SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
CASTELLE
----------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
CASTELLE
3255-3 SCOTT BOULEVARD
SANTA CLARA, CALIFORNIA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 10, 2000
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 Wednesday,
May 10, 2000, at 1:30 p.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, 2000.
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 March 30,
2000, 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/ Donald L. Rich
Donald L. Rich
Chairman of the Board, President,
Chief Executive Officer,
Chief Financial Officer and Secretary
Santa Clara, California
April 10, 2000
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.
CASTELLE
3255-3 SCOTT BOULEVARD
SANTA CLARA, CALIFORNIA
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
May 10, 2000
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 10, 2000, at 1:30 p.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 10, 2000 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
March 30, 2000 will be entitled to notice of and to vote at the Annual Meeting.
At the close of business on March 30, 2000, the Company had outstanding and
entitled to vote 4,654,823 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
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.
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 2001 annual
meeting of shareholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is December 11, 2001. 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 February 24, 2001,
management will have discretionary authority to vote all shares for which it has
proxies in opposition to such matter.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors is presently composed of four members. 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 of the four nominees
listed below is currently a director of the Company, having been elected by the
shareholders and 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:
Name Age Position
Donald L. Rich 58 Chairman of the Board, President, Chief Executive Officer,
Chief Financial Officer, Secretary and Director
Peter R. Tierney 55 Director and President and Chief Executive Officer of
MarketFirst Software Inc.
Robert H. Hambrecht 33 Director and Managing Director of Equity Capital Markets,
W.R. Hambrecht & Company
Scott C. McDonald 47 Director and Chief Financial and Administrative Officer of
Conxion Corporation
2.
Set forth below is biographical information for each nominee whose term
of office as a director will continue after the Annual Meeting.
Robert H. Hambrecht
Mr. Hambrecht has served as a director of the Company since March 1998.
Mr. Hambrecht was a founding partner of W.R. Hambrecht & Company, an investment
banking firm, founded in January 1998, and is presently their Managing Director
of Equity Capital Markets. From April 1996 through January 1998, Mr. Hambrecht
was Vice President of H&Q Venture Partners, a venture capital firm,. 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 five privately-held companies.
Donald L. Rich
Mr. Rich joined the Company in November 1998 and has served as Chief
Executive Officer and President from November 1998 to the present. Mr. Rich has
served as Chief Financial Officer since April 1999. He became Chairman of the
Board in May 1999 and has served as Secretary since February 2000. From January
1997 until November 1998, Mr. Rich was self-employed as a consultant. From 1993
through 1997, Mr. Rich was Chief Executive Officer and President of Talarian
Corporation, a provider of real-time infrastructure software for the enterprise
and the Internet. Prior to that, he held various sales and marketing management
positions at Integrated Systems, Inc. and International Business Machines
Corporation. Mr. Rich holds a BS degree in Mechanical Engineering from Purdue
University and an MBA from the Stanford Graduate School of Business.
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. Most
recently, Mr. Tierney served as a consultant to Siebel Systems Corporation. 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.
Scott C. McDonald
Mr. McDonald has served as a director of the Company since April 1999.
Since December 1999, Mr. McDonald has served as the Chief Financial and
Administrative Officer at Conxion Corporation, an Internet network and
intellectual property services company providing solutions for e-businesses.
From 1993 to 1997, 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, 1999 the Board of Directors
held four meetings. The Board has an Audit Committee and a Compensation
Committee.
3.
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 currently composed of two
non-employee directors: Messrs. Hambrecht and McDonald. It met one time 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 two non-employee directors:
Messrs. Hambrecht and Tierney. The Compensation Committee acted by written
consent twice during 1999.
During the year ended December 31, 1999, each Board member except Peter
Tierney 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.
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, 2000 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 (which shares
voting affirmatively also constitute at least a majority of the required quorum)
will be required to ratify the selection of PricewaterhouseCoopers LLP. For
purposes of the vote, abstentions and broker non-votes will not be counted for
any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
4.
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, 2000 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.
BENEFICIAL OWNERSHIP TABLE
Beneficial Ownership (1)
------------------------------------
Beneficial Owner Number of Shares Percent of Total
---------------- ---------------- ----------------
Entities Affiliated with: 683,066 14.7%
Chase Manhattan Corporation (2)
One Bush Street
18th Floor
San Francisco, CA 94104
Tolvusamskipti HF 439,560 9.5%
Kringlunni 19
103 Reykjavik, Iceland
Jerome J. Burke 57,065 1.2%
Robert H. Hambrecht (3) 13,961 *
Scott C. McDonald (4) 5,004 *
Donald L. Rich (5) 326,384 6.6%
Prasad A. Raje 0 *
Peter R. Tierney (6) 5,004 *
Laurie Gee (7) 10,000 *
Ronnie Mansoor (8) 59,939 1.3%
All directors and executive officers as a group
(total of 8 persons) (9) 477,357 9.4%
See notes (3)(4)(5)(6)(7)(8) and (9) below
<FN>
- -----------------------------------
* 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 4,648,160 shares outstanding on February 22,
2000, adjusted as required by rules promulgated by the SEC.
