<PAGE>
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 ss.240.14a-11(c) or ss.240.14a-12
Castle Energy Corporation
- --------------------------------------------------------------------------------
(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)(4) 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 the 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 of Registration Statement No.:___________________________
3) Filing Party:___________________________________________________________
4) Date Filed:_____________________________________________________________
<PAGE>
[CEC LETTERHEAD AND LOGO]
April 30, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
("Annual Meeting") of Castle Energy Corporation (the "Company") to be held on
Thursday, June 18, 1998, at 9:30 A.M., Eastern Daylight Time, at the Radnor
Hotel, 591 E. Lancaster Avenue, St. Davids, Pennsylvania.
At the Annual Meeting, you will be asked to consider and vote upon two
matters, a proposal to elect the nominees named in the accompanying Proxy
Statement as Directors to serve for the period indicated and a proposal to
reappoint KPMG Peat Marwick LLP, as the Company's independent auditors for the
fiscal year ending September 30, 1998.
Whether or not you are personally able to attend the Annual Meeting, please
complete, sign, date, and return the enclosed proxy as soon as possible. This
action will not limit your rights to vote in person if you wish to attend the
Annual Meeting.
Sincerely,
/s/JOSEPH L. CASTLE II
Joseph L. Castle II
Chairman and Chief Executive Officer
<PAGE>
CASTLE ENERGY CORPORATION
--------
Notice of Annual Meeting of Stockholders
to be held on June 18, 1998
April 30, 1998
To The Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Castle Energy Corporation, a Delaware corporation (the "Company"),
will be held at the Radnor Hotel, 591 E. Lancaster Avenue, St. Davids,
Pennsylvania, on Thursday, June 18, 1998 at 9:30 A.M., Eastern Daylight Time,
for the following purposes:
1. To elect the nominees named in the Proxy Statement as Directors to serve
for the period indicated or until their successors have been elected.
2. To consider and take action upon a proposal to reappoint KPMG Peat
Marwick LLP as the Company's independent accountants for the fiscal year ending
September 30, 1998.
3. To transact any other business as may properly come before the Annual
Meeting.
Stockholders of record at the close of business on April 21, 1998 will be
entitled to vote at the Annual Meeting.
The Company's Annual Report to Stockholders for the fiscal year ended
September 30, 1997 was sent to shareholders on or about January 30, 1998.
Quarterly reports for the quarters ended December 31, 1997 and March 31, 1998
are available upon request without charge.
A complete list of stockholders entitled to vote at the Annual Meeting will
be kept at the office of the Company, One Radnor Corporate Center, Suite 250,
100 Matsonford Road, Radnor, Pennsylvania 19087, for examination by any
Stockholder, during ordinary business hours, for a period of not less than ten
days prior to the Annual Meeting.
By Order of the Board of Directors
/s/JOSEPH L. CASTLE II
Joseph L. Castle II
Chairman and Chief Executive Officer
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
SELF-ADDRESSED RETURN ENVELOPE FURNISHED FOR THAT PURPOSE AS PROMPTLY
AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. IF
YOU LATER DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO
IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT.
<PAGE>
PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
June 18, 1998
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors of Castle
Energy Corporation, a Delaware corporation (the "Company"), to be voted at the
Annual Meeting of Stockholders to be held on June 18, 1998 and any adjournment
or adjournments thereof (the "Annual Meeting"). When such proxy is properly
executed and returned, the shares of the Company's Common Stock, par value $.50
per share ("Common Stock"), it represents will be voted at the Annual Meeting as
directed. If no specification is indicated, the shares will be voted "FOR" the
election of the nominees to serve as Directors for the term designated and "FOR"
the reappointment of KPMG Peat Marwick LLP as the Company's independent
accountants for the fiscal year ending September 30, 1998. Any stockholder
granting a proxy has the power to revoke it at any time prior to its exercise by
notice of revocation to the Company in writing, by voting in person at the
Annual Meeting, or by execution of a later dated proxy; provided, however, that
such action is taken in sufficient time to permit the necessary examination and
tabulation of the subsequent proxy or revocation before the vote is taken.
The shares entitled to vote at the Annual Meeting consist of shares of
Common Stock, with each holder of record as of the close of business on April
21, 1998 (the "Record Date") entitled to one vote for each such share held. As
of the Record Date there were [4,713,546] shares of Common Stock outstanding and
entitled to vote at the Annual Meeting. This Proxy Statement and accompanying
proxy are being sent to stockholders of the Company on or about April 30, 1998.
The address of the Company's principal executive offices is One Radnor
Corporate Center, Suite 250, 100 Matsonford Road, Radnor, Pennsylvania 19087,
and the telephone number is (610) 995-9400.
