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
CASTELLE
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(Name of Registrant as Specified In Its Charter)
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(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:
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2. Aggregate number of securities to which transaction applies:
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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):
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5. Total fee paid:
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| | Fee paid previously with preliminary materials.
| | Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
6. Amount Previously Paid:
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7. Form, Schedule or Registration Statement No.:
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8. Filing Party:
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9. Date Filed:
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<PAGE>
CASTELLE
3255-3 SCOTT BOULEVARD
SANTA CLARA, CALIFORNIA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 25, 1999
TO THE SHAREHOLDERS OF CASTELLE:
Notice is hereby given that the Annual Meeting of Shareholders of
CASTELLE, a California corporation (the "Company"), will be held on Tuesday May
25, 1999 at 10:00 a.m. local time at the Company's corporate offices, located at
3255-3 Scott Boulevard, Santa Clara, California for the following purposes:
1. To elect directors to serve for the ensuing year and until their successors
are elected.
2. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors of the Company for its fiscal year ending December 31, 1999.
3. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 19, 1999,
as the record date for the determination of shareholders entitled to notice
of and to vote at this Annual Meeting and at any adjournment or
postponement thereof.
By Order of the Board of Directors
/s/Laurie Gee
Laurie Gee
Vice President, Finance and Administration
and Secretary
Santa Clara, California
April 28, 1999
All Shareholders are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please complete, date, sign and
return the enclosed proxy as promptly as possible in order to ensure your
representation at the meeting. A return envelope (which is postage prepaid if
mailed in the United States) is enclosed for that purpose. Even if you have
given your proxy, you may still vote in person if you attend the meeting. Please
note, however, that if your shares are held of record by a broker, bank or other
nominee and you wish to vote at the meeting, you must obtain from the record
holder a proxy issued in your name.
<PAGE>
CASTELLE
3255-3 SCOTT BOULEVARD
SANTA CLARA, CALIFORNIA
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
May 25, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors
(the "Board") of CASTELLE, a California corporation (the "Company"), for use at
the Annual Meeting of Shareholders to be held on May 25, 1999, at 10:00 a.m.
local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at the Company's corporate
offices, located at 3255-3 Scott Boulevard, Santa Clara California. The Company
intends to mail this proxy statement and accompanying proxy card on or about
April 28, 1999, to all shareholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to shareholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
April 19, 1999 will be entitled to notice of and to vote at the Annual Meeting.
At the close of business on April 19, 1999 the Company had outstanding and
entitled to vote 4,685,435 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to
one vote for each share held on all matters to be voted upon. With respect to
the election of directors, shareholders may exercise cumulative voting rights.
Under cumulative voting, each holder of Common Stock will be entitled to four
(4) votes for each share held. Each shareholder may give one candidate, who has
been nominated prior to voting, all the votes such shareholder is entitled to
cast or may distribute such votes among as many such candidates as such
shareholder chooses. (However, no shareholder will be entitled to cumulate votes
unless the candidate's name has been placed in nomination prior to the voting
and at least one shareholder has given notice at the meeting, prior to the
voting, of his or her intention to cumulate votes). Unless the proxyholders are
otherwise instructed, shareholders, by means of the accompanying proxy, will
grant the proxyholders discretionary authority to cumulate votes.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
towards a quorum but are not counted for any purpose in determining whether a
matter is approved.
1.
<PAGE>
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office, 3255-3
Scott Boulevard, Santa Clara, California 95054, a written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
SHAREHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 annual
meeting of shareholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is December 30, 1999. Unless a shareholder who wishes to bring a
matter before the shareholders at the Company's 2000 annual meeting of
shareholders notifies the Company of such matter prior to March 15, 2000,
management will have discretionary authority to vote all shares for which it has
proxies in opposition to such matter.
2.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors is presently composed of seven members however,
as permitted by the Company's Articles of Incorporation and Bylaws, the Board of
Directors has reduced the size of the Board to four members, effective at the
commencement of the Annual Meeting. Three of the current directors of the
Company, Arthur Bruno, John Freidenrich and Alan Kessman, have each decided not
to stand for re-election to the Board. Each director to be elected will hold
office until the next annual meeting of Shareholders and until his successor is
elected and has qualified, or until such director's earlier death, resignation
or removal. Each nominee listed below is currently a director of the Company,
Robert Hambrecht having been elected by the shareholders, and the other three
having been elected by the Board.
Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the four nominees named below,
subject to the discretionary power to cumulate votes. In the event that any
nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected and management has no reason to believe that any nominee
will be unable to serve.
The four candidates receiving the highest number of affirmative votes
cast at the meeting will be elected directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE
Nominees
The names of the nominees and certain information about them are set
forth below:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Donald L. Rich 57 President and Chief Executive Officer and Director
Peter R. Tierney 54 Director and President and Chief Executive Officer
of MarketFirst Software Inc
Robert Hambrecht 32 Partner and Director of Distribution,
W.R. Hambrecht & Company
Scott C. McDonald 46 Director
</TABLE>
Set forth below is biographical information for each nominee whose term
of office as a director will continue after the Annual Meeting.
Donald L. Rich
Mr. Rich joined the Company in November 1998 and has served as
President and Chief Executive Officer from November 1998 to the present. From
January 1997 until November 1998, Mr. Rich was an independent consultant
providing services to emerging software firms. From 1993 through 1997, Mr. Rich
was Chief Executive Officer and President of Talarian Corporation, a network
management and communications middleware software firm. Earlier in his career
Mr. Rich served as vice president of marketing and sales for Integrated Systems,
Inc., a provider of embedded software and design automation tools and held
various marketing and sales management positions with IBM Corporation, and was
director of marketing for the IBM Western Region.
3.
<PAGE>
Peter R. Tierney
Mr. Tierney has served as a director of the Company since April 1999.
He has served as President and Chief Executive Officer of MarketFirst Software
Inc., a privately held business focused on delivering software and services in
the emerging field of marketing automation systems since July 1998. From 1991 to
1997, Mr. Tierney served as Chairman, President and CEO of Inference
Corporation, a leading provider of self-service and knowledge management tools
for the customer service and help desk industries. Prior to Inference, as senior
vice president of Oracle Corporation, Tierney was responsible for worldwide
marketing and served as a member of the Oracle Management Committee. Earlier in
his career, Mr. Tierney served as vice president of marketing and sales for
Relational Technology (Ingres) Corporation and was director of marketing for the
IBM Northwestern Region. Mr. Tierney also currently serves on the Board of
Directors of MarketFirst Software, PhotoAccess Corporation, and The SoftAd
Group.
Robert Hambrecht
Mr. Hambrecht has served as a director of the Company since March 1998.
He has been a partner and Director of Distribution for W.R. Hambrecht & Company,
an investment banking firm, since January 1998, and was Vice President of H&Q
Venture Partners, a venture capital firm, from April 1996 through January 1998.
From January 1994 to March 1996, Mr. Hambrecht was employed by Unterberg Harris,
an investment banking firm, most recently as an associate. Mr. Hambrecht
attended Columbia University from September 1991 through December 1993 where he
earned a master's degree in public administration. Mr. Hambrecht also serves on
the Board of Directors of four privately held companies.
Scott C. McDonald
Mr. McDonald has served as a director of the Company since April 1999. From
1993 to 1998, Mr. McDonald was the senior operating and financial executive at
CIDCO, an innovator in advanced telephony products, serving as Executive Vice
President, Chief Operating Officer, Chief Financial Officer and Secretary. From
1989 to 1993 he was Chief Financial Officer and Vice President, Finance &
Administration at Integrated Systems, Inc., a provider of embedded operating
software and design automation tools. Prior to 1989, he has held financial
management and investor relations positions with Computer Products, Inc.,
Compower Corporation, Monterey Federal Credit Union and the J.M. Smucker
Company. Mr. McDonald currently serves on the Board of Directors for Digital
Power Corporation and Octant Technologies, Inc.
Board Committees and Meetings
During the fiscal year ended December 31, 1998 the Board of Directors
held nine meetings. The Board has an Audit Committee and a Compensation
Committee.
The Audit Committee meets with the Company's independent auditors at
least annually to review the results of the annual audit and discuss the
financial statements; recommends to the Board the independent auditors to be
retained; and receives and considers the accountants' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. The Audit Committee is composed of two
non-employee directors: Messrs. Freidenrich and Kessman. It met four times
during the year.
