UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 0-220-20
CASTELLE
(Exact name of registrant as specified)
----------------------------
California 77-0164056
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3255-3 Scott Boulevard, Santa Clara, California 95054
(Address of principal executive offices)
Issuer's telephone number, including area code: (408) 496-0474
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares of Common Stock outstanding as of November 1, 1997 was
4,489,432.
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CASTELLE
INDEX
Page No.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
1
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Except for the historical information contained herein, the following contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed here. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in this document, as well as those discussed in the Company's
Form SB-2 filed November 17, 1995, as amended and, Form 10-KSB for the year
ended December 31, 1996 and Form 10-Q for the quarter ended March 28, 1997 and
June 27, 1997.
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CASTELLE
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS September 26, December 31,
1997 1996
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents ............................ $ 6,760 $ 8,161
Accounts receivable, net of allowance for
doubtful accounts of $484 in 1997 and $467 in 1996 ... 5,863 5,783
Inventories .......................................... 3,597 2,841
Prepaid expenses and other current assets ............ 738 626
Deferred income taxes ................................ 1,493 1,439
-------- --------
Total current assets ................................. 18,451 18,850
Property plant and equipment, net .................... 982 593
Other assets, net .................................... 88 84
Deferred income taxes ................................ 2,860 2,860
-------- --------
Total assets ......................................... $ 22,381 $ 22,387
======== ========
LIABILITIES
Current liabilities:
Accounts payable ..................................... $ 2,889 $ 1,862
Accrued liabilities .................................. 3,701 3,825
-------- --------
Total current liabilities ............................ 6,590 5,687
SHAREHOLDERS' EQUITY
Common stock ......................................... 23,819 23,699
Notes receivable
for purchase of common stock ......................... (276) (296)
Accumulated deficit .................................. (7,752) (6,703)
-------- --------
Total shareholders' equity ........................... 15,791 16,700
-------- --------
Total liabilities and shareholders' equity ........... $ 22,381 $ 22,387
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
2
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<TABLE>
<CAPTION>
CASTELLE
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
3 MONTHS ENDED 3 MONTHS ENDED
September 26, 1997 September 27, 1996
(unaudited) (unaudited)
<S> <C> <C>
Net sales .......................................... $ 6,597 $ 8,700
Cost of sales ...................................... 3,396 4,377
------- -------
Gross profit ....................................... 3,201 4,323
------- -------
Operating expenses:
Research and development ........................... 720 749
Sales and marketing ................................ 2,084 2,202
General and administrative ......................... 774 479
Restructuring charge ............................... 1,150 0
------- -------
Total operating expenses ........................... 4,728 3,430
------- -------
Operating income/(loss) .......... ................ (1,527) 893
Interest income, net ............................... 66 82
Other expense , net ................................ (29) (23)
------- -------
Income/(loss) before provision for income taxes .... (1,490) 952
Provision for income taxes ......................... 0 61
------- -------
Net income/(loss) .................................. $(1,490) $ 891
======= =======
Net income/(loss) per share ........................ $ (0.33) $ 0.19
======= =======
Shares used in per share calculation ............... 4,476 4,676
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
3
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<TABLE>
<CAPTION>
CASTELLE
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR-TO-DATE
(in thousands, except per share data)
9 MONTHS ENDED 9 MONTHS ENDED
September 26, 1997 September 27, 1996
(unaudited) (unaudited)
<S> <C> <C>
Net sales .......................................... $ 20,018 $ 24,200
Cost of sales ...................................... 9,192 11,938
------- -------
Gross profit ....................................... 10,826 12,262
------- -------
Operating expenses:
Research and development ........................... 2,414 2,148
Sales and marketing ................................ 6,481 6,161
General and administrative ......................... 1,693 1,350
Restructuring charge ............................... 1,150 0
------- -------
Total operating expenses ........................... 11,738 9,659
------- -------
Operating income/(loss)............................. (912) 2,603
Interest income, net ............................... 225 250
Other expense , net ................................ (68) (89)
------- -------
Income/(loss) before provision for income taxes .... (755) 2,764
Provision for income taxes ......................... 294 287
------- -------
Net income/(loss) .................................. $(1,049) $2,477
======= =======
Net income/(loss) per share ........................ $ (0.24) $ 0.52
======= =======
Shares used in per share calculation ............... 4,454 4,719
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
4
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<TABLE>
<CAPTION>
CASTELLE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
9 MONTHS ENDED 9 MONTHS ENDED
September 26, 1997 September 27, 1996
(unaudited) (unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income/(loss)................................... $(1,049) $ 2,477
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization ...................... 279 257
Write off of other assets and property and equipment 0 11
Provision for doubtful accounts .................... 58 (80)
Provision for excess and obsolete inventory ........ 386 (218)
Provision for income tax ........................... 17 0
Changes in assets and liabilities:
Accounts receivable ................................ (138) (1,002)
Inventories ........................................ (1,142) 461
Prepaid expenses and other assets .................. (183) (655)
Accounts payable ................................... 1,027 (893)
Accrued liabilities and other long-term liabilities. (124) 468
------- -------
Net cash provided/(used) in operating activities ... (869) 826
------- -------
Cash flows from investing activities:
Acquisition of property and equipment .............. (656) (289)
Acquisition of intangible assets ................... (16) (23)
------- -------
Net cash used in investing activities .............. (672) (312)
------- -------
Cash flows from financing activities:
Repayment of notes payable ......................... 0 (241)
Principal payments on capitalized leases ........... 0 (31)
Proceeds from issuance of common stock and warrants 120 975
Proceeds from collection of notes receivable for
Stock ...................... ....................... 20 83
------- -------
Net cash provided by financing activities .......... 140 786
------- -------
Net increase (decrease) in cash and cash equivalents (1,401) 1,300
Cash and cash equivalents at beginning of period ... 8,161 7,406
------- -------
Cash and cash equivalents at end of period ......... $ 6,760 $ 8,706
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
5
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CASTELLE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, and have been
prepared in accordance with generally accepted accounting principles. All
intercompany accounts and transactions have been eliminated. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the Company's financial
position, results of operations and cash flows at the dates and for the
periods indicated have been included. The results of operations for the
interim periods presented are not necessarily indicative of the results for
the year ending December 31, 1997. Because all of the disclosures required
by generally accepted accounting principles are not included in the
accompanying consolidated financial statements, they should be read in
conjunction with the audited consolidated financial statements and related
notes included in the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1996.