-1-
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION..................................................................1
PRINCIPAL HOLDERS OF VOTING SECURITIES........................................3
SECURITY OWNERSHIP OF MANAGEMENT..............................................4
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES...............................5
EXECUTIVE COMPENSATION........................................................7
Summary Compensation......................................................7
Option Grants in Last Fiscal Year (Year Ended September 30, 1997).........8
Option/SAR Exercises and Option/SAR Values................................8
Employment Agreements.....................................................9
Severance Agreements......................................................9
Section 16(a) Compliance and Beneficial Ownership Reporting...............9
Compensation Committee Interlocks and Insider Participation...............9
Board Compensation Committee Report on Executive Compensation.............9
Performance Graph.........................................................11
BOARD OF DIRECTORS AND BOARD COMMITTEES.......................................13
Fiscal 1997 Board Meetings................................................13
Board Committees..........................................................13
Compensation of Directors.................................................13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................14
PROPOSAL TO ELECT DIRECTORS...................................................14
PROPOSAL TO REAPPOINT INDEPENDENT ACCOUNTANTS.................................15
OTHER MATTERS.................................................................16
VOTE REQUIRED.................................................................16
STOCKHOLDER PROPOSALS.........................................................16
EXPENSES OF SOLICITATION......................................................16
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<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth, as of April 21, 1998, the names of all
persons who were known by the Company to be the beneficial owners (as defined in
the rules of the Securities and Exchange Commission (the "Commission")), of more
than five percent of the shares of Common Stock of the Company:
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership(1) Class(1)
- ------------------------------------ ----------------------- ----------
FMR Corp. 988,750(2) [20.98%]
82 Devonshire Street
Boston, Massachusetts 02109
Joseph L. Castle II and Sally W. Castle 548,008(3) [11.55%]
One Radnor Corporate Center, Suite 250
100 Matsonford Road
Radnor, Pennsylvania 19087
Corbyn Investment Management, Inc. 684,792(4) [14.53%]
Suite 108
2330 W. Joppa Road
Lutherville, Maryland 21093
- ---------------
(1) Based on a total of [4,713,546] shares of Common Stock issued and
outstanding as of April 21, 1998. In calculating each respective holder's
percentage ownership and beneficial ownership in the table above, shares
of Common Stock which the holder has the right to acquire within 60 days
are included.
(2) These shares are beneficially owned by Fidelity Management & Research
Company as a result of its serving as investment adviser to various
investment companies registered under Section 8 of the Investment Company
Act of 1940 and as investment adviser to certain other funds which are
generally offered to limited groups of investors. Based on information
furnished by stockholder as of September 30, 1997, the most recent date as
of which such information was so furnished.
(3) Joseph L. Castle II and Sally W. Castle are husband and wife. As such,
each is deemed to beneficially own 548,008 shares of Common Stock.
Includes (a) 478,233 shares of Common Stock owned by Mr. Castle and 37,275
shares of Common Stock owned by Mrs. Castle and (b) 32,500 shares of
Common Stock issuable upon exercise of options which are exercisable
within 60 days by Mr. Castle at $12.25 per share.
(4) These shares are beneficially owned by a group consisting of Corbyn
Investment Management, Inc., an investment adviser registered under the
Investment Advisers Act of 1940 and Greenspring Fund, Inc., an investment
company registered under the Investment Company Act of 1940 and for which
Corbyn Investment Management, Inc. serves as investment adviser. Based
upon information furnished by stockholder as of May 31, 1997.
-3-
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of April 21, 1998, the shares of Common
Stock beneficially owned by each current and former executive officer named in
the Summary of Compensation Table below (the "Named Executives"), by each
director of the Company and by the directors and executive officers of the
Company as a group, with sole voting and investment power unless otherwise
indicated:
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership (1) Class (1)(2)
- ------------------------------------------------------------- ------------------------ -------------
<S> <C> <C>
Joseph L. Castle II.......................................... 548,008(3) [11.55%]
Richard E. Staedtler......................................... 75,050(4) [ 1.57%]
Timothy M. Murin............................................. 5,225(5) -
Ryk J. Holden................................................ - -
Martin R. Hoffmann........................................... 17,000(6) -
Sidney F. Wentz.............................................. 15,000(7) -
John P. Keller............................................... 12,000(8) -
All directors and executive officers
as a group (6 persons)....................................... 672,283 [13.82%]
</TABLE>
- -------------
(1) Based on a total of [4,713,546] shares of Common Stock issued and
outstanding as of April 21, 1998. In calculating each respective holder's
percentage ownership and beneficial ownership in the table above, shares
of Common Stock which the holder has the right to acquire within 60 days
are included.
(2) Percentages of less than one percent are omitted.
(3) Joseph L. Castle II and Sally W. Castle are husband and wife. As such,
each is deemed to beneficially own 548,008 shares of Common Stock.
Includes (a) 478,233 shares of Common Stock owned by Mr. Castle and 37,275
shares of Common Stock owned by Mrs. Castle and (b) 32,500 shares of
Common Stock issuable upon exercise of options which are exercisable
within 60 days by Mr. Castle at $12.25 per share.
(4) Represents 50 shares of Common Stock owned by Mr. Staedtler, 50,000 shares
of Common Stock issuable upon exercise of options which are exercisable
within 60 days at $13.125 per share and 25,000 shares of Common Stock
issuable upon exercise of options which are exercisable within 60 days at
$10.25 per share.
(5) Represents 2,725 shares of Common Stock owned by Mr. Murin and 2,500
shares of Common Stock issuable upon exercise of options which are
exercisable within 60 days at $10.25 per share.
(6) Represents 2,000 shares of Common Stock owned by an individual retirement
account for the benefit of Mr. Hoffmann, 5,000 shares of Common Stock
issuable upon exercise of options which are exercisable within 60 days at
$11.25 per share, 5,000 shares of Common Stock issuable upon exercise of
options which are exercisable within 60 days at $11.125 per share and
5,000 shares of Common Stock issuable upon exercise of options which are
exercisable within 60 days at $11.375 per share.
(7) Represents 5,000 shares of Common Stock issuable upon exercise of options
which are exercisable within 60 days at $11.25 per share, 5,000 shares of
Common Stock issuable upon exercise of options which are exercisable
within 60 days at $11.125 per share, 5,000 shares of Common Stock issuable
upon exercise of options which are exercisable within 60 days at $11.375
per share.
(8) Represents 2,000 shares of Common Stock owned by Mr. Keller and 10,000
shares of Common Stock issuable upon exercise of options which are
exercisable within 60 days at $11.375 per share.
