Castle Union LLC is eying a potential proxy fight at Procera Networks Inc. (PKT) if the communications equipment maker doesn't launch a public strategic review process by the end of January.

"All shareholders share the same frustration with the company," said Toan Tran, managing partner at Chicago-based Castle Union. The hedge fund, which first started investing in Procera early October, disclosed its 5% stake in an Oct. 28 filing with the Securities and Exchange Commission, in which it stated it planned to talk to management or the board about strategic alternatives, including a potential sale.

Subsequently, the investor increased its stake in the Fremont, Calif.-based company to 6.6%, according to a Dec. 5 filing.

The hedge fund purchased additional shares because the stock is cheap, Tran explained. Procera stock, which is down about 55% year-to-date, was trading at $6.80 mid-day Tuesday.

Given that the company has been performing poorly and has repeatedly missed expectations, it is time for the board and management to be held accountable, Tran said.

If Procera doesn't make a public announcement before Jan. 29, he said his firm will launch a proxy fight and nominate four directors to its board, which currently has seven members.

With last year's annual meeting coming up in the spring, Procera has a window of between 120 and 90 days prior to May 29, the date of last year's meeting, meaning Jan. 29 is the earliest it could send in nominations and Feb. 28 the latest.

"There's a lot of uncertainty surrounding the company," Tran said, adding that a public announcement of a strategic review will end uncertainties for shareholders.

This would be Castle Union's first proxy fight, according to Tran. The firm disclosed a 5.7% stake in wireless provider Meru Networks Inc. (MERU), urging the board to consider selling the company.

A Procera shareholder who asked to remain unnamed said the company "won't say very much about what they're doing."

While the board understands that Procera's performance has not been strong and seems open to a transaction or other alternatives, this person said, they also would not say whether a banker has been hired or how aggressive management is about starting a strategic review. This shareholder added that Procera retained Stifel Financial Corp. for its last acquisition.

The source went on to note that there are other shareholders who may consider taking a more activist approach.

"I would be supportive of a new slate of directors," said Ronald Chez of Ronald L. Chez Inc., another shareholder who holds a slightly less than 5% stake in the company. "The status quo is not acceptable."

Chez is also urging Procera to explore all strategic alternatives, including retaining an investment bank to lead the process.

Procera, which competes with Allot Communications Ltd. (ALLT) and Sandvine Corp., was flying high about two years ago, but has been going south, said Richard Pierce, managing director at investment bank Focus LLC.

"It has good traction in the cable space. My impression is that they haven't cracked the code on mobile and wireless," Pierce said. "That's where a lot of the growth is."

Compared to Allot trading at 1.7 times revenue and Sandvine trading at 2 times revenue, Procera is trading at -0.5 times revenue, he explained, noting that from that standpoint, Procera is "very undervalued."

Sources have said in the past that the communications equipment maker could be sold for $12 per share or more and that it could attract interest from strategics such as Cisco Systems Inc., (CSCO - Get Report) , Ericsson Inc. (ERIC - Get Report) and F5 Networks Inc. (FFIV - Get Report) .

In fact, there were talks in the market that F5 Networks had approached Procera, according to two industry sources. One source cautioned there are always discussions about Procera, however. An F5 Networks spokesman declined to comment.

Procera officials declined to comment.