2. Net Income Per Share
Net income (loss) per share is based upon the weighted average number of
common and common equivalent shares outstanding. For the three and nine
month periods ended September 26, 1997, common equivalent shares from stock
options and warrants are excluded from the calculations as their effect is
antidilutive.
3. Inventories
Inventories are stated at the lower of standard cost (which approximates
cost on a first-in, first-out basis) or market.
SEPTEMBER 26, DECEMBER 31,
1997 1996
(unaudited)
Raw material $1,432 $ 878
Work in process 452 212
Finished goods 1,713 1,751
------- -------
$3,597 $2,841
======= =======
4. Restructuring
In the current quarter ended September 26, 1997, the Company announced and
began to implement a restructuring plan. The Company recorded a $1,150,000
restructuring charge to account for the estimated costs of implementing and
completing the restructuring plan. These costs consist of $402,000 to exit
from certain lines of business, $343,000 for the relocation of the
Company's European office, $340,000 for estimated employee termination
costs associated with reductions in the workforce, and $65,000 for other
estimated restructuring costs.
5. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share,"
which specifies the computation, presentation and disclosure requirements
for earnings per share. SFAS 128 supersedes Accounting Principles Board
Opinion No. 15 and is effective for financial statements issued for periods
ending after December 15, 1997. SFAS 128 requires restatement of all
prior-period earnings per share data presented after the effective date.
Management does not expect the adoption of SFAS 128 to have a material
impact on the Company's financial position, results of operations or cash
flows.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS130), " Reporting Comprehensive
Income." This statement establishes requirements for disclosure of
comprehensive income and becomes effective for the Company for fiscal years
beginning after December 15, 1997, with reclassification of earlier
financial statements for comparative purposes. Comprehensive income
generally represents all changes in stockholders' equity except those
resulting from investments or contributions by stockholders. The Company is
evaluating alternative formats for presenting this information, but does
not expect this pronouncement to materially impact the Company's results of
operations.
6
<PAGE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS131)," Disclosures about
Segments of an Enterprise and Related Information." This statement
establishes standards for disclosure about operating segments in annual
financial statements and selected information in interim financial reports.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. This statement supersedes
Statement of Financial Accounting Standards No. 14, "Financial Reporting
for Segments of a Business Enterprise." The new standard becomes effective
for fiscal years beginning after December 15, 1997,and requires that
comparative information from earlier years be restated to conform to the
requirements of this standard. The Company is evaluating the requirements
of SFAS 131 and the effects, if any, on the Company's current reporting and
disclosures.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section, as well as those discussed in the
Company's Form SB-2 filed November 17, 1995, as amended and, Form 10-KSB for the
year ended December 31, 1996 and Form 10-Q for the quarters ended March 28, 1997
and June 27, 1997.
Quarterly Results
As a percentage of Net Sales
3 MONTHS ENDED 3 MONTHS ENDED
September 26, September 27,
1997 1996
(unaudited) (unaudited)
Net sales .................. 100 100
Cost of sales .............. 51 50
--- ---
Gross profit ............... 49 50
--- ---
Operating expenses:
Research and development ... 11 9
Sales and marketing ........ 32 25
General and administrative . 12 6
Restructuring charge ....... 17 0
--- ---
Total operating expenses ... 72 40
--- ---
Operating income/(loss) ... (23) 10
Interest income, net ....... 1 1
Other expense, net ......... (1) 0
--- ---
Income/(loss) before
provision for income taxes (23) 11
Provision for income taxes . 0 1
--- ---
Net income/(loss) .......... (23) 10
=== ===
8
<PAGE>
Results as a percentage of Net Revenues
9 MONTHS ENDED 9 MONTHS ENDED
September 26, September 27,
1997 1996
(unaudited) (unaudited)
Net sales .................. 100 100
Cost of sales .............. 46 49
--- ---
Gross profit ............... 54 51
--- ---
Operating expenses:
Research and development ... 12 9
Sales and marketing ........ 32 25
General and administrative . 9 6
Restructuring charge ....... 6 0
--- ---
Total operating expenses ... 59 40
--- ---
Operating income/(loss) ... (5) 11
Interest income, net ....... 1 0
Other expense, net ......... 0 0
--- ---
Income/(loss) before
provision for income taxes (4) 11
Provision for income taxes . (1) (1)
--- ---
Net income/(loss) .......... (5) 10
=== ===
Net Sales
Net sales for the third quarter and first nine months of fiscal 1997 of $6.6
million and $20.0 million, respectively, decreased compared with $8.7 million
and $24.2 million, respectively, for the corresponding periods of fiscal 1996.
The decrease in net sales was a result of lower sales of the Company's
fax-on-demand, print server products and to a lesser extent the Company's fax
server product line. Net sales from the fax-on-demand and print server product
lines declined 63% and 28% for the third quarter and 59% and 23%, respectively,
for the first nine months of 1997 compared with the same periods of the previous
year. Net sales for fax servers decreased 11% in the third quarter and increased
2%, respectively, for the first nine months of 1997 compared to the same periods
in the previous year. Sales of the Company's products outside North America
totaled $3.5 million and $10.3 million or 53% and 52%, respectively, for the
third quarter and first nine months of 1997 of total net sales. Sales of the
Company's products outside North America during the same periods in 1996 was
$4.2 million and $11.8 million, respectively, or 48% and 49% of total net sales.
Gross Profit
Gross profit of 49% for the third quarter of fiscal 1997 decreased compared to
gross profit of 50% for the same period in 1996. The decrease in gross profit is
primarily attributable to a decrease in sales of fax-on-demand products which
have historically enjoyed higher gross profit margins. Gross profit of 54% for
the first nine months of fiscal 1997 increased compared to gross profit of 51%
for the same period in 1996. The increase in gross profit is primarily due to
the sale of a higher proportion of fax servers which have higher gross margins
than do print servers, however this increase in the gross profit margin was
partially offset by a decrease in sales of fax-on-demand products with their
accompanying higher gross profit margins.
9
<PAGE>
Research & Development
Research and development expenses were $720,000 and $2.4 million or 11% and 12%,
respectively, of net sales for the third quarter and first nine months of fiscal
1997 as compared to $749,000 and $2.1 million or 9%, respectively, of net sales
for the same periods in 1996. The increase in the interim periods of 1997
compared to the same period of 1996 is primarily due a higher average salary per
engineer.