-4-
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors and executive officers of the Company and its significant
subsidiaries are as follows:
<TABLE>
<CAPTION>
Name
----
Directors and Executive Officers of
the Company Age Position(s)
- ------------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Joseph L. Castle II .................... 65 Chairman of the Board and Chief Executive Officer of the
Company
Sidney F. Wentz......................... 66 Director
Martin R. Hoffmann...................... 66 Director
John P. Keller.......................... 58 Director
Richard E. Staedtler.................... 53 Director, Chief Financial Officer and Chief Accounting
Officer
Executive Officer of Significant
Subsidiaries of the Company
- --------------------------------
Timothy M. Murin........................ 42 President of Castle Exploration Company, Inc ("CECI"),
and Castle Texas Production L.P. ("CTPLP"), wholly-
owned subsidiaries of the Company
</TABLE>
A description of the business experience of each of the directors and
executive officers of the Company and the executive officer of significant
subsidiaries of the Company is as follows:
Directors and Executive Officers of the Company
Joseph L. Castle II has been a Director of the Company since 1985. Mr.
Castle is the Chairman of the Board of Directors and Chief Executive Officer of
the Company, having served as Chairman from December 1985 through May 1992 and
since December 20, 1993. Mr. Castle also served as President of the Company from
December 1985 through December 20, 1993 when he reassumed his position as
Chairman of the Board. Previously, Mr. Castle was Vice President of Philadelphia
National Bank, a corporate finance partner at Butcher and Sherrerd, an
investment banking firm, and a Trustee of The Reading Company. Mr. Castle has
worked in the energy industry in various capacities since 1971. Mr. Castle is a
director of Comcast Corporation, Mark Centers Trust, a real estate investment
trust, and Charming Shoppes, Inc.
Sidney F. Wentz has been a director of the Company since June 1995. Mr
Wentz has been Chairman of the Board of The Robert Wood Johnson Foundation, the
nation's largest health care philanthropy, since June 1989. Commencing in 1967,
he held several positions with Crum and Forster, an insurance holding company,
retiring as Chairman and Chief Executive Officer in 1988. Previously, he was an
attorney with the law firm of White & Case and then Corporate Attorney for
Western Electric Company/AT&T. Mr. Wentz is a director of Ace Limited, a
Bermuda-based insurance company, and a trustee of Drew University.
Martin R. Hoffmann has been a director of the Company since June 1995. Mr.
Hoffmann is of counsel to the Washington, D.C. office of the law firm of
Skadden, Arps, Slate, Meagher & Flom LLP. He has been a Senior Visiting Fellow
at the Center for Technology, Policy and Industrial Development of the
Massachusetts Institute of Technology since 1993 and a private business
consultant since 1993. From 1989 to 1993, Mr. Hoffmann served as Vice President
and General Counsel of Digital Equipment Corporation. Prior to assuming this
position, Mr. Hoffmann practiced law as Managing Partner of the Washington, D.C.
office of Gardner, Carton and Douglas from 1977 to 1989. Mr. Hoffmann also
served in various capacities at the United States Department of Defense,
including General Counsel
-5-
<PAGE>
from 1974 to 1975 and Secretary of the Army from 1975 to 1977. He is a Director
of Seachange International, Inc. of Maynard, Massachusetts and Mitretek Systems
of McLean, Virginia.
John P. Keller has been a director of the Company since April 1997. Since
1972, Mr. Keller has served as the President of Keller Group, Inc., a
privately-held corporation with subsidiaries in Ohio, Pennsylvania and Virginia.
In 1993 and 1994 Mr. Keller also served as the Chairman of American Appraisal
Associates, an appraisal company. Mr. Keller is also a director of A.M. Castle &
Co. and Old Kent Financial Corporation.
Richard E. Staedtler has been a director of the Company since May 1997 and
has been Senior Vice President and Chief Financial Officer of the Company since
November 1994. Mr. Staedtler served as a director of the Company from 1986
through September 1992, and as Chief Financial Officer of the Company from 1984
through June 1993, when he formed Terrapin Resources, Inc. ("Terrapin") to
purchase Minden Energy Corporation, then a wholly-owned subsidiary of the
Company. Mr. Staedtler also serves as President of Terrapin, which provides
certain administrative services to the Company. See "Certain Relationships and
Related Transactions."
Executive Officer of Significant Subsidiaries of the Company
Timothy M. Murin has been the President of CECI since June 1993. From
August 1986 to June 1993, Mr. Murin served as the Vice President - Exploration
and Production of CECI. From August 3, 1993 until January 1997 and from May 1997
to the present, Mr. Murin has been President of CTPLP.
-6-
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation
The following table summarizes all compensation earned by the Company's
Chief Executive Officer and each of the other executive officers as of September
30, 1997 and one former executive officer whose total annual salary and bonus
exceeded $100,000 for the fiscal year ended September 30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Securities
Fiscal Year Annual Compensation Underlying All Other
Ended ------------------------ Options/ Compensation
Name and Principal Position September 30, Salary($) Bonus($) SARs(#) ($)
- ----------------------------- ------------- --------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Joseph L. Castle II.............. 1997 $356,250 $800,000(4) $6,868(1)
Chairman of the Board, 1996 356,250 7,125(1)
Chief Executive Officer and 1995 415,625 59,375 4,015(1)
Director of the Company
Richard E. Staedtler............. 1997 200,833 25,000 25,000 6,213(1)
Director of the Company 1996 192,500 25,000 3,000(1)
Chief Financial Officer 1995 157,084 50,000
Chief Accounting Officer
Timothy M. Murin................. 1997 95,413 25,000 2,500 2,684(1)
President of CECI and 1996 90,656 7,500 591(1)
CTPLP 1995 84,150 10,000
Ryk J. Holden(2)................. 1997 103,135 7,500 165,000(3)
Former President of 1996 157,534 5,000
Marketing(2) 1995 103,135 25,000
</TABLE>
- ---------------------
(1) Represents Company matching contributions under the Company's 401(k) Plan.
