AURA SYSTEMS INC. AURA NQ 3660 84612 03/20/97 - 09/30/98 FIELDWORKS INC FWRX NQ 3570 79839 11/05/93 - 09/30/98 ITRON INC. ITRI NQ 3570 75596 09/30/93 - 09/30/98 MAGNETEK INC. MAG NY 3612 90211 09/30/93 - 09/30/98 MILTOPE GROUP INC. MILT NQ 3573 57999 03/30/93 - 09/30/98 N A I TECHNOLOGIES NATL NQ 3570 81891 07/28/95 - 09/30/98 PERCON ACQUISITION PRCN NQ 3570 80362 03/18/94 - 09/30/98 SCANSOURCE, INC. SCSC NQ 5040 98394 03/18/94 - 09/18/95 SCANSOURCE, INC. SCSCU NQ 5040 73940 09/30/93 - 09/30/98 SYMBOL TECHNOLOGIES SBL NY 3662 75273 09/30/93 - 09/30/98 TELXON CORP. TLXN NQ 7370 Exchange labels: NY - New York, AM - American, NQ -NASDAQ Comparison of Five-Year cumulative Total Returns Performance Report Company Index: CUSIP - 92930K10 Ticker - WPIC SIC - 3620 Exchange - NASDAQ Fiscal year end is 9/30/98 Market Index: NASDAQ Stock Market (US Companies) Peer Index: Companies in self-determined group - 11 ADLT ADVANCED LIGHTING TECHS INC. ACTC APPLIED CELLULAR TECHNOLOGY INC. AURA AURA SYSTEMS, INC. BEIQ B E I TECHNOLOGIES INC. FWRX FIELDWORKS INCORPORATED ITRI ITRON INC. MAG MAGNETEK INC. MTLG METROLOGIC INSTRUMENTS INC. MILT MILTOPE GROUP INC. NATL N A I TECHNOLOGIES INC. PSCX P S C INC. PRCN PERCON ACQUISITION INC. SCSC SCANSOURCE, INC. SCSCU SCANSOURCE, INC. SBL SYMBOL TECHNOLOGIES, INC. TLXN TELXON CORP. UNA UNOVA INC. WDHD WOODHEAD INDUSTRIES INC. Date Company Index Market Index Peer Index 09/30/93 100.000 100.000 100.000 10/29/93 91.667 102.247 115.362 11/30/93 102.083 99.201 116.015 12/31/93 127.083 101.966 114.256 01/31/94 141.667 105.061 119.921 02/28/94 112.500 104.080 119.424 03/31/94 108.333 97.681 119.154 04/29/94 104.167 96.412 134.908 05/31/94 100.000 96.649 136.339 06/30/94 108.333 93.114 136.098 07/29/94 91.667 95.025 132.679 08/31/94 91.667 101.084 141.150 09/30/94 95.833 100.826 134.717 10/31/94 100.000 102.806 141.369 11/30/94 91.667 99.396 133.252 12/30/94 95.833 99.674 136.344 01/31/95 83.333 100.243 128.005 02/28/95 83.333 105.544 131.847 03/31/95 91.667 108.674 138.907 04/28/95 89.583 112.098 149.996 05/31/95 83.333 114.989 157.909 06/30/95 87.500 124.308 168.054 07/31/95 104.167 133.446 159.659 08/31/95 95.833 136.151 153.989 09/29/95 100.000 139.281 162.384 10/31/95 89.583 138.477 154.836 11/30/95 104.167 141.729 160.687 12/29/95 125.000 140.974 163.860 01/31/96 158.333 141.667 153.766 02/29/96 218.750 147.059 168.411 03/29/96 212.500 147.544 163.890 04/30/96 333.334 159.781 197.821 05/31/96 350.000 167.118 168.495 06/28/96 325.000 159.585 156.965 07/31/96 225.000 145.354 151.206 08/30/96 300.000 153.498 159.363 09/30/96 270.833 165.238 160.200 10/31/96 216.667 163.412 148.446 11/29/96 275.000 173.514 156.548 12/31/96 254.167 173.358 153.662 01/31/97 279.167 185.678 178.658 02/28/97 233.333 175.408 173.090 03/31/97 208.333 163.954 165.386 04/30/97 225.000 169.080 163.266 05/30/97 275.000 188.242 178.069 06/30/97 291.667 194.007 179.632 07/31/97 308.333 214.484 183.793 08/29/97 293.750 214.157 196.470 09/30/97 404.167 226.814 222.538 10/31/97 370.833 215.072 205.421 11/28/97 252.083 216.150 201.389 12/31/97 245.833 212.688 192.045 01/30/98 295.833 219.357 199.816 02/27/98 327.083 239.944 222.494 03/31/98 275.000 248.789 225.036 04/30/98 300.000 253.005 248.435 05/29/98 258.333 239.120 229.955 06/30/98 243.750 255.976 224.486 07/31/98 225.000 253.184 218.706 08/31/98 191.667 203.694 188.964 09/30/98 220.833 231.786 205.768 The index level for all series was set to 100.0 on 09/30/93 Perm# Date Range Company Name TICK CL EX F SIC 82663 12/12/95 - 09/30/98 ADVANCED LIGHTING ADLT NQ 3640 82248 09/01/95 - 09/30/98 ADVANCED CELLULAR ACTC NQ 7370 12122 09/30/93 - 09/30/98 AURA SYSTEMS INC. AURA NQ 3660 85358 09/29/97 - 09/30/98 B E I TECHNOLOGIES BEIQ NQ 3820 84612 03/20/97 - 09/30/98 FIELDWORKS INC FWRX NQ 3570 79839 11/05/93 - 09/30/98 ITRON INC. ITRI NQ 3570 75596 09/30/93 - 09/30/98 MAGNETEK INC. MAG NY 3612 80942 09/29/94 - 09/30/98 METROLOGIC INSTRUM MTLG NQ 3570 90211 09/30/93 - 09/30/98 MILTOPE GROUP INC. MILT NQ 3573 57999 03/30/93 - 09/30/98 N A I TECHNOLOGIES NATL NQ 3570 62790 09/30/93 - 09/30/98 P S C INC. PSCX NQ 3860 81891 07/28/95 - 09/30/98 PERCON ACQUISITION PRCN NQ 3570 80362 03/18/94 - 09/30/98 SCANSOURCE, INC. SCSC NQ 5040 98394 03/18/94 - 09/18/95 SCANSOURCE, INC. SCSCU NQ 5040 73940 09/30/93 - 09/30/98 SYMBOL TECHNOLOGIES SBL NY 3662 75273 09/30/93 - 09/30/98 TELXON CORP. TLXN NQ 7370 85445 10/22/97 - 09/30/98 UNOVA INC. UNA NY 3599 83433 09/30/93 - 09/30/98 WOODHEAD INDUSTRIES WDHD NQ 3610 Exchange labels: NY - New York, AM - American, NQ -NASDAQ Certain Relationships and Related Transactions The Company is currently leasing and occupying a building at 850 Perimeter Road, Manchester, New Hampshire (the "Perimeter Road Facility") from 850 Perimeter Road Associates NA, LLC, a New Hampshire limited liability company in which Mr. Allard is a member. The yearly base rental for