Sales and Marketing
Sales and marketing expenses were $2.1 million and $6.5 million or
32%,respectively, of net sales for the third quarter and first nine months of
fiscal 1997 as compared to $2.2 million and $6.2 million or 25%, respectively,
of net sales for the same periods in 1996. The increase in the nine month
interim period of 1997 compared to the interim periods of 1996 is primarily due
to an increase in the number of sales and customer service employees offset to
some extent by lower advertising expenses .
General and Administrative
General and administrative expenses were $774,000 and $1.7 million or 12% and
9%, respectively, of net sales for the third quarter and first nine months of
fiscal 1997 as compared to $479,000 and $1.4 million or 6%, respectively, of net
sales for the same periods in 1996. The increase in the interim periods of 1997
compared to the interim periods of 1996 is primarily due to higher legal,
accounting and investment banking fees.
Restructuring
The Company recognized a one-time charge of $1,150,000 in the third quarter of
fiscal 1997 to reflect expenses associated with certain restructuring
activities. See Note 4, Condensed Financial Statements.
Interest income and Other expense, net
Interest income, net of other expense, was $37,000 and $157,000 or
1%,respectively, of net sales for the third quarter and first nine months of
fiscal 1997 as compared to $59,000 and $161,000 or 1% respectively, of net sales
for the same periods in 1996.
Liquidity and Capital resources.
Net cash used in operating activities was $869,000 for the first nine months of
fiscal 1997, primarily as a result of a net loss and an increase in inventories,
offset to some extent by an increase in accounts payable. This compares to net
cash provided in operating activities of $826,000 for the first nine months of
fiscal 1996, primarily as a result of net income, an increase in accrued
liabilities and a decrease in inventory, offset to some extent by an increase in
accounts receivable and a decrease in accounts payable and prepaid expenses.
Cash used in investing activities in the first nine months of fiscal 1997 was
$672,000 and primarily from acquisition of computer equipment and software as
compared to $312,000 in 1996 which was associated with purchases of computer
equipment and an intangible asset. Net cash provided by financing activities in
the first nine months of fiscal 1997 was $140,000 due to the exercise of stock
options as compared to $786,000 in 1996 which included proceeds from an
over-allotment of common stock associated with the Company's initial public
offering offset somewhat by repayment of notes payable. As of September 26,
1997, the Company had $6.8 million of cash and cash equivalents. Working capital
decreased to $11.9 million at September 26, 1997 from $13.2 million at December
31, 1996. The Company has a $3.0 million secured revolving line of credit with a
bank that expires on July 31, 1998.
The Company believes that existing sources of liquidity, capital resources and
funds from operations will satisfy the Company's anticipated cash needs for the
next 12 months. There can be no assurance, however, that the Company's actual
needs will not exceed anticipated levels, or that the Company will generate
sufficient sales to fund its operations in the absence of other sources. There
also can be no assurance that any additional required financing will be
available through bank borrowings, debt or equity offerings or otherwise or
that, if such financing is available, it will be available on terms favorable to
the Company.
The Company had no material capital commitments at September 26, 1997.
Management believes that, for the periods presented, inflation has not had a
material effect on the Company's operations.
10
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Form of Executive Severance and Transition Benefits Agreement
between the Company and Messrs. R. Prasad, P. Raje, R. Singh
and Ms. S. Anand.
10.2 Form of Executive Severance and Transition Benefits Agreement
between the Company and Messrs. R. Bambrough and J. Burke.
11.1 Computation of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended September 26, 1997.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CASTELLE
By: /s/ Roy V. Prasad Date: November 10, 1997
Roy V. Prasad
Chief Executive Officer and President
(Principal Executive Officer)
By: /s/ Randall I. Bambrough Date: November 10, 1997
Randall I. Bambrough
Vice President of Finance and Administration
Chief Financial Officer
(Principal Financial and Accounting Officer)
12
<PAGE>
Exhibit 10.1
EXECUTIVE SEVERANCE AND
TRANSITION BENEFITS AGREEMENT
THIS EXECUTIVE SEVERANCE AND TRANSITION BENEFITS AGREEMENT (the
"AGREEMENT") is entered into this day of September, 1997 between
________________ ("EXECUTIVE") and CASTELLE, a California corporation (the
"COMPANY"). This Agreement is intended to provide Executive with the
compensation and benefits described herein upon the occurrence of specific
events. Certain capitalized terms used in this Agreement are defined in Article
V.
The Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT BY THE COMPANY
I.1 Executive is currently employed by the Company.
I.2 The Company and Executive wish to set forth the compensation and
benefits which Executive shall be entitled to receive (i) in the event
Executive's employment with the Company terminates or (ii) in the event there is
a Change in Control of the Company, under the circumstances described herein.
I.3 The duties and obligations of the Company to Executive under this
Agreement shall be in consideration for Executive's past services to the
Company, Executive's continued employment with the Company and Executive's
execution of the general waiver and release described in Section 3.2.
I.4 This Agreement shall remain in full force and effect so long as
Executive is employed by the Company; provided, however, that Executive's rights
to payments and benefits under Article II shall continue until the Company's
obligation to provide such payments and benefits is satisfied.
I.5 This Agreement shall supersede any other agreements relating to
Executive's employment or severance, or a Change in Control of the Company.
ARTICLE II
SEVERANCE, CHANGE IN CONTROL AND TRANSITION BENEFITS
II.1 Severance Benefits. If Executive's employment terminates due to an
Involuntary Termination Without Cause or a Voluntary Termination for Good Reason
at any time after the date of execution of this Agreement, and without regard to
any Change in Control of the Company, the termination of employment will be a
Covered Termination. Within thirty (30) days following such a Covered
Termination, Executive shall receive a lump sum payment equal to one hundred
percent (100%) of Executive's Base Pay, subject to applicable tax withholding.
In addition, following a Covered Termination, Executive and Executive's covered
dependents will be eligible to continue their health care benefit coverage as
permitted by COBRA (Internal Revenue Code Section 4980B) at the same cost to
Executive as in effect immediately prior to the Covered Termination for the one
(1)-year period following the Covered Termination.