(2) Resigned as President of Marketing in January 1997.
(3) Severance payment.
(4) $625,000 was paid in fiscal 1997.
-7-
<PAGE>
Option Grants in Last Fiscal Year (Year Ended September 30, 1996)
The following options were granted to the Named Executive Officers during
the fiscal year ended September 30, 1997.
OPTION/SAR GRANTS IN FISCAL YEAR ENDED SEPTEMBER 30, 1997
Individual Grants
<TABLE>
<CAPTION>
Potential Realizable
Number Percent of Total Value at Assumed
of Securities Options/SARs Annual Rates of Stock Price
Underlying Granted Appreciation for Option Term
Options/SARs to Employees Exercise ------------------------------
Name Granted (#) In Fiscal Year Price ($/sh) Expiration Date 5% 10%
- ---------------------- ---------------- ---------------- ------------- ------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph L. Castle......
Richard E. Staedtler.. 25,000 53.19% $10.25 December 19, 2006 $161,154 $408,396
Timothy M. Murin...... 2,500 5.32% $10.25 December 19, 2006 $ 16,115 $ 40,840
Ryk J. Holden.........
</TABLE>
Option/SAR Exercises And Option/SAR Values
The following table shows number of shares acquired upon exercise of
options by the Named Executives during the fiscal year ended September 30, 1997,
the aggregate value realized upon such exercise and the total number of
unexercised options held at September 30, 1997 by the Named Executives. The
table also shows the values for unexercised "in-the-money" options which
represent the positive spread between the exercise price of such stock options
and the fair market value of the shares of Common Stock as of September 30,
1997, which was $14.25 per share. No SAR's were outstanding at September 30,
1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options at Options at
Fiscal Year-End Fiscal Year-End
(September 30, 1997) (September 30, 1997)
Shares Value (#) ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- -------------------------- -------------- -------- --------------- --------------
<S> <C> <C> <C> <C>
Joseph L. Castle II....... 67,500 $362,813 32,500/- $ 65,000/-
Richard E. Staedtler...... - - 62,500/12,500 142,188/14,063
Timothy M. Murin.......... 2,500 13,438 2,500/- 10,000/-
Ryk J. Holden............. 25,000 41,594 -/- -/-
</TABLE>
-8-
<PAGE>
Employment Agreements
Under the terms of his deferred compensation/retirement agreement, Mr.
Joseph L. Castle II, Chairman and Chief Executive Officer, was entitled to an
$848,000 benefit at September 30, 1996. In June 1997, the Compensation Committee
changed the compensation base upon which the $848,000 benefit was computed,
resulting in an increase in such benefit by $157,000 to $1,005,000 as of
September 30, 1997. In October 1997, the Company paid Mr. Castle $285,456. The
Company anticipates paying the remaining $719,544 over the next two fiscal
years.
Severance Agreements
The Company entered into severance agreements with Messrs. Castle,
Staedtler and Murin in June 1996 during the period when the Company sought to
sell its assets to outside parties. Pursuant to the terms of the severance
agreements, each officer is entitled to severance compensation in the event the
Company sells substantially all of its assets and the purchaser does not retain
such Named Executive Officer. Severance compensation under such circumstances is
equal to one-month's salary for each full year of service with the Company
and/or its subsidiaries. In addition, the severance agreements include a
retention provision whereby such Named Executive Officers will receive such
severance compensation if they remain with the Company through June 1, 1998 -
whether or not they are subsequently terminated.
Section 16(a) Compliance and Beneficial Ownership Reporting
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers, directors and owners of more
than 10% of any class of the Company's securities registered pursuant to Section
12 of the Exchange Act to file reports of ownership and changes in ownership
with the Commission. The Commission's rules also require such persons to furnish
the Company with a copy of all Section 16(a) reports that they file.
Based solely on a review of the copies of the reports which the Company
received and written representations from certain persons, the Company believes
that, except as set forth below, all such reporting persons complied with such
requirements:
Timothy M. Murin, in his capacity as President of CECI and CTPLP, is
considered an officer of the Company. Mr. Murin was approximately two weeks late
in filing a Form 4 in June 1997 with respect to one transaction in May 1997.
Compensation Committee Interlocks and Insider Participation
From January 1996 until April 23, 1997, the Compensation Committee
consisted of Sidney F. Wentz, Chairman, Martin R. Hoffmann and William S.
Sudhaus. In January 1996, Mr. Sudhaus resigned as an Executive Officer of the
Company and several of its subsidiaries but continued as a director of the
Company until April 23, 1997. From April 23, 1997 until the present, the
Compensation Committee consisted of Mr. Wentz, Chairman, Mr. Hoffmann and Mr.
John P. Keller.
Board Compensation Committee Report on Executive Compensation
Overall Policy. This report is provided by the Compensation Committee to
assist stockholders in understanding the Compensation Committee's objectives and
procedures in establishing the compensation of the Company's Chief Executive
Officer and other executive officers.
The Company's executive compensation programs are designed to retain and
reward executives who are successful in helping the Company achieve its business
objectives. The key components of the executive compensation program are base
salary, annual incentive awards and equity participation. These components are
administered with the goal of providing total compensation that is competitive
with compensation levels in the external marketplace. The program also
recognized meaningful differences in individual performance. Each year the
Compensation Committee
-9-
<PAGE>
reviews the elements of executive compensation to insure that the total
compensation program, and each of its elements, meet the overall objectives
discussed above.