The Compensation Committee makes recommendations concerning salaries
and incentive compensation, awards stock options to employees and consultants
under the Company's stock option plans and otherwise determines compensation
levels and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of three non-employee
directors: Messrs. Freidenrich, Hambrecht and Kessman. It met one time during
such fiscal year.
During the year ended December 31, 1998, each Board member attended 75%
or more of the aggregate of the meetings of the Board and of the committee on
which he served, held during the period for which he was a director or committee
member, respectively.
4.
<PAGE>
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year ended December 31, 1999 and
has further directed that management submit the selection of independent
auditors for ratification by the shareholders at the Annual Meeting.
PricewaterhouseCoopers LLP has audited the Company's financial statements since
its inception in 1987. Representatives of PricewaterhouseCoopers LLP are
expected to be present at the Annual Meeting, will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions.
Shareholder ratification of the selection of PricewaterhouseCoopers LLP
as the Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of
PricewaterhosueCoopers LLP to the shareholders for ratification as a matter of
good corporate practice. If the shareholders fail to ratify the selection, the
Audit Committee and the Board will reconsider whether or not to retain that
firm. Even if the selection is ratified, the Audit Committee and the Board in
their discretion may direct the appointment of different independent auditors at
any time during the year if they determine that such a change would be in the
best interests of the Company and its shareholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and voting at the Annual Meeting will be
required to ratify the selection of PricewaterhouseCoopers LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
5.
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of February 22, 1999 by: (i) each
director and nominee for director; (ii) each executive officer named in the
Summary Compensation Table; (iii) all executive officers and directors of the
Company as a group; and (iv) all those known by the Company to be beneficial
owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP TABLE
.........................................................................
Beneficial Ownership (1)
---------------------------
Number of Percent
Beneficial Owner Shares of Total
- ------------------------------------------- ------------ ----------
<S> <C> <C>
Entities Affiliated with: 865,587 20%
Hambrecht & Quist Group (2)
One Bush Street
18th Floor
San Francisco, CA 94104
Tolvusamskipti HF (3) 439,560 9.4%
Kringlunni 19
103 Reykjavik, Iceland
Wellington Management Company, LLP (4) 415,000 9.6%
75 State Street
Boston, MA 02109
Entities Affiliated with: 386,454 8.9%
Bay Partners (5)
10600 North DeAnza Boulevard
Suite 100
Cupertino, CA 95014
Arthur H. Bruno (6) 187,250 4.3%
c/o Castelle
3255-3 Scott Boulevard
Santa Clara, CA 95054
Jerome J. Burke (7) 139,814 3.2%
John Freidenrich (8) 401,453 9.2%
Alan Kessman (9) 18,932 *
Robert H. Hambrecht (10) 9,627 *
Scott C. McDonald 0 *
Donald L. Rich 0 *
Prasad A. Raje (11) 108,340 2.4%
Peter R. Tierney 0 *
</TABLE>
All directors and executive officers as 865,416 18.9%
a group (total of 9 persons) (12)
See notes (6)(7)(8)(9)(10)(11) below
--------------------
* Less than one percent of total shares.
(1) This table is based upon information supplied by officers, directors
and principal shareholders and Schedules 13D and 13G filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise
indicated in the footnotes to this table and subject to community
property laws where applicable, the Company believes that each of
the shareholders named in this table has sole voting and investment
power with respect to the shares indicated as beneficially owned.
Applicable percentages are based on 4,337,375 shares outstanding on
February 22, 1999, adjusted as required by rules promulgated by the
SEC.
6.
<PAGE>
(2) Includes 60,835 shares held by H & Q Ventures IV, 338,482 shares
(and warrants exercisable within 60 days for 16,666 shares) held by
H & Q London Ventures, 1,251 shares held by Hamquist, 182,517 shares
held by Ivory & Sime Enterprise Capital PLC, 85,536 shares (and
warrants exercisable within 60 days for 136,666 shares) held by
Hambrecht & Quist California, and 43,634 shares held by the
Hambrecht & Quist Venture Partners. The entities named above and the
entities' respective general partners, directors, executive
officers, members and/or managers, as applicable, disclaim
beneficial ownership of any securities identified other than those
directly held by such person.