II.2 Acceleration of Stock Options Upon Change In Control. In the event
of a Change in Control, all stock options previously granted to Executive by the
Company shall immediately accelerate and become fully vested and exercisable.
Executive shall not be entitled to any other payment or benefit upon or relating
to a Change in Control, except as otherwise specifically provided for in this
Agreement.
13
<PAGE>
II.3 Transition Bonus.
(a) In the event there is a Change in Control of the Company and
Executive continues to render services to the Company for ninety (90) days
following the closing of such Change in Control, then, if the successor
company notifies Executive that:
(i) Executive's employment has been terminated for any reason other
than a Covered Termination, Executive shall be entitled to a lump-sum
payment equal to fifty percent (50%) of Executive's Base Pay, subject to
applicable withholding; or
(ii) Executive's employment has been terminated and such termination
is a Covered Termination, Executive shall be entitled to a lump-sum payment
equal to the greater of: (x) the Severance Benefits set forth in Section
2.1 of this Agreement or (y) fifty percent (50%) of Executive's Base Pay,
subject to applicable withholding.
(b) If Executive does not receive a termination notice from the
successor company on or before the ninetieth (90th) day and continues to
render services to the Company from and after the ninetieth (90th) day
following the closing of a Change in Control, then Executive shall be
entitled to a lump-sum payment equal to fifty percent (50%) of Executive's
Base Pay, subject to applicable withholding, and without regard to any
payment that might be received by Executive with respect to a Covered
Termination.
II.4 Mitigation. Except as otherwise specifically provided herein,
Executive shall not be required to mitigate damages or the amount of any payment
provided under this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement be reduced by
any compensation earned by Executive as a result of employment by another
employer or by any retirement benefits received by Executive after the date of
the Covered Termination, or otherwise.
II.5 Possible Outcomes. The chart attached hereto as Exhibit B is
intended to summarize the possible benefits payable under this Article II in the
circumstances indicated, and is incorporated into this Agreement for the
convenience of the parties.
ARTICLE III
LIMITATIONS AND CONDITIONS ON BENEFITS
III.1 Withholding Of Taxes. The Company shall withhold appropriate
federal, state, local (and foreign, if applicable) income and employment taxes
from any payments hereunder.
III.2 Employee Agreement And Release Prior To Receipt Of Benefits. Upon
the occurrence of a Covered Termination, and prior to the receipt of any
benefits under this Agreement on account of the occurrence of such Covered
Termination, Executive shall execute the Employee Agreement and Release (the
"Release") in the form attached hereto as Exhibit A. Such Release shall
specifically relate to all of Executive's rights and claims in existence at the
time of such execution and shall confirm Executive's obligations under the
Company's standard form of proprietary information agreement. It is understood
that Executive has twenty-one (21) days to consider whether to execute such
Release, and Executive may revoke such Release within seven (7) business days
after execution. In the event Executive does not execute such Release within the
twenty-one (21)-day period, or if Executive revokes such Release within the
subsequent seven (7)-business day period, no benefits shall be payable under
this Agreement and this Agreement shall be null and void. [this 21/7 day
language is required for all Executives over 40 years old under California labor
laws, but is not required for those under 40]
14
<PAGE>
ARTICLE IV
OTHER RIGHTS AND BENEFITS
IV.1 Nonexclusivity. Nothing in the Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Executive may otherwise qualify, nor shall anything herein limit or
otherwise affect such rights as Executive may have under other agreements with
the Company. Except as otherwise expressly provided herein, amounts which are
vested benefits or which Executive is otherwise entitled to receive under any
plan, policy, practice or program of the Company at or subsequent to the date of
a Covered Termination shall be payable in accordance with such plan, policy,
practice or program.
IV.2 Parachute Payments. In the event that any amount or benefit
received or to be received by Executive pursuant to this Agreement would
constitute an "excess parachute payment" subject to excise tax under Internal
Revenue Code Section 4999, such amount or benefit hereunder shall be reduced
until no part of such amount or benefit constitutes an excess parachute payment.
ARTICLE V
DEFINITIONS
For purposes of the Agreement, the following terms are defined as
follows:
V.1 "Base Pay" means Executive's annual base pay at the rate in effect
during the last regularly scheduled payroll period immediately preceding any
termination of Executive's employment or, if higher, Executive's annual base pay
in effect as of the date of this Agreement if subsequent to that time Executive
has agreed to a reduction in base pay in connection with a general reduction in
the base pay of other similarly situated employees of the Company.
V.2 "Change in Control" (1) a dissolution, liquidation or sale of all
or substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or any Affiliate of the Company) of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
directors.
V.3 "Covered Termination" means an Involuntary Termination Without
Cause or a Voluntary Termination for Good Reason.
V.4 "Involuntary Termination Without Cause" means Executive's dismissal
or discharge for reasons other than fraud, misappropriation, embezzlement or
intentional misconduct on the part of Executive which resulted in material loss,
damage or injury to the Company. The termination of Executive's employment will
not be deemed to be an "Involuntary Termination" if such termination occurs as a
result of Executive's death or disability.
V.5 "Voluntary Termination For Good Reason" means that the Executive
voluntarily terminates employment after any of the following are undertaken
without Executive's express written consent:
(a) the assignment to Executive of any duties or responsibilities
which result in a material diminution or adverse change of Executive's
position, status or circumstances of employment;
(b) a reduction by the Company in Executive's Base Pay;
15
<PAGE>
(c) any failure by the Company to continue in effect any benefit plan
or arrangement, including incentive plans or plans to receive securities of
the Company, in which Executive is participating (hereinafter referred to
as "Benefit Plans"), or the taking of any action by the Company which would
adversely affect Executive's participation in or reduce Executive's
benefits under any Benefit Plans or deprive Executive of any fringe benefit
then enjoyed by Executive, provided, however, that Executive may not
terminate for Good Reason if the Company offers a range of benefit plans
and programs which, taken as a whole, are comparable to the Benefit Plans
as determined in good faith by the Company;
(d) a relocation of Executive or the Company's principal business
offices to a location more than [twenty (20)] miles from the location at
which Executive performs duties, except for required travel by Executive on
the Company's business to an extent substantially consistent with
Executive's business travel obligations;
(e) any breach by the Company of any provision of this Agreement; or
(f) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company.