Base Salary. Executive officers' salaries (and salary increases, which are
reviewed annually) are determined on a subjective basis with consideration given
to the level of job responsibility, the competitiveness of the executives'
salaries to the external marketplace and the degree to which the executive's
individual objectives have been achieved. Individual objectives vary by business
unit and strategic business goals. These factors are not considered on any
formula basis.
Bonus Program. Bonus payments are subjectively determined and are designed
to reward and encourage individual excellence. In determining whether to award a
discretionary bonus, the Compensation Committee considers the individual's
special achievements, such as his contribution to actions taken during the past
year that contribute to the strategic growth, profitability and competitiveness
of the Company. Bonus payments tend to reflect results of the most recent fiscal
year and thus emphasize achievement of short-term business plans. In addition,
special bonuses are considered for exceptional efforts made during the year in
connection with a particular transaction or business situation.
Equity Participation. The Compensation Committee believes that it is in
the Company's best interests to grant stock options to executive officers in
order to align the interests of those executive officers with the stockholders
and to maximize long-term stockholder value. The purpose of the Company's 1992
Executive Equity Incentive Plan (the "Incentive Plan"), approved by the
stockholders of the Company in May 1993, is to increase the ownership of Common
Stock of the Company by those key employees who contribute to the continued
growth, development and financial success of the Company and its subsidiaries
and to attract and retain key employees and reward them for the Company's
profitable performance. The Incentive Plan is administered by the Compensation
Committee.
Actual individual awards are subjectively determined based on marketplace
competitive practices and on such factors as the recipient's position, annual
salary and individual and Company performance as well as historical equity
grants and ownership positions. The Compensation Committee believes that equity
participation helps create a long-term partnership between management/owners and
other stockholders. The policy of granting stock options and encouraging stock
ownership has played a strong part in retaining an excellent team of executives
and managers.
Compensation of the Chief Executive Officer. The Compensation Committee
considers the same factors described above in determining the salary of Mr.
Castle, the Chairman and Chief Executive Officer of the Company. Mr. Castle's
salary earned in fiscal 1997 was $356,250 - the same as for fiscal 1996.
Mr. Castle was not awarded any stock options in fiscal 1997. Mr. Castle
was granted an $800,000 bonus for his role in selling the Company's Rusk County
oil and gas properties and pipeline to Union Pacific Resources Company on May
30, 1997, of which $625,000 was paid in fiscal 1997. The Company realized a
$19,667,000 gain on the sale. Stock option and bonus information with respect to
executive officers, including Mr. Castle, is reflected in the tables included in
this proxy statement.
In addition to the foregoing, the Company's Chief Executive Officer was
due $1,005,000 at September 30, 1997 under his deferred compensation/retirement
plan (see "Severance Agreements").
Tax Deductibility of Executive Compensation. The Omnibus Budget
Reconciliation Act (OBRA) of 1993 added Section 162(m) to the Internal Revenue
Code. This section eliminates a company's tax deduction for any compensation
over one million dollars paid to any one of the Named Executive Officers,
subject to several statutory exceptions. The Company desires to preserve the tax
deductibility of all compensation paid to its executive officers and other
members of management. The Company and its subsidiaries did not pay any of the
Named Executive Officers over one million dollars in fiscal 1997.
Compensation Committee:
Martin R. Hoffmann
John P. Keller
Sidney F. Wentz (Chairman)
-10-
<PAGE>
Performance Graph
The following performance graph sets forth a comparison of cumulative
total return since September 30, 1992 among the Company, the NASDAQ stock market
(Market Index for U.S. Companies only) and upon a peer group of natural gas
marketing and transmission companies whose operations are comparable to the
Company's continuing operations.
The Company is currently engaged in two segments of the petroleum
industry, natural gas marketing and exploration and production. The dominant
segment is natural gas marketing which accounted for approximately 90% of
consolidated revenues for the fiscal year ended September 30, 1997.
-11-
<PAGE>
Performance Graph
Comparison of Five Year-Cumulative Total Returns(1)
Among the Company, the NASDAQ Stock Market
(U.S. Companies Only) and the Company's Natural
Gas Marketing Peer Group(2)
Prepared by the Center for Research in Security Prices
Produced on 12/15/97 including data to 09/30/97
Company Index: CUSIP Ticker Class Sic Exchange
14844930 CECX 1310 NASDAQ
Fiscal Year-end is 09/30/97
Market Index: Nasdaq Stock Market (US Companies)
Peer Index: Companies in Self-Determined group: 8
AQP AQUILA GAS PIPELINE CORP
KNE K N ENERGY INC
MND A MITCHELL ENERGY & DEV CORP
NGL N G C CORP
MND B MITCHELL ENERGY & DEV CORP
TEJ TEJAS GAS CORP DEL
WGR WESTERN GAS RESOURCES INC
WMB WILLIAMS COS
Date Company Index Market Index Peer Index
09/30/92 100.000 100.000 100.000
10/30/92 91.667 103.939 103.064
11/30/92 87.500 112.210 100.979
12/31/92 137.500 116.341 100.562
01/29/93 179.167 119.653 104.090
02/26/93 183.333 115.189 114.154
03/31/93 237.500 118.523 128.657
04/30/93 195.833 113.465 125.765
05/28/93 250.000 120.243 135.578
06/30/93 241.667 120.799 149.436
07/30/93 225.000 120.941 150.944
08/31/93 308.333 127.192 167.161
09/30/93 258.333 130.981 170.218
10/29/93 383.334 133.925 157.615
11/30/93 295.833 129.932 140.402
12/31/93 212.500 133.555 137.303
01/31/94 170.833 137.609 143.058
02/28/94 141.667 136.324 134.050