(3) Includes 339,560 shares of Common Stock to be issued within 60 days
of February 22, 1999 pursuant to terms set forth in that certain
acquisition agreement entered into by Tolvusamskipti HF and the
Company in April 1998.
(4) Wellington Management Company, LLP, a registered investment advisor
under the Investment Advisors Act of 1940, shares voting and
investment power over 415,000 shares of the Company's Common Stock
with its clients.
(5) Includes 15,453 shares held by California BPIV, L.P., 193,231 shares
held by Bay Partners III and 177,770 shares held by Bay Partners IV.
John Freidenrich, a director of the Company, and John Bosch are
general partners of California BPIV, L.P., and of Bay Management
Company, L.P. and Bay Management Company IV, L.P., the general
partners of Bay Partners III and Bay Partners IV. Neal Dempsey is a
general partner of California BPIV, L.P. and Bay Management Company
IV, L.P. In such capacities, Messrs. Bosch, Dempsey and Freidenrich
have shared voting and investment power over shares of the Company's
Common Stock held by California BP IV, L.P., Bay Partners III and
Bay Partners IV. They disclaim beneficial ownership as to these
shares, except to the extent of their respective pecuniary interests
therein.
(6) Includes 45,000 shares of Common Stock subject to options
exercisable within 60 days of February 22, 1999 and 10,000 shares of
Common Stock held by Mr. Bruno's wife.
(7) Includes 66,249 shares of Common Stock subject to options
exercisable within 60 days of February 22, 1999.
(8) Includes 15,453 shares held by California BP IV, L.P., 193,231
shares held by Bay Partners III and 177,770 shares held by Bay
Partners IV. John Freidenrich, a director of the Company, and
general partner of California BP IV, L.P. and of Bay Management
Company, L.P. and Bay Management Company IV, L.P., the general
partners of Bay Partners III and Bay Partners IV. Mr. Freidenrich
disclaims beneficial ownership as to these shares, except to the
extent of their respective pecuniary interests therein. Also
includes 10,000 shares held by the Freidenrich Family Trust and
4,999 shares of Common Stock subject to options exercisable within
60 days of February 22, 1999.
(9) Includes 14,373 shares of Common Stock subject to options
exercisable within 60 days of February 22, 1999.
(10) Includes 3,707 shares of Common Stock subject to options exercisable
within 60 days of February 22, 1999.
(11) Includes 108,340 shares of Common Stock subject to options
exercisable within 60 days of February 22, 1999
(12) Includes shares described in the notes above, as applicable.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
7.
<PAGE>
EXECUTIVE COMPENSATION
Compensation of Directors
Directors currently receive no cash compensation from the Company for
their services as members of the Board. They are reimbursed for certain expenses
in connection with attendance at Board and Committee meetings.
Each non-employee director of the Company receives stock option grants
under the 1995 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). Only non-employee directors of the Company are eligible to receive
options under the Directors' Plan. Options granted under the Directors' Plan are
intended by the Company not to qualify as incentive stock options under the
Code.
Option grants under the Directors' Plan are non-discretionary. Upon
initial election to be a non-employee director, a person is granted an option to
purchase 5,000 shares of Common Stock of the Company. On April 1 of each year
(or the next business day should such date be a legal holiday), each member of
the Company's Board who is not an employee of the Company is automatically
granted under the Directors' Plan, without further action by the Company, the
Board or the shareholders of the Company, an option to purchase 2,000 shares of
Common Stock of the Company. The exercise price of options granted under the
Directors' Plan is 100% of the fair market value of the Common Stock subject to
the option on the date of the option grant. Options granted under the Directors'
Plan vest in 24 equal installments beginning one month after the date of grant
provided the optionee has, during the entire period prior to such vesting date,
continuously served as a non-employee director, employee or consultant of the
Company or an affiliate of the Company. The term of options granted under the
Directors' Plan is ten years. In the event of a merger of the Company with or
into another corporation or a consolidation, acquisition of assets or other
change-in-control transaction involving the Company, vesting will be accelerated
and the option will terminate if not exercised prior to the consummation of the
transaction.