ARTICLE VI
GENERAL PROVISIONS
VI.1 Employment Status. This Agreement does not constitute a contract
of employment or impose on Executive any obligation to remain as an employee, or
impose on the Company any obligation (i) to retain Executive as an employee,
(ii) to change the status of Executive as an at-will employee, or (iii) to
change the Company's policies regarding termination of employment.
VI.2 Notices. Any notices provided hereunder must be in writing and
such notices or any other written communication shall be deemed effective upon
the earlier of personal delivery (including personal delivery by facsimile) or
the third day after mailing by first class mail, to the Company at its primary
office location and to Executive at Executive's address as listed in the
Company's payroll records. Any payments made by the Company to Executive under
the terms of this Agreement shall be delivered to Executive either in person or
at the address as listed in the Company's payroll records.
VI.3 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
VI.4 Waiver. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
VI.5 Arbitration. Unless otherwise prohibited by law or specified
below, all disputes, claims and causes of action, in law or equity, arising from
or relating to this Agreement or its enforcement, performance, breach, or
interpretation shall be resolved solely and exclusively by final and binding
arbitration held in San Francisco, California through Judicial Arbitration &
Mediation Services/Endispute ("JAMS") under the then existing JAMS arbitration
rules. However, nothing in this section is intended to prevent either party from
obtaining injunctive relief in court to prevent irreparable harm pending the
conclusion of any such arbitration, Each party in any such arbitration shall be
responsible for its own attorneys fees, costs and necessary disbursement;
provided, however, that in the event one party refuses to arbitrate and the
other party seeks to compel arbitration by court order, if such other party
prevails, it shall be entitled to recover reasonable attorneys fees, costs and
necessary disbursements. Pursuant to California Civil Code Section 1717, each
party warrants that it was represented by counsel in the negotiation and
execution of this Agreement, including the attorneys fees provision herein.
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<PAGE>
VI.6 Complete Agreement. This Agreement, including Exhibit A, Exhibit B
and any other written agreements referred to in this Agreement, constitutes the
entire agreement between Executive and the Company and it is the complete,
final, and exclusive embodiment of their agreement with regard to this subject
matter. It is entered into without reliance on any promise or representation
other than those expressly contained herein.
VI.7 Amendment Or Termination Of Agreement. This Agreement may be
changed or terminated only upon the mutual written consent of the Company and
Executive. The written consent of the Company to a change or termination of this
Agreement must be signed by an executive officer of the Company after such
change or termination has been approved by the Compensation Committee of the
Company's Board of Directors.
VI.8 Counterparts. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
VI.9 Headings. The headings of the Articles and Sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof.
VI.10 Successors And Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any duties hereunder and may not assign any
rights hereunder without the written consent of the Company, which consent shall
not be withheld unreasonably.
VI.11 Attorney Fees. If Executive brings any action to enforce his
rights hereunder, Executive shall be entitled to recover reasonable attorneys'
fees and costs incurred in connection with such action, regardless of the
outcome of such action.
VI.12 Choice Of Law. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of California, without regard to such state's conflict of laws rules.
VI.13 Non-Publication. The parties mutually agree not to disclose
publicly the terms of this Agreement except to the extent that disclosure is
mandated by applicable law or to respective personal advisors.
VI.14 Construction Of Agreement. In the event of a conflict between the
text of the Agreement and any summary, description or other information
regarding the Agreement, the text of the Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year written above.
CASTELLE [EXECUTIVE]
By:_______________________ _____________________
Name:_____________________
Title:____________________
Exhibit A: Employee Agreement and Release
Exhibit B: Chart of Possible Outcomes
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<PAGE>
EXHIBIT A
EMPLOYEE AGREEMENT AND RELEASE
I understand and agree completely to the terms set forth in the
foregoing agreement.
I hereby confirm my obligations under the Company's proprietary
information agreement.
I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.
Except as otherwise set forth in this Agreement, I hereby release,
acquit and forever discharge the Company, its parents and subsidiaries, and
their officers, directors, agents, servants, employees, shareholders,
successors, assigns and affiliates, of and from any and all claims, liabilities,
demands, causes of action, costs, expenses, attorneys fees, damages, indemnities
and obligations of every kind and nature, in law, equity, or otherwise, known
and unknown, suspected and unsuspected, disclosed and undisclosed (other than
any claim for indemnification I may have as a result of any third party action
against me based on my employment with the Company), arising out of or in any
way related to agreements, events, acts or conduct at any time prior to and
including the Effective Date of this Agreement, including but not limited to:
all such claims and demands directly or indirectly arising out of or in any way
connected with my employment with the Company or the termination of that
employment, including but not limited to, claims of intentional and negligent
infliction of emotional distress, any and all tort claims for personal injury,
claims or demands related to salary, bonuses, commissions, stock, stock options,
or any other ownership interests in the Company, vacation pay, fringe benefits,
expense reimbursements, severance pay, or any other form of compensation; claims
pursuant to any federal, state or local law or cause of action including, but
not limited to, the federal Civil Rights Act of 1964, as amended; the federal
Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal
Americans with Disabilities Act of 1990; the California Fair Employment and
Housing Act, as amended; tort law; contract law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the implied
covenant of good faith and fair dealing; provided, however, that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify me pursuant to the Company's Indemnification Agreement.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration
given for the waiver and release in the preceding paragraph hereof is in
addition to anything of value to which I was already entitled. I further
acknowledge that I have been advised by this writing, as required by the ADEA,
that: (A) my waiver and release do not apply to any rights or claims that may
arise after the Effective Date of this Agreement; (B) I have the right to
consult with an attorney prior to executing this Agreement; (C) I have
twenty-one (21) days to consider this Agreement (although I may choose to
voluntarily execute this Agreement earlier); (D) I have seven (7) days following
the execution of this Agreement by the parties to revoke the
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Agreement; and (E) this Agreement shall not be effective until the date upon
which the revocation period has expired, which shall be the eighth day after
this Agreement is executed by me, provided that the Company has also executed
this Agreement by that date (the "Effective Date").