(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, 85,536 shares (and
warrants exercisable within 60 days for 120,000 shares) held by
Hambrecht & Quist California, 43,634 shares held by the Hambrecht &
Quist Venture Partners and warrants exercisable within 60 days for
16,666 shares held by Hambrecht & Quist Group. 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 8,041 shares of Common Stock subject to options exercisable
within 60 days of February 22, 2000.
(4) Includes 5,004 shares of Common Stock subject to options exercisable
within 60 days of February 22, 2000.
5.
(5) Includes 326,384 shares of Common Stock subject to options exercisable
within 60 days of February 22, 2000 and excludes an aggregate of 8,000
shares of Common Stock held by Mr. Rich's wife for which Mr. Rich
disclaims beneficial ownership.
(6) Includes 5,004 shares of Common Stock subject to options exercisable
within 60 days of February 22, 2000.
(7) Includes 10,000 shares of Common Stock subject to options exercisable
within 60 days of February 22, 2000.
(8) Includes 59,939 shares of Common Stock subject to options exercisable
within 60 days of February 22, 2000.
(9) Includes shares described in the notes above, as applicable.
</FN>
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, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except two
initial reports of ownership were inadvertently filed late by Mr. Mansoor and
Ms. Gee.
6.
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"), as amended. 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 10,000 shares of Common Stock of the Company. Prior to the Directors'
Plan being amended on February 24, 2000, 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 was not an employee of the Company was 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. Beginning on April 1, 2000, each member of the Company's Board
who was not an employee of the Company will automatically be granted under the
Directors' Plan an option to purchase 10,000 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 April 1, 1999, pursuant to the terms of the Directors' Plan, the
Company granted Mr. Hambrecht options to purchase 2,000 shares of Common Stock
of the Company at an exercise price of $0.56 which was the fair market value of
Common Stock on the date of grant. On April 14, 1999, pursuant to the terms of
the Director's Plan, the Company granted options covering 10,000 shares of
Common Stock of the Company to Scott C. McDonald and Peter R. Tierney at an
exercise price per share of $0.3438 which was the fair market value of such
Common Stock on the date of grant. As of February 22, 2000, no options had been
exercised under the Directors' Plan.
7.
Compensation of Executive Officers
Summary of Compensation
The following table shows for the fiscal years ended December 31, 1999,
1998 and 1997, compensation awarded or paid to, or earned by, the Company's
Chief Executive Officer and its other three most highly compensated executive
officers at December 31, 1999 and two former executive officers who departed
from the Company during fiscal year 1999 whose total annual salary and bonus
exceeded $100,000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
----------------------------------------- --------------------------
Restricted Securities
Other Annual Stock Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Compensation Award(s)($) Options (#) Compensation
- --------------------------- ---- ---------- ---------- ------------ ----------- ----------- ------------
Donald L. Rich (1) 1999 $200,000 $100,000(2) -- -- 200,000 --
President, Chairman of the 1998 $ 22,307 $ 0 -- -- 300,000 --
Board, Chief Executive 1997 -- -- -- -- -- --
Officer, Chief Financial
Officer, Secretary and
Director
Jerome J. Burke (3) 1999 $ 82,082 $ 22,184 -- $175,000(5)
Former Executive Vice 1998 $175,000 $ 69,456 50,000 --
President 1997 $135,000 $118,584(4) -- -- 77,000 --
Prasad Raje (6) 1999 $114,430 $ 40,000 -- -- 50,000 $160,000(7)
Former Chief Technical 1998 $148,942 $ 0 -- -- 50,000 --
Officer and Former Vice 1997 $ 75,807 $ 0 -- -- 150,000 --
President of Engineering
Laurie Gee (8)(9) 1999 $124,666 $ 5,000(10) -- -- 45,000 --
Former Vice President,
Finance and Administration
and Secretary
Ronnie Mansoor(9) 1999 $138,923 $ 21,959 -- -- 110,000 --
Vice President of
Engineering
<FN>
- -----------------------------------------
(1) Mr. Rich joined the Company as President and Chief Executive Officer in November 1998.
(2) Represents a $100,000 bonus earned for services rendered in 1999 and paid on March 16, 2000.