On March 20, 1998, pursuant to the terms of the Directors' Plan, Mr.
Hambrecht received an initial option to purchase 5,000 shares of the Company's
Common Stock at an exercise price per share of $2.37. On April 1, 1998, pursuant
to the terms of the Directors' Plan, the Company granted options covering 2,000
shares of Common Stock of the Company to each non-employee director of the
Company, at an exercise price per share of $2.38 which was the fair market value
of such Common Stock on the date of grant. As of February 22, 1999, no options
had been exercised under the Directors' Plan.
Pursuant to an agreement, Mr. Kessman performs consulting services for
the Company. In 1998, Mr. Kessman received $25,000 in consulting fees for
services performed for the Company.
8.
<PAGE>
Compensation of Executive Officers
Summary of Compensation
The following table shows for the fiscal years ended December 31, 1998,
1997 and 1996, compensation awarded or paid to, or earned by, the Company's
Chief Executive Officers and its other executive officers whose total annual
salary and bonus exceeded $100,000 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
....................................................................................................................................
Long-Term Compensation
Annual Compensation Awards
----------------------------------------- ----------------------------
Restricted Securities
Name and Principal Other Annual Stock Underlying All Other
Position Year Salary ($) Bonus ($) Compensation Award(s)($) Options (#) Compensation
--------------------------- ------ ------------ ----------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arthur H. Bruno (1) 1998 $150,000 -- -- -- -- --
Chairman of the Board and 1997 $183,462 $50,000 -- -- 45,000 --
Director, and 1996 $176,538 $50,000 -- -- -- --
Former Chief Executive
Officer
Donald L. Rich (2) 1998 $22,307 -- -- -- 300,000 --
President, Chief 1997 -- -- -- -- -- --
Executive Officer and 1996 -- -- -- -- -- --
Director
Jerome J. Burke (3) 1998 $175,000 $69,456(4) -- -- 50,000 --
Executive Vice President 1997 $135,000 $118,584(5) -- -- 77,000 --
and Former President and 1996 $124,578 $120,720(6) -- -- -- --
Chief Operating Officer
Randall I. Bambrough (7) 1998 $150,384 -- -- -- 25,000 --
Former Chief Financial 1997 $126,077 $15,000 -- -- 50,000 --
Officer, Vice President 1996 $112,188 $10,000 -- -- 5,000 --
of Finance and
Administration
and Secretary
Prasad Raje 1998 $148,942 -- -- -- 50,000 --
Chief Technical Officer 1997 $75,807 -- -- -- 150,000 --
and Vice President of 1996 -- -- -- -- -- --
Engineering
</TABLE>
---------------
(1) Mr. Bruno served as the Company's Chairman of the Board since October
1993, as Chief Executive Officer from October 1993 through April 1997
and from November 1997 to November 1998, and as President from
October 1993 through April 1997. From February 1996 to the present he
has served as the Chairman
(2) Mr. Rich joined the Company as President and Chief Executive Officer
in November 1998.
(3) Mr. Burke resigned as President and Chief Operating Officer in
November 1998 and remained at the Company as an Executive Vice
President.
(4) Represents bonus and sales commissions paid by the Company for sales
made in 1998.
(5) Represents bonus and sales commissions paid by the Company for sales
made in 1997.
(6) Represents bonus and sales commissions paid by the Company for sales
made in 1996.
(7) Mr. Bambrough resigned as Chief Financial Officer, Vice President of
Finance and Administration in January 1999 and resigned as Secretary
on March 31, 1999.
9.
<PAGE>
Stock Option Grants and Exercises
The Company grants options to its executive officers under its 1988
Equity Incentive Plan. As of December 31, 1998, options to purchase a total of
1,394,025 shares were outstanding under the Incentive Plan and options to
purchase 182,091 shares remained available for grant thereunder. There were no
stock option exercises during 1998 by any Named Executive Officer.
The following tables show for the fiscal year ended December 31, 1998,
certain information regarding options granted to, exercised by, and held at
year-end by the Named Executive Officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
................................................................................................................................