CASTELLE [EXECUTIVE]
By:_______________________ _____________________
Name:_____________________ Date:________________
Title:____________________
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EXHIBIT B
POSSIBLE OUTCOMES UNDER
EXECUTIVE SEVERANCE AND TRANSITION BENEFITS AGREEMENT
- ---------------------------------- -----------------------------------------
Voluntary Termination or
Termination For Cause
- ---------------------------------- -----------------------------------------
Prior to Change in Control Cash: -0-
Option Acceleration: No
- ---------------------------------- -----------------------------------------
0 - 89 days after Change in Cash: -0-
Control Option Acceleration: Yes
- ---------------------------------- -----------------------------------------
90 days after Change in Cash: 6 months salary
Control Option Acceleration: Yes
- ---------------------------------- -----------------------------------------
+ 90 days after Change in Cash: 6 months salary
Control Option Acceleration: Yes
- ---------------------------------- -----------------------------------------
- ---------------------------------- -----------------------------------------
Involuntary Termination Without Cause
or
Termination For Good Reason
- ---------------------------------- -----------------------------------------
Prior to Change in Control Cash: 12 months salary
Option Acceleration: No
- --------------------------------- ------------------------------------------
0 - 89 days after Change in Cash: 12 months salary
Control Option Acceleration: Yes
- --------------------------------- ------------------------------------------
90 days after Change in Cash: 12 months salary
Control Option Acceleration: Yes
- --------------------------------- ------------------------------------------
+ 90 days after Change in Cash: 18 months salary
Control Option Acceleration: Yes
- --------------------------------- ------------------------------------------
20
<PAGE>
Exhibit 10.2
EXECUTIVE SEVERANCE AND
TRANSITION BENEFITS AGREEMENT
THIS EXECUTIVE SEVERANCE AND TRANSITION BENEFITS AGREEMENT (the
"AGREEMENT") is entered into this day of September, 1997 between
________________ ("EXECUTIVE") and CASTELLE, a California corporation (the
"Company"). This Agreement is intended to provide Executive with the
compensation and benefits described herein upon the occurrence of specific
events. Certain capitalized terms used in this Agreement are defined in Article
V.
The Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT BY THE COMPANY
I.1 Executive is currently employed by the Company.
I.2 The Company and Executive wish to set forth the compensation and
benefits which Executive shall be entitled to receive (i) in the event
Executive's employment with the Company terminates or (ii) in the event there is
a Change in Control of the Company, under the circumstances described herein.
I.3 The duties and obligations of the Company to Executive under this
Agreement shall be in consideration for Executive's past services to the
Company, Executive's continued employment with the Company and Executive's
execution of the general waiver and release described in Section 3.2.
I.4 This Agreement shall remain in full force and effect so long as
Executive is employed by the Company; provided, however, that Executive's rights
to payments and benefits under Article II shall continue until the Company's
obligation to provide such payments and benefits is satisfied.
I.5 This Agreement shall supersede any other agreements relating to
Executive's employment or severance, or a Change in Control of the Company.
ARTICLE II
SEVERANCE, CHANGE IN CONTROL AND TRANSITION BENEFITS
II.1 Severance Benefits. If Executive's employment terminates due to an
Involuntary Termination Without Cause or a Voluntary Termination for Good Reason
at any time after the date of execution of this Agreement, and without regard to
any Change in Control of the Company, the termination of employment will be a
Covered Termination. Within thirty (30) days following such a Covered
Termination, Executive shall receive a lump sum payment equal to one hundred
percent (100%) of Executive's Base Pay, subject to applicable tax withholding.
In addition, following a Covered Termination, Executive and Executive's covered
dependents will be eligible to continue their health care benefit coverage as
permitted by COBRA (Internal Revenue Code Section 4980B) at the same cost to
Executive as in effect immediately prior to the Covered Termination for the one
(1)-year period following the Covered Termination.
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<PAGE>
II.2 Transition Bonus.
(a) In the event there is a Change in Control of the Company and
Executive continues to render services to the Company for ninety (90) days
following the closing of such Change in Control, then, if the successor
company notifies Executive that:
(i) Executive's employment has been terminated for any reason other
than a Covered Termination, Executive shall be entitled to a lump-sum
payment equal to fifty percent (50%) of Executive's Base Pay, subject to
applicable withholding; or
(ii) Executive's employment has been terminated and such termination
is a Covered Termination, Executive shall be entitled to a lump-sum payment
equal to the greater of: (x) the Severance Benefits set forth in Section
2.1 of this Agreement or (y) fifty percent (50%) of Executive's Base Pay,
subject to applicable withholding.
(b) If Executive does not receive a termination notice from the
successor company on or before the ninetieth (90th) day and continues to
render services to the Company from and after the ninetieth (90th) day
following the closing of a Change in Control, then Executive shall be
entitled to a lump-sum payment equal to fifty percent (50%) of Executive's
Base Pay, subject to applicable withholding, and without regard to any
payment that might be received by Executive with respect to a Covered
Termination.
II.3 Mitigation. Except as otherwise specifically provided herein,
Executive shall not be required to mitigate damages or the amount of any payment
provided under this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement be reduced by
any compensation earned by Executive as a result of employment by another
employer or by any retirement benefits received by Executive after the date of
the Covered Termination, or otherwise.
II.4 Possible Outcomes. The chart attached hereto as Exhibit B is
intended to summarize the possible benefits payable under this Article II in the
circumstances indicated, and is incorporated into this Agreement for the
convenience of the parties.
ARTICLE III
LIMITATIONS AND CONDITIONS ON BENEFITS
III.1 Withholding Of Taxes. The Company shall withhold appropriate
federal, state, local (and foreign, if applicable) income and employment taxes
from any payments hereunder.
III.2 Employee Agreement And Release Prior To Receipt Of Benefits. Upon
the occurrence of a Covered Termination, and prior to the receipt of any
benefits under this Agreement on account of the occurrence of such Covered
Termination, Executive shall execute the Employee Agreement and Release (the
"Release") in the form attached hereto as Exhibit A. Such Release shall
specifically relate to all of Executive's rights and claims in existence at the
time of such execution and shall confirm Executive's obligations under the
Company's standard form of proprietary information agreement. It is understood
that Executive has twenty-one (21) days to consider whether to execute such
Release, and Executive may revoke such Release within seven (7) business days
after execution. In the event Executive does not execute such Release within the
twenty-one (21)-day period, or if Executive revokes such Release within the
subsequent seven (7)-business day period, no benefits shall be payable under
this Agreement and this Agreement shall be null and void. [this 21/7 day
language is required for all Executives over 40 years old under California labor
laws, but is not required for those under 40]
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<PAGE>
ARTICLE IV
OTHER RIGHTS AND BENEFITS
IV.1 Nonexclusivity. Nothing in the Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Executive may otherwise qualify, nor shall anything herein limit or
otherwise affect such rights as Executive may have under other agreements with
the Company. Except as otherwise expressly provided herein, amounts which are
vested benefits or which Executive is otherwise entitled to receive under any
plan, policy, practice or program of the Company at or subsequent to the date of
a Covered Termination shall be payable in accordance with such plan, policy,
practice or program.