(3) Mr. Burke resigned as an Executive Vice President on April 30, 1999.
(4) Represents bonus and sales commissions paid by the Company for sales made in 1997.
(5) Represents severance pay paid by the Company pursuant to the severance agreement between Mr. Burke and
the Company.
(6) Mr. Raje resigned as Chief Technical Officer and Vice President of Engineering on July 30, 1999.
(7) Represents severance pay paid by the Company pursuant to the severance agreement between Mr. Raje and
the Company.
(8) Ms. Gee resigned as Secretary on January 7, 2000.
(9) Ms. Gee and Mr. Mansoor became executive officers in March 1999 and July 1999, respectively. Therefore,
no amounts are shown for fiscal 1998 or 1997.
(10) Represents bonus earned for services rendered in 1999 and paid in 2000.
</FN>
8.
Stock Option Grants and Exercises
The Company grants options to its executive officers under its 1988
Equity Incentive Plan. As of December 31, 1999, options to purchase a total of
1,308,547 shares were outstanding under the Incentive Plan and options to
purchase 223,131 shares remained available for grant thereunder. There were no
stock option exercises during 1999 by any Named Executive Officer.
The following tables show for the fiscal year ended December 31, 1999,
certain information regarding options granted to, exercised by, and held at
year-end by the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
Potential Realizable Value at
Number of Assumed Annual Rates of Stock
Securities % of Total Price Appreciation
Underlying Options Granted for Option Term(4)
Name and Principal Options in Fiscal Exercise Price Expiration ------------------------
Position Granted(1) Year(2) Per Share(3) Date 5%($) 10%($)
-------- ---------- ------ ------------ ----- ----- ------
Donald L. Rich 200,000 30% $0.875 11/10/09 $110,057 $278,905
Chairman of the Board,
President, Chief Executive
Officer, Chief Financial
Officer, Secretary and
Director
Laurie Gee Former 40,000 6% $0.9375 02/22/09 19,511 53,281
Vice President, Finance 5,000 0.75% $0.875 11/10/09 3,260 7,783
and Administration and
Secretary
Ronnie Mansoor 30,000 4.5% $0.875 11/10/06 10,686 24,904
Vice President of
Engineering
Jerome Burke -- -- -- -- -- --
Former Executive Vice
President
Prasad Raje 25,000 3.8% $1.00 5/24/06 -- --
Former Chief Technical 25,000 3.8% $1.00 5/24/06
Officer and Former Vice
President of Engineering
<FN>
- -------------------------------------------
1(1) The options granted to Mr. Rich vested in full on November 10, 1999.
One-fourth of the options granted to Mr. Mansoor vest on November 10,
2000 and the remaining options vest monthly in equal increments over a
36-month period. One-fourth of the options to purchase 5,000 shares of
the Company's Common Stock granted to Ms. Gee vest on November 10, 2000
and the remaining shares vest monthly in equal increments over a
36-month period. One-eighth of the options to purchase 40,000 shares of
the Company's Common Stock granted to Ms. Gee vested on August 23, 1999
and remaining shares vest monthly in equal increments over a 42-month
period. One forty-eighth of Mr. Prasad's first 25,000 share grant vest
monthly in equal increments over a 48-month period following May 25,
1999 and one-eighth of Mr. Prasad's second 25,000 share grant would
have vested on November 25, 1999 with the remaining shares vesting
monthly in equal increments over a 42-month period; however, Mr. Prasad
resigned as Chief Technical Officer and Vice President of Engineering
on July 30, 1999 and the options granted in 1999 expired on October 30,
1999.
(2) Based on an aggregate of 664,670 shares of Common Stock subject to
options granted to employees in 1999.
9.
(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. Amounts are not shown for Mr. Raje because
of his resignation from the Company on July 30, 1999 and the subsequent
expiration of his options.
</FN>
Termination of Employment Arrangements
Pursuant to the severance and transition benefit agreements between the
Company and Messrs. Burke and Raje, the Company paid each executive a lump sum
equal to 100% of each officer's annualized salary and maintained the medical
benefits enjoyed by him for one year following each executive's termination of
employment with the Company. Mr. Burke received $175,000 as severance pay upon
his termination of employment with the Company on April 30, 1999, and Mr. Raje
received $160,000 as severance pay upon his termination of employment with the
Company on July 30, 1999.