Number of Potential Realizable Value (4) at
Securities % of Total Assumed Annual Rates of Stock Price
Underlying Options Exercise Appreciation for Option Term
-----------------------------------
Name and Principal Position Options Granted in Price Expiration
Granted (1) Fiscal Year Per Share(3) Date 5% ($) 10% ($)
(2)
- ---------------------------- ------------- ------------- ------------ ----------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Arthur H. Bruno -- -- -- -- -- --
Chairman of the Board and
Director, and Former
Chief Executive Officer
Donald L. Rich 300,000 46.2% $1.00 11/10/05 $125,400 $302,400
President, Chief Executive
Officer and Director
Jerome J. Burke 50,000 7.7% $1.50 08/04/05 $31,350 $75,600
Executive Vice President
and Former President and
Chief Operating Officer
Randall I. Bambrough 25,000 3.8% $1.50 08/04/05 $15,675 $37,800
Former Chief Financial
Officer, Vice President
of Finance and
Administration
and Secretary
Prasad Raje 50,000 7.7% $1.50 08/04/05 $31,350 $75,600
Chief Technical Officer
and Vice President of
Engineering
</TABLE>
--------------------
(1) Options granted to Messrs. Burke, Bambrough and Raje vest monthly in
equal increments over a two-year period; one sixth of the options
granted to Mr. Rich vest on May 11, 1999 and the remaining options
vest monthly in equal increments over a 30 month period.
(2) Based on an aggregate of 649,500 shares of Common Stock subject to
options granted to employees in 1998.
(3) The exercise price is equal to 100% of the fair market value of
Common Stock at the date of grant.
(4) The potential realizable value is calculated based on the term of the
option at its date of grant. It is calculated based on the assumption
that the stock price on the date of grant appreciates from the date
of grant at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold
on the last day of its term for the appreciated stock price. The 5%
and 10% assumed rates of appreciation are derived from the rules of
the Commission and do not represent the Company's estimate or
projection of future Common Stock price.
10.
<PAGE>
OPTION REPRICING INFORMATION
<TABLE>
<CAPTION>
Number of Market Price Exercise Length of
Securities of Stock at Price at Original Option
Underlying Time of Time of Term Remaining
Options Repricing or Repricing or at Date of
Name and Principal Position Repriced or Amendment ($) Amendment ($) New Exercise Repricing or
Date Amended (#) Price Amendment
- ---------------------------- ------------- ------------- ------------ ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Arthur H. Bruno 08/21/98 45,000 $1.56 $5.75 $1.56 5.5 years
Chairman of the Board and
Director, and Former
Chief Executive Officer
Donald L. Rich -- -- -- -- -- --
President, Chief Executive
Officer and Director
Jerome J. Burke 08/21/98 30,000 $1.56 $5.75 $1.56 5.5 years
Executive Vice President 08/21/98 47,000 $1.56 $4.50 $1.56 6 years
and Former President and
Chief Operating Officer
Randall I. Bambrough 08/21/98 2,500 $1.56 $6.00 $1.56 4.25 years
Former Chief Financial 08/21/98 7,500 $1.56 $5.00 $1.56 3.8 years
Officer, Vice President 08/21/98 5,000 $1.56 $7.75 $1.56 4.8 years
of Finance and 08/21/98 5,000 $1.56 $5.50 $1.56 5.5 years
Administration 08/21/98 45,000 $1.56 $4.50 $1.56 6 years
and Secretary
Prasad Raje 08/21/98 150,000 $1.56 $4.50 $1.56 6 years
Chief Technical Officer
and Vice President of
Engineering
</TABLE>
Termination of Employment Arrangements
The Company has entered into severance and transition benefit
agreements with Messrs. Bambrough, Burke, Rich and Raje pursuant to which the
Company will pay the executive a lump sum equal to 100% of each officer's
annualized salary and maintain the medical benefits enjoyed by him for one year
following either a voluntary termination of employment for good reason (as
defined in each agreement) by the executive or an involuntary termination of
employment without cause (as defined in each agreement). Mr. Raje, however, will
also receive such benefits in the event he resigns or voluntary terminates his
employment with the Company after January 6, 1998. In addition, each of Messrs.