IV.2 Parachute Payments. In the event that any amount or benefit
received or to be received by Executive pursuant to this Agreement would
constitute an "excess parachute payment" subject to excise tax under Internal
Revenue Code Section 4999, such amount or benefit hereunder shall be reduced
until no part of such amount or benefit constitutes an excess parachute payment.
ARTICLE V
DEFINITIONS
For purposes of the Agreement, the following terms are defined as
follows:
V.1 "Base Pay" means Executive's annual base pay at the rate in effect
during the last regularly scheduled payroll period immediately preceding any
termination of Executive's employment or, if higher, Executive's annual base pay
in effect as of the date of this Agreement if subsequent to that time Executive
has agreed to a reduction in base pay in connection with a general reduction in
the base pay of other similarly situated employees of the Company.
V.2 "Change in Control" (1) a dissolution, liquidation or sale of all
or substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or any Affiliate of the Company) of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
directors.
V.3 "Covered Termination" means an Involuntary Termination Without
Cause or a Voluntary Termination for Good Reason.
V.4 "Involuntary Termination Without Cause" means Executive's dismissal
or discharge for reasons other than fraud, misappropriation, embezzlement or
intentional misconduct on the part of Executive which resulted in material loss,
damage or injury to the Company. The termination of Executive's employment will
not be deemed to be an "Involuntary Termination" if such termination occurs as a
result of Executive's death or disability.
V.5 "Voluntary Termination For Good Reason" means that the Executive
voluntarily terminates employment after any of the following are undertaken
without Executive's express written consent:
(a) the assignment to Executive of any duties or responsibilities
which result in a material diminution or adverse change of Executive's
position, status or circumstances of employment;
(b) a reduction by the Company in Executive's Base Pay;
23
<PAGE>
(c) any failure by the Company to continue in effect any benefit plan
or arrangement, including incentive plans or plans to receive securities of
the Company, in which Executive is participating (hereinafter referred to
as "Benefit Plans"), or the taking of any action by the Company which would
adversely affect Executive's participation in or reduce Executive's
benefits under any Benefit Plans or deprive Executive of any fringe benefit
then enjoyed by Executive, provided, however, that Executive may not
terminate for Good Reason if the Company offers a range of benefit plans
and programs which, taken as a whole, are comparable to the Benefit Plans
as determined in good faith by the Company;
(d) a relocation of Executive or the Company's principal business
offices to a location more than [twenty (20)] miles from the location at
which Executive performs duties, except for required travel by Executive on
the Company's business to an extent substantially consistent with
Executive's business travel obligations;
(e) any breach by the Company of any provision of this Agreement; or
(f) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company.
ARTICLE VI
GENERAL PROVISIONS
VI.1 Employment Status. This Agreement does not constitute a contract
of employment or impose on Executive any obligation to remain as an employee, or
impose on the Company any obligation (i) to retain Executive as an employee,
(ii) to change the status of Executive as an at-will employee, or (iii) to
change the Company's policies regarding termination of employment.
VI.2 Notices. Any notices provided hereunder must be in writing and
such notices or any other written communication shall be deemed effective upon
the earlier of personal delivery (including personal delivery by facsimile) or
the third day after mailing by first class mail, to the Company at its primary
office location and to Executive at Executive's address as listed in the
Company's payroll records. Any payments made by the Company to Executive under
the terms of this Agreement shall be delivered to Executive either in person or
at the address as listed in the Company's payroll records.
VI.3 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
VI.4 Waiver. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
VI.5 Arbitration. Unless otherwise prohibited by law or specified
below, all disputes, claims and causes of action, in law or equity, arising from
or relating to this Agreement or its enforcement, performance, breach, or
interpretation shall be resolved solely and exclusively by final and binding
arbitration held in San Francisco, California through Judicial Arbitration &
Mediation Services/Endispute ("JAMS") under the then existing JAMS arbitration
rules. However, nothing in this section is intended to prevent either party from
obtaining injunctive relief in court to prevent irreparable harm pending the
conclusion of any such arbitration, Each party in any such arbitration shall be
responsible for its own attorneys fees, costs and necessary disbursement;
provided, however, that in the event one party refuses to arbitrate and the
other party seeks to compel arbitration by court order, if such other party
prevails, it shall be entitled to recover reasonable attorneys fees, costs and
necessary disbursements. Pursuant to California Civil Code Section 1717, each
party warrants that it was represented by counsel in the negotiation and
execution of this Agreement, including the attorneys fees provision herein.
24
<PAGE>
VI.6 Complete Agreement. This Agreement, including Exhibit A, Exhibit B
and any other written agreements referred to in this Agreement, constitutes the
entire agreement between Executive and the Company and it is the complete,
final, and exclusive embodiment of their agreement with regard to this subject
matter. It is entered into without reliance on any promise or representation
other than those expressly contained herein.
VI.7 Amendment Or Termination Of Agreement. This Agreement may be
changed or terminated only upon the mutual written consent of the Company and
Executive. The written consent of the Company to a change or termination of this
Agreement must be signed by an executive officer of the Company after such
change or termination has been approved by the Compensation Committee of the
Company's Board of Directors.
VI.8 Counterparts. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
VI.9 Headings. The headings of the Articles and Sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof.
VI.10 Successors And Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any duties hereunder and may not assign any
rights hereunder without the written consent of the Company, which consent shall
not be withheld unreasonably.
VI.11 Attorney Fees. If Executive brings any action to enforce his
rights hereunder, Executive shall be entitled to recover reasonable attorneys'
fees and costs incurred in connection with such action, regardless of the
outcome of such action.
VI.12 Choice Of Law. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of California, without regard to such state's conflict of laws rules.
VI.13 Non-Publication. The parties mutually agree not to disclose
publicly the terms of this Agreement except to the extent that disclosure is
mandated by applicable law or to respective personal advisors.