The Company has entered into a severance and transition benefit
agreement with Mr. Rich pursuant to which the Company will pay Mr. Rich a lump
sum equal to 100% of his 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 his agreement) by Mr. Rich or an
involuntary termination of employment without cause (as defined in his
agreement). In addition, Mr. Rich 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. Mr. Rich also is entitled to
certain acceleration of the vesting of his options in the event he is
involuntary terminated by the Company as set forth above.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS1
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Committee currently
consists of Robert Hambrecht and Peter Tierney, neither of whom is an employee
of the Company. The Committee 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.
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.
In addressing the first objective, the Compensation Committee utilizes
stock option grants to executive officers to tie a portion 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.
- ---------------------------------
(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 Securities Act of 1933, as amended
(the "1933 Act") or the 1934 Act, whether made before or after the date
hereof and irrespective of any general incorporation language contained
in such filing.
10.
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 may be in the low-range as compared to the comparable companies in
the industry while stock options may be 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 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 compensation plan is designed such that if the
Company meets its stated objectives, executive officers receive the cash
incentive part of their compensation. If the Company performs below its stated
objectives, the cash incentive portion of the executive's compensation is
significantly reduced, and may be eliminated altogether if performance is below
defined thresholds. A substantially smaller portion of some executives'
incentive compensation 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. 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. Mr. Rich was also eligible to
earn a bonus of $100,000 if the Company achieved certain financial performance
goals. Since the Company obtained the established financial performance goals,
the Company awarded Mr. Rich a bonus of $100,000.
In November 1999, the Compensation Committee determined that because
Mr. Rich had made extraordinary contributions to the Company in fiscal 1999 and
that he would play a very significant role in ability of the Company to succeed,
the Committee granted Mr. Rich an option to purchase 200,000 shares of Common
Stock at the fair market value on the date of grant. These options were fully
vested on the date of the grant.
The Compensation Committee determined that 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.
Section 162(m) of the Internal Revenue Code (the "Code"), generally
imposes on the Company an annual corporate deduction limitation of $1 million on
the compensation of certain executive officers. Compensation in excess of $1
million may be deducted if it is performance-based compensation within the
meaning of the Code. The Committee has not yet adopted a policy with respect to
the treatment of all forms of compensation under Section 162(m); however, the
Committee has determined that stock options granted under the Company's 1988
Equity Incentive Plan with an exercise price at least equal to the fair market
value of the Company's Common Stock on the date of grant should, where
practicable, be treated as "performance-based compensation," and the 1988 Equity
11.
Incentive Plan contains provisions designed to allow compensation recognized by
an executive officer as a result of the grant of a stock option to be deductible
by the Company.
Compensation Committee of
the Board of Directors
Robert H. Hambrecht
Peter R. Tierney
12.
PERFORMANCE MEASUREMENT COMPARISON(1)
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
Manufacturer Stock Index. All values assume reinvestment of the full amount of
all dividends and are calculated as of December 31 of each year:
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
- -----------------------------------
(1) 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.
PERFORMANCE MEASUREMENT TABLE
------------------------------------------------
Nasdaq Stock Nasdaq Computer
Market Index Manufacturers
Date CASTELLE (US Companies) Stock Index
---- -------- ---------- -----------
12/20/95 $100.00 $100.00 $100.00
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 $13.80 $218.20 $358.00
12/31/99 $25.86 $394.02 $752.57
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.
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/ Donald L. Rich
Donald L. Rich
President, Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer,
Director and Secretary
April 10, 2000
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, 1999 is available
without charge upon written request to: Corporate Secretary, Castelle, 3255-3
Scott Boulevard, Santa Clara, California 95054.
14.
CASTELLE
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 10, 2000
The undersigned hereby appoints DONALD L. RICH, as attorney and proxy
of the undersigned, with full power of substitution, to vote all of the shares
of stock of Castelle which the undersigned may be entitled to vote at the Annual
Meeting of Shareholders of Castelle to be held at Castelle's corporate offices
at 3255-3 Scott Boulevard, Santa Clara, California on Wednesday, May 10, 2000 at
1:30 p.m. (local time), and at any and all postponements, 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 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 below |_| WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below). listed below.
Nominees: Donald L. Rich, Peter R. Tierney, Robert H. Hambrecht and
Scott C. McDonald
To withhold authority to vote for any nominee(s), write such nominee(s)' name(s)
below:
________________________________________________________________________________
________________________________________________________________________________
(Continued on other side)
15.
(Continued from other side)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: To ratify selection of PricewaterhouseCoopers LLP as independent
auditors of the Company for its fiscal year ending December 31,
2000.
|_| FOR |_| AGAINST |_| ABSTAIN
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.
DATED _______________________ __________________________________________
__________________________________________
SIGNATURE(S)
Please vote, date and promptly return this proxy in the enclosed return envelope
which is postage prepaid if mailed in the United States.
16.