Bambrough, Burke, Rich and Raje is eligible to earn an additional lump sum
payment equal to six months of his base salary if he remains with the Company at
least ninety days after a change in control and is terminated for cause or
leaves voluntarily without good reason, or if he remains in excess of ninety
days and his employment is subsequently terminated. Additionally, Mr. Rich and
Mr. Raje are entitled to certain acceleration of the vesting of their options in
the event either is involuntary terminated by the Company as set forth above.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS(*1)
The Compensation Committee of the Board is responsible for determining
compensation policies for the Company's executive officers, including any
stock-based awards to such individuals under the Company's 1988 Equity Incentive
Plan. In determining executive officer compensation, the Compensation Committee
considers corporate performance against the Company's objectives.
In addition, the Compensation Committee structures executive
compensation packages with two objectives: (1) to ensure that the compensation
and incentives provided to the executive officers are closely aligned with the
Company's financial performance and shareholder value, and (2) to attract and
retain, through a competitive compensation structure, those key executives
critical to the long-term success of the Company.
- ---------------------
*1 The material in this report is not "soliciting material," is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any
filing of the Company under the Security Exhange Act of 1933 (the "1933
Act") or 1934 Act, whether made before or after the date hereof and
irrespective of any general incorporation language contained in such
filing.
11.
<PAGE>
In addressing the first objective, the Compensation Committee utilizes
stock option grants to executive officers in lieu of higher salaries or cash
bonuses to tie executive officer compensation directly to the Company's stock
price performance. The Compensation Committee believes that the grant of an
equity interest in the Company serves to link management interests with
shareholder interests and to motivate executive officers to make decisions that
are in the best interests of the Company and the shareholders. The Board
considers stock option grants to executive officers based on various factors,
including (i) each officer's responsibilities, (ii) any changes in such
responsibilities, (iii) past option grants and each officer's current equity
interest in the Company and (iv) performance.
The second objective of the overall executive compensation policy is
addressed by a salary and bonus policy which is based on (i) consideration of
the salaries and total compensation of executive officers in similar positions
with comparable companies in the industry (ii) the qualifications and experience
of each executive officer, (iii) the Company's financial performance during the
past year and (iv) each officer's performance against objectives related to
their areas of responsibility. The Compensation Committee periodically reviews
individual base salaries of executive officers, and adjusts salaries based on
individual job performance and changes in the officer's duties and
responsibilities. In making salary decisions, the Board exercises its discretion
and judgment based on these factors. No specific formula is applied to determine
the weight of each factor, although the mix among the compensation elements of
salary, cash incentive and stock options are biased toward stock options to
emphasize the link between executive incentives and the creation of shareholder
value as measured by the equity markets. Consequently, salaries and cash
incentives are set in the low-range as compared to the comparable companies in
the industry while stock options are set in the mid to high-range compared to
comparable companies. The Chief Executive Officer provides the Board with
recommendations for individual executive officers based upon an evaluation of
their performance against objectives and responsibilities.
The Compensation Committee believes that another key element of
executive compensation should be the variable portion provided by annual cash
incentive plans. The cash incentive portion of the executive officers'
compensation is dependent primarily on the Company's financial performance and
achievement of specified corporate objectives as determined by the Compensation
Committee. The Company's executive officer annual bonus plan is designed such
that if the Company performs above its stated objectives, cash incentives
awarded may be above the targeted amounts. If the Company performs below its
stated objectives, cash awards may be significantly reduced, and may be
eliminated altogether if performance is below defined thresholds. A
substantially smaller portion of each executives' annual bonus is based on
performance against individual objectives.
The Board uses the same factors described above for the executive
officers in setting the annual salary, stock option grant and cash incentives
awarded to the Chief Executive Officer. As a result of the subjective evaluation
of these factors and a reduction in responsibilities, the Board decreased Mr.
Bruno's base salary for 1998 from the amount earned by him in 1997 and did not
award Mr. Bruno a cash bonus or grant him options to purchase shares of Common
Stock of the Company.