03/31/94 172.917 127.941 127.348
04/29/94 183.333 126.281 132.417
05/31/94 208.333 126.589 138.781
06/30/94 241.667 121.960 138.492
07/29/94 210.417 124.461 145.642
08/31/94 295.833 132.396 144.067
09/30/94 266.667 132.057 138.369
10/31/94 250.000 134.653 133.644
11/30/94 212.500 130.186 128.715
<PAGE>
12/30/94 191.667 130.551 125.449
01/31/95 195.833 131.283 124.055
02/28/95 166.667 138.226 128.230
03/31/95 135.417 142.325 133.153
04/28/95 141.667 146.806 140.500
05/31/95 146.875 150.594 141.918
06/30/95 172.917 162.798 145.119
07/31/95 160.417 174.765 148.198
08/31/95 145.833 178.307 149.377
09/29/95 158.333 182.407 154.973
10/31/95 118.750 181.362 150.120
11/30/95 135.417 185.620 161.524
12/29/95 148.698 184.633 168.048
01/31/96 129.167 185.543 173.679
02/29/96 131.250 192.605 176.602
03/29/96 154.167 193.244 188.469
04/30/96 200.000 209.276 194.649
05/31/96 179.167 218.886 198.580
06/28/96 170.834 209.018 196.690
07/31/96 170.834 190.402 187.998
08/30/96 155.208 201.070 197.048
09/30/96 143.750 216.450 203.467
10/31/96 139.583 214.058 215.864
11/29/96 157.292 227.292 237.438
12/31/96 179.167 227.088 244.844
01/31/97 195.833 243.228 246.042
02/28/97 170.833 229.782 249.416
03/31/97 183.333 214.780 241.075
04/30/97 180.208 221.496 239.845
05/30/97 212.500 246.610 252.110
06/30/97 222.917 254.152 240.035
07/31/97 214.840 280.979 250.920
08/29/97 235.902 280.550 255.776
09/30/97 240.115 297.140 272.786
The index level for all series was set to 100.0 on 09/30/92
- --------------
(1) Assumes $100 invested on September 30, 1992 in the Company's Common Stock,
the Nasdaq Stock Market (Market Index for U.S. Companies only) and the
Peer Group (as hereinafter defined).
(2) The Peer Group selected by the Company is comprised of the following
companies, all of which are involved in natural gas marketing: Mitchell
Energy & Development Corp., Texas Gas Corp. Development, Western Gas
Resources Inc., NGC Corp., Aquila Gas Pipeline Corp., the Williams
Companies and KN Energy, Inc. In 1996 the Peer Group selected by the
Company consisted of Mitchell Energy & Development Corp., Noram Energy
Corp., Texas Gas Corp. Development, Western Gas Resources Inc., NGC Corp.,
Panhandle Eastern Corp. and Texas Power Corp. The changes in the Peer
Group result from the fact that the stock of three companies in the
September 30, 1996 Peer Group are no longer traded and replacement
companies were accordingly selected by the Company.
-12-
<PAGE>
BOARD OF DIRECTORS AND BOARD COMMITTEES
Fiscal 1997 Board Meetings
The Board of Directors of the Company held nine meetings during the fiscal
year ended September 30, 1997. During such fiscal year, each of the incumbent
directors attended not less than 75% of the total number of meetings of the
Board of Directors and of the Committees of the Board of Directors on which such
director served.
Board Committees
The Audit Committee consisted of Mr. Hoffmann (Chairman), Mr. Wentz and
Mr. Sudhaus from October 1, 1996 to April 23, 1997 and consisted of Mr.
Hoffmann, Mr. Wentz and Mr. Keller thereafter. All four Audit Committee
members were outside directors although Mr. Sudhaus was an executive officer of
the Company and several of its subsidiaries until January 1996 when he resigned
from such positions while remaining a director. The functions of the Audit
Committee are to: (a) recommend the appointment of the Company's independent
public accountants; (b) review the financial reports of the Company; (c) monitor
the effectiveness of the independent audit; (d) assure that the scope and
implementation of the independent audit is not restricted or the independence of
the independent accountants compromised; (e) review the independent accountants'
reports to management on internal controls and recommend such actions as may be
appropriate; and (f) review and approve the engagement by management of all
non-audit and special services involving in the aggregate, fees to the Company's
independent accountants in excess of $15,000 per year. The Audit Committee held
one meeting during the fiscal year ended September 30, 1997.
The Company has not established a nominating committee.
The Compensation Committee consisted of Mr. Wentz (Chairman), Mr. Hoffmann
and Mr. Sudhaus from October 1, 1996 to April 23, 1997 and consisted of Mr.
Hoffmann, Mr. Wentz and Mr. Keller thereafter. All four Compensation
Committee members were outside directors although Mr. Sudhaus was an executive
officer of the Company and several of its subsidiaries until January 1996 when
he resigned from such positions while remaining a director. The Compensation
Committee establishes overall compensation programs and policies for the
Company. The Compensation Committee monitors the selection and performance, as
well as reviews and approves the compensation of key executives, and
administers the Incentive Plan. The Compensation Committee held two meetings
during the fiscal year ended September 30, 1997.
Compensation of Directors
All of the outside directors are paid director's fees of $32,000 per year.
In addition, all outside directors received fees for attending meetings of the
board of directors. The fee per meeting is $1,500. Committee members also
received a $500 fee for attending each committee meeting.
In addition, each outside director is granted an option to purchase 5,000
shares of Common Stock each calendar year under the Company's 1992 Executive
Equity Incentive Plan. The option is granted on the first business day of each
year. The exercise price for such options is the closing price of the Company's
stock on the date of grant. In January 1998, the Company issued to each of
Messrs. Hoffmann, Wentz and Keller options to purchase 5,000 shares of Common
Stock at $13.50 per share. The options expire in ten years. In addition, 20,000
non-plan options were granted to outside directors on April 23, 1997. These
options enable the holder to purchase shares of Common Stock at $11.38 per
share, the closing on the date of issuance, and they expire in ten years. Of the
20,000 non-plan options, Mr. Keller was granted 10,000 and Messrs. Wentz and
Hoffmann were each granted 5,000.