the Perimeter Road facility, which houses the operations of WPI Instruments, Inc., is $402,408. The lease term expires on December 31, 2002, and may be renewed by the Company for an extended term to December 31, 2007. In management's opinion, the lease rate for this facility is not in excess of the range of fair market rentals in the relevant area. Hinckley, Allen & Snyder, a law firm of which Stephen Carlotti, a director, is a member, provided legal services to the Company during its 1998 fiscal year. - 11 - APPROVAL OF AMENDMENT TO BYLAWS (Item 2 on Proxy) The Board of Directors believes it is in the best interests of the Company and the shareholders to adopt an amendment to the bylaws of the Company to increase the range of the number of directors that may serve on the Company's board. Currently, the Company's bylaws provide that the board shall consist of not less than three and not more than nine directors. The Board of Directors believes it is advisable to increase the maximum to fifteen directors in order to give the Company the flexibility in the future to add directors with experience that may be critical to the Company's ability to achieve its long-term strategic goals. Accordingly, the Board of Directors has approved an amendment to the bylaws, subject to approval by shareholders of common stock of the Company that the Board of Directors will consist of not less than three nor more than fifteen directors. The proposed text of the amendment to the bylaws is set forth below: Section 3.2. Number, Tenure and Qualifications. The number of directors of the corporation shall be not fewer than three (3) and not more than fifteen (15), as the board of directors shall determine. Each director shall hold office until the next annual meeting of shareholders and until his successors shall have been elected and qualified. Directors need not be residents of the State of New Hampshire or shareholders of the corporation. The Directors recommend a vote FOR the approval of the adoption to an amendment to the Bylaws of the Company. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires that each director and certain officers of the Company file reports of initial beneficial ownership and changes in beneficial ownership of the Company's Common Stock with the Securities and Exchange Commission. To the Company's knowledge, during 1998 all directors and officers filed such required notices. INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors, upon the recommendation of the Audit Committee, has selected the firm of Arthur Andersen LLP, independent public accountants, to audit the financial statements of the Company for the fiscal year ending September 26, 1999. Arthur Andersen LLP acted as the Company's independent public accountants for the fiscal year ended September 27, 1998. Representatives of Arthur Andersen LLP will attend the Annual Meeting, will have an opportunity to make a statement if desiring to do so and will be available to answer any pertinent questions. DEADLINE FOR SHAREHOLDERS' PROPOSALS Stockholders may submit proposals to be considered for stockholder action at the 2000 Annual Meeting if they do so in accordance with appropriate regulations of the Securities and Exchange Commission. The deadline for submitting a stockholder proposal for inclusion in the Company's proxy materials for the 2000 Annual Meeting is September 13, 1999. With respect to any stockholder proposal that a stockholder does not seek to have included in the Company's proxy materials, the proxyholders named in management's proxy for that annual meeting will be entitled to exercise their discretionary authority on that proposal if the Company does not receive proper notice of the matter proposed before November 29, 1999. If proper notice is timely received, the proxyholders named in management's proxy may nevertheless exercise discretionary authority to the extent permitted by appropriate regulations of the Securities and Exchange Commission. In any event, the Company may have no obligation to include such proposals submitted after September 13, 1999 on the agenda of the 2000 Annual Meeting. - 12 - OTHER MATTERS Management knows of no matters to be presented at the meeting other than those set forth in the accompanying proxy. However, if other matters are properly presented for action, it is the intention of the persons named in the proxy to vote upon such matters in accordance with their best judgment. AVAILABILITY OF FORM 10-K A copy of the Company's Annual Report for the last fiscal year filed on Form 10-K with the Securities and Exchange Commission will be furnished to stockholders without charge upon written request to Michele M. Normandin, Investor Relations, WPI Group, Inc., 1155 Elm Street, Manchester, New Hampshire 03101. BY ORDER OF THE BOARD OF DIRECTORS Michael Tule, Vice President, General Counsel and Secretary - 13 -