In connection with the engagement of Mr. Rich as the new President and
Chief Executive Officer of the Company in November 1998, the Board negotiated a
compensation package with that individual which included an annualized base
salary of $200,000 and is eligible to earn a bonus of $100,000 if specific
performance criteria are met. Mr. Rich also received an option to purchase
300,000 shares of Common Stock of the Company at the fair market value on the
date of grant. Mr. Rich is also entitled to the payment of certain additional
benefits in the event he is terminated by the Company under certain
circumstances. The compensation package received by Mr. Rich, including the
severance component, was approved by the Compensation Committee based on the
collective experience of the Compensation Committee and members with respect to
the competitive labor market in the Silicon Valley, the opportunities available
to qualified candidates such as Mr. Rich, and the terms of compensation packages
typically offered to attract qualified executive officers.
Compensation Committee of the Board of Directors
Robert Hambrecht
John Freidenrich
Alan Kessman
12.
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON(*2)
The following graph shows the total shareholder return of an investment
of $100 in cash on December 20, 1995 for (i) the Company's Common Stock, (ii)
the Nasdaq Stock Market Index (US Companies) and (iii) the Nasdaq Computer
Manufacturers Stock Index. All values assume reinvestment of the full amount of
all dividends and are calculated as of December 31 of each year:
<TABLE>
<CAPTION>
PERFORMANCE MEASUREMENT TABLE
................................................................................
Nasdaq Stock Nasdaq Computer
Market Index Manufacturers
Date CASTELLE (US Companies) Stock Index
- ------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
12/20/95 $100.000 $100.000 $100.000
12/29/95 $106.897 $102.668 $101.867
12/31/96 $79.310 $126.278 $136.783
12/31/97 $29.310 $154.996 $165.580
12/31/98 $13.793 $218.185 $357.972
</TABLE>
- -----------------
*2 This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
13.
<PAGE>
CERTAIN TRANSACTIONS
The Company's Bylaws provide that the Company will indemnify its
directors and executive officers to the fullest extent not prohibited by
California law. Under the Company's Bylaws, indemnified parties are entitled to
indemnification for negligence, gross negligence and otherwise to the fullest
extent permitted by law. The Bylaws also require the Company to advance
litigation expenses in the case of legal proceedings, against an undertaking by
the indemnified party to repay such advances if it is ultimately determined that
the indemnified party is not entitled to indemnification.
14.
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/Laurie Gee
Laurie Gee
Vice President, Finance and Administration
and Secretary
April 28, 1999
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended December 31, 1998 is available
without charge upon written request to: Corporate Secretary, Castelle, 3255-3
Scott Boulevard, Santa Clara, California 95054.
15.
<PAGE>
CASTELLE
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 25, 1999
The undersigned hereby appoints DONALD L. RICH and LAURIE GEE, and each of
them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Castelle that the
undersigned may be entitled to vote at the Annual Meeting of Shareholders of
Castelle to be held on Tuesday, May 25, 1999, at 10:00 a.m. local time, at the
Company's corporate offices, located at 3255-3 Scott Boulevard, Santa Clara,
California, and at any and all continuations and adjournments thereof, with all
powers that the undersigned would possess if personally present, upon and in
respect of the following matters and in accordance with the following
instructions, with discretionary authority as to any and all other matters that
may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2, AS MORE SPECIFICALLY DESCRIBED
IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL
BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
Proposal 1: To elect four directors whether by cumulative voting or otherwise,
to hold office until the next Annual Meeting of Shareholders and
until their successors are elected.
| | FOR all nominees listed | | WITHHOLD AUTHORITY
below (except as written to vote for all nominees below
below)
Nominees: Donald L. Rich, Robert Hambrecht, Scott C. McDonald and
Peter R. Tierney
To withhold authority to vote for any nominee(s), write such
nominee(s)' name(s) below:
---------------------------------------------------------------------
<PAGE>
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2.
Proposal 2: To ratify the selection of PricewatershouseCoopers LLP as the
Company's independent auditors for the fiscal year ending December
31, 1999.
| | FOR | | AGAINST | | ABSTAIN
Dated: , 1999
--------------------------------------
--------------------------------------
Signature(s)
Please sign exactly as your name
appears hereon. If the stock is
registered in the names of two or more
persons, each should sign. Executors,
administrators, trustees, guardians
and attorneys-in-fact should add their
titles. If signer is a corporation,
please give full corporate name and
have a duly authorized officer sign,
stating title. If signer is a
partnership, please sign in
partnership name by authorized person.
PLEASE VOTE, DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE>