-13-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Management Fees
On March 31, 1993, the Company entered into an agreement to sell to
Terrapin its oil and gas partnership management businesses for $1,100,000
($800,000 note bearing interest at 8% per annum and $300,000 cash) which
approximated the market value of its partnership interests. The closing of the
stock purchase transaction occurred on June 30, 1993. Terrapin is wholly-owned
by Richard Staedtler. Mr. Staedtler was an executive officer of the Company from
September 1983 until June 1993. Mr. Staedtler left the Company in June of 1993
and rejoined the Company in November of 1994 as an executive officer and became
a director in May 1997. The $800,000 note was repaid in December 1994.
In conjunction with the sale of its partnership management business,
the Company and one of its subsidiaries entered into two management agreements
with Terrapin to manage the Company's exploration and production operations. In
May 1996, the second management agreement was expanded to include corporate
accounting functions. Management fees incurred to Terrapin for the year ended
September 30, 1997 aggregated $561,000.
In June 1997, the Company purchased one of the Terrapin management
agreements for $692,000 in conjunction with the sale of the Company's Rusk
County, Texas oil and gas properties to Union Pacific Resources Company. The
remaining contract with Terrapin runs month to month.
In September 1997, Terrapin granted the Company an option to acquire
its employees and computer equipment. The option price is one dollar plus
assumption of Terrapin's office and equipment rentals and employee obligations.
PROPOSAL TO ELECT DIRECTORS
At the Annual Meeting, the Stockholders will be asked to elect two
directors, constituting one class of directors, to serve for the term indicated
and until such directors' successors are elected and qualified. In the
unanticipated event that either or both nominees for director become
unavailable, it is intended that the proxies will be voted for such substitute
nominee(s) as may be designated by the Board of Directors.
The Company's Bylaws, as amended, provide that the number of directors
of the Company shall be not less than four, nor more than nine, as shall be
determined by the Board of Directors. Both the Bylaws and the Company's
Certificate of Incorporation also provide that the directors shall be divided
into three classes, each class to consist, as nearly as possible, of one third
of the number of directors to constitute the entire Board. At each annual
meeting of stockholders of the Company, successors to the class of directors
whose term expires at such meeting shall then be elected for a three-year term.
The Bylaws further provide that if the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible.
The shares represented by the enclosed Proxy will be voted as directed.
If no choice is specified in the Proxy, the shares represented by the enclosed
Proxy will be voted "For" the nominees set forth below. The Board of Directors
recommends voting "FOR" the nominees to serve in the class indicated.
Information concerning the nominees for the class of directors to be
elected, as well as those continuing directors not standing for election at the
Annual Meeting, is set forth below:
The following individuals are nominated to serve as directors in the
class whose term will expire at the Annual Meeting in the year 2001:
-14-
<PAGE>
Joseph L. Castle II has been a Director of the Company since 1985. Mr.
Castle is the Chairman of the Board of Directors and Chief Executive Officer of
the Company, having served as Chairman from December 1985 through May 1992 and
since December 20, 1993. Mr. Castle also served as President of the Company from
December 1985 through December 20, 1993 when he reassumed his position as
Chairman of the Board. Previously, Mr. Castle was Vice President of Philadelphia
National Bank, a corporate finance partner at Butcher and Sherrerd, an
investment banking firm, and Trustee of the Reading Company. Mr. Castle has
worked in the energy industry in various capacities since 1971. Mr. Castle is a
director of Comcast Corporation and Mark Centers Trust, a real estate investment
trust and Chairman of the Board of Charming Shoppes, Inc.
Sidney F. Wentz has been Chairman of the Board of The Robert Wood
Johnson Foundation, the nation's largest health care philanthropy, since June
1989. Commencing in 1967, he held several positions with Crum and Forster, an
insurance holding company, retiring as Chairman and Chief Executive Officer in
1988. Previously, he was an attorney with the law firm of White & Case and then
Corporate Attorney for Western Electric Company/AT&T. Mr. Wentz is a director of
Ace Limited, a Bermuda-based insurance company, and a trustee of Drew
University.
The following individual is a director whose term will expire at the
1999 Annual Meeting.
Martin R. Hoffmann is of counsel to the Washington, D.C. office of the
law firm of Skadden, Arps, Slate, Meagher & Flom LLP. He has been a Senior
Visiting Fellow at the Center for Technology, Policy and Industrial Development
of the Massachusetts Institute of Technology since 1993 and a private business
consultant since 1993. From 1989 to 1993, Mr. Hoffmann served as Vice President
and General Counsel of Digital Equipment Corporation. Prior to assuming this
position, Mr. Hoffmann practiced law as Managing Partner of the Washington, D.C.
office of Gardner, Carton and Douglas from 1977 to 1989. Mr. Hoffmann also
served in various capacities at the United States Department of Defense,
including General Counsel from 1974 to 1975 and Secretary of the Army from 1975
to 1977. He is a director of Seachange International, Inc. of Maynard,
Massachusetts and Mitretek Systems of McLean, Virginia.
The following individuals are directors whose term will expire at the
2000 Annual Meeting:
John P. Keller has been a director of the Company since April 1997. Since
1972, Mr. Keller has served as the President of Keller Group, Inc., a
privately-held corporation with subsidiaries in Ohio, Pennsylvania and Virginia.
In 1993 and 1994 Mr. Keller also served as the Chairman of American Appraisal
Associates, an appraisal company. Mr. Keller is also a director of A.M. Castle &
Co. and Old Kent Financial Corporation.