VI.14 Construction Of Agreement. In the event of a conflict between the
text of the Agreement and any summary, description or other information
regarding the Agreement, the text of the Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year written above.
CASTELLE [EXECUTIVE]
By:_______________________ _____________________
Name:_____________________
Title:____________________
Exhibit A: Employee Agreement and Release
Exhibit B: Chart of Possible Outcomes
25
<PAGE>
EXHIBIT A
EMPLOYEE AGREEMENT AND RELEASE
I understand and agree completely to the terms set forth in the
foregoing agreement.
I hereby confirm my obligations under the Company's proprietary
information agreement.
I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.
Except as otherwise set forth in this Agreement, I hereby release,
acquit and forever discharge the Company, its parents and subsidiaries, and
their officers, directors, agents, servants, employees, shareholders,
successors, assigns and affiliates, of and from any and all claims, liabilities,
demands, causes of action, costs, expenses, attorneys fees, damages, indemnities
and obligations of every kind and nature, in law, equity, or otherwise, known
and unknown, suspected and unsuspected, disclosed and undisclosed (other than
any claim for indemnification I may have as a result of any third party action
against me based on my employment with the Company), arising out of or in any
way related to agreements, events, acts or conduct at any time prior to and
including the Effective Date of this Agreement, including but not limited to:
all such claims and demands directly or indirectly arising out of or in any way
connected with my employment with the Company or the termination of that
employment, including but not limited to, claims of intentional and negligent
infliction of emotional distress, any and all tort claims for personal injury,
claims or demands related to salary, bonuses, commissions, stock, stock options,
or any other ownership interests in the Company, vacation pay, fringe benefits,
expense reimbursements, severance pay, or any other form of compensation; claims
pursuant to any federal, state or local law or cause of action including, but
not limited to, the federal Civil Rights Act of 1964, as amended; the federal
Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal
Americans with Disabilities Act of 1990; the California Fair Employment and
Housing Act, as amended; tort law; contract law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the implied
covenant of good faith and fair dealing; provided, however, that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify me pursuant to the Company's Indemnification Agreement.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration
given for the waiver and release in the preceding paragraph hereof is in
addition to anything of value to which I was already entitled. I further
acknowledge that I have been advised by this writing, as required by the ADEA,
that: (A) my waiver and release do not apply to any rights or claims that may
arise after the Effective Date of this Agreement; (B) I have the right to
consult with an attorney prior to executing this Agreement; (C) I have
twenty-one (21) days to consider this Agreement (although I may choose to
voluntarily execute this Agreement earlier); (D) I have seven (7) days following
the execution of this Agreement by the parties to revoke the
26
<PAGE>
Agreement; and (E) this Agreement shall not be effective until the date upon
which the revocation period has expired, which shall be the eighth day after
this Agreement is executed by me, provided that the Company has also executed
this Agreement by that date (the "Effective Date").
CASTELLE [EXECUTIVE]
By:_______________________ _____________________
Name:_____________________ Date:________________
Title:____________________
27
<PAGE>
EXHIBIT B
POSSIBLE OUTCOMES UNDER
EXECUTIVE SEVERANCE AND TRANSITION BENEFITS AGREEMENT
- ---------------------------------- -----------------------------------------
Voluntary Termination or
Termination For Cause
- ---------------------------------- -----------------------------------------
Prior to Change in Control Cash: -0-
- ---------------------------------- -----------------------------------------
0 - 89 days after Change in Cash: -0-
Control
- ---------------------------------- -----------------------------------------
90 days after Change in Cash: 6 months salary
Control
- ---------------------------------- -----------------------------------------
+ 90 days after Change in Cash: 6 months salary
Control
- ---------------------------------- -----------------------------------------
- ---------------------------------- -----------------------------------------
Involuntary Termination Without Cause
or
Termination For Good Reason
- ---------------------------------- -----------------------------------------
Prior to Change in Control Cash: 12 months salary
- --------------------------------- ------------------------------------------
0 - 89 days after Change in Cash: 12 months salary
Control
- --------------------------------- ------------------------------------------
90 days after Change in Cash: 12 months salary
Control
- --------------------------------- ------------------------------------------
+ 90 days after Change in Cash: 18 months salary
Control
- --------------------------------- ------------------------------------------
28
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11.1
CASTELLE
COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share amounts)
3 MONTHS ENDED 3 MONTHS ENDED
September 26, September 27,
1997 1996
(unaudited) (unaudited)
Primary and Fully Diluted:
<S> <C> <C>
Weighted average common shares outstanding for the period 4,476 4,471
Common equivalent shares assuming conversion of stock
options under the treasury stock method 0 205
----- -----
Shares used in per share calculation .................... 4,476 4,676
===== =====
Net income/(loss) ....................................... $(1,490) $891
------ ----
Net income/(loss) per share ............................. $(0.33) $0.19
====== =====
9 MONTHS ENDED 9 MONTHS ENDED
September 26, September 27,
1997 1996
(unaudited) (unaudited)
Primary and Fully Diluted:
<S> <C> <C>
Weighted average common shares outstanding for the period 4,454 4,460
Common equivalentshares assuming conversion of stock
options under the treasury stock method 0 259
----- -----
Shares used in per share calculation .................... 4,454 4,719
===== =====
Net income/(loss) ....................................... $(1,049) $2,477
----- ------
Net income/(loss) per share ............................. $(0.24) $0.52
===== =====
</TABLE>
29
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
CASTELLE
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the
Company's Financial Statements for the nine month period ending September 26,
1997 included in the Company's Form 10-Q filed November 10, 1997 and is
qualified in its entirety by reference to such statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-26-1997
<CASH> 6,760
<SECURITIES> 0
<RECEIVABLES> 6,347
<ALLOWANCES> 484
<INVENTORY> 3,597
<CURRENT-ASSETS> 18,451
<PP&E> 4,372
<DEPRECIATION> 3,390
<TOTAL-ASSETS> 22,381
<CURRENT-LIABILITIES> 6,590
<BONDS> 0
0
0
<COMMON> 23,819
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,381
<SALES> 23,756
<TOTAL-REVENUES> 20,018
<CGS> 9,192
<TOTAL-COSTS> 9,192
<OTHER-EXPENSES> 11,738
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (755)
<INCOME-TAX> 294
<INCOME-CONTINUING> (1,049)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,049)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