Richard E. Staedtler has been a director of the Company since May 1997
and has been Senior Vice President and Chief Financial Officer of the Company
since November 1994. Mr. Staedtler served as a Director of the Company from 1986
through September 1992, and as Chief Financial Officer of the Company from 1984
through June 1993, when he formed Terrapin Resources, Inc. ("Terrapin") to
purchase Minden Energy Corporation, then a wholly-owned subsidiary of the
Company. Mr. Staedtler also serves as President of Terrapin, which provides
certain administrative services to the Company. See "Certain Relationships and
Related Transactions".
PROPOSAL TO REAPPOINT INDEPENDENT ACCOUNTANTS
The Board of Directors has selected the accounting firm of KPMG Peat
Marwick LLP ("KPMG") to be the Company's independent accountants to audit the
books and records of the Company and its subsidiaries for the fiscal year ending
September 30, 1998. The firm has no material relationship with the Company and
is considered well qualified. Should the stockholders of the Company not ratify
the selection of KPMG or should the fees proposed by KPMG become excessive or
the services provided by KPMG become unsatisfactory, the selection of another
firm of independent certified public accountants will be undertaken by the Board
of Directors.
The Company's independent accountants for the fiscal year ended
September 30, 1996 were the firm of Price Waterhouse LLP ("Price Waterhouse").
Price Waterhouse resigned as the Company's independent accountants on February
11, 1997. The reports of Price Waterhouse on the financial statements for the
past two fiscal years contained no adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or
-15-
<PAGE>
accounting principle. In connection with its audits for the two most recent
fiscal years and through February 11, 1997, there have been no disagreements
with Price Waterhouse on any matter of accounting practices, financial statement
disclosures, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Price Waterhouse would have caused them to make reference
thereto in their reports on the financial statements for such years. Price
Waterhouse has furnished the Company with a letter stating that it agrees with
the above statements in this paragraph.
Representatives of KPMG are expected to be present at the Annual
Meeting, and will have an opportunity to make a statement if they desire to do
so and are expected to be available to respond to appropriate questions.
The shares represented by the enclosed Proxy will be voted as directed.
If no choice is specified in the Proxy, the shares represented by the enclosed
Proxy will be voted "FOR" the selection of KPMG as the Company's independent
accountants. The Board of Directors recommends a vote "FOR" the proposal to
ratify the selection of KPMG as the Company's independent accountants.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the Annual Meeting. Should any other matter be properly raised at the Annual
Meeting, however, it is the intention of each of the persons named in the Proxy
to vote in accordance with his judgment as to each such matter raised.
VOTE REQUIRED
The two nominees within the class of directors for election to the
Board of Directors of the Annual Meeting who receive the greatest number of
votes for director, a quorum being present, shall become the directors for such
class. Abstentions and broker non-votes will not be tabulated as negative votes
with respect to any matter presented at the Annual Meeting, but will be included
in computing the number of shares of Common Stock present for purposes of
determining the presence of a quorum for the Annual Meeting.
STOCKHOLDER PROPOSALS
Any proposals of stockholders which are intended to be presented at the
1999 Annual Meeting of Stockholders must be received by the Secretary of the
Company by December 31, 1997 for consideration for inclusion in the Proxy
Statement.
EXPENSES OF SOLICITATION
The cost of this solicitation of proxies will be borne by the Company.
Solicitation will be made initially by mail. The directors and officers and
other employees of the Company may, without compensation other than their usual
compensation, solicit proxies by mail, telephone, telegraph or personal
interview. The Company will also reimburse brokerage firms, banks, voting
trustees, nominees and other recordholders for their reasonable out-of-pocket
expenses in forwarding proxy materials to the beneficial owners of Common Stock.
BY ORDER OF THE BOARD OF DIRECTORS
/s/JOSEPH L. CASTLE II
JOSEPH L. CASTLE II
Chairman and Chief Executive Officer
Radnor, Pennsylvania
April 30, 1998
-16-
<PAGE>
CASTLE ENERGY CORPORATION
ANNUAL MEETING OF STOCKHOLDERS - JUNE 18, 1998
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned Stockholder of Castle Energy Corporation, a Delaware
corporation (the "Company"), hereby appoints Joseph L. Castle and Richard E.
Staedtler, and each of them, attorneys and proxies, with full power of
substitution, to vote at the Annual Meeting of the Stockholders of Castle Energy
Corporation to be held on Thursday, June 18, 1998 at 9:30 a.m., Eastern Daylight
Time, at The Radnor Hotel, 591 E. Lancaster Avenue, St. Davids, Pennsylvania,
and at any adjournment or postponement thereof, in the name of the undersigned
and with the same force and effect as if the undersigned were present and voting
such shares, on the following matters and in the following manner.
[ X ] Please mark your votes as in this example.
1. ELECTION OF DIRECTOR Joseph L. Castle II
TO SERVE UNTIL THE 2001 MEETING Sidney F. Wentz
2. PROPOSAL TO APPOINT KPMG Peat Marwick LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1998.
3. In their discretion, the Proxies are authorized to vote on such other
business as may properly come before the Annual Meeting.
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE DEEMED TO
CONSTITUTE DIRECTION TO VOTE "FOR" THE ABOVE NOMINEE AND PROPOSAL
Place "X" Only in One Box
1. Election of Nominees
For Withhold For All Except
All All As Listed Below
|_| |_| |_|
List Exceptions:
-------------------
-------------------
-------------------
Voting Instructions: Mark your vote
(For, Against, Abstain) IN THE BOX.
For Against Abstain
2. |_| |_| |_|
- ---------------------------------------------
Date
X
- ---------------------------------------------
Signature
X
- ---------------------------------------------
Signature If Held Jointly
