<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
- --------------------------------------------------------------------------------
(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by 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:
<PAGE> 2
July 31, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Censtor Corp. (the "Company") to be held on September 3, 1997 at the
Pruneyard Inn, 1995 S. Bascom Ave., Campbell, California, at 11 a.m., local
time. The purpose of this meeting is to elect directors and ratify the
appointment of independent auditors.
Details of the proposals and other important information concerning
the Company appear in the accompanying Proxy Statement. Please give this
material your careful attention.
YOUR VOTE IS VERY IMPORTANT TO THE COMPANY.
It is important that your shares be represented at the Annual Meeting,
whether or not you are able to attend. Accordingly, please complete, sign and
date the accompanying form of PROXY and return it in the enclosed prepaid
envelope as soon as possible. If you attend the Annual Meeting, you may vote
in person if you wish, even if you previously returned your proxy. Your prompt
cooperation will be greatly appreciated.
Sincerely,
Russell M. Krapf
President & CEO
<PAGE> 3
CENSTOR CORP.
--------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 3, 1997
TO THE SHAREHOLDERS OF CENSTOR CORP.
Notice is hereby given that the Annual Meeting of Shareholders (the
"Annual Meeting") of Censtor Corp. (the "Company") will be held at the
Pruneyard Inn, 1995 S. Bascom Ave., Campbell, California, on September 3, 1997
at 11 a.m., local time, to consider and vote upon the following proposals:
1. To elect three (3) directors to serve for the ensuing year and
until their successors are elected;
2. To ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending June 30,
1997; and
3. To transact such other business as may properly come before
the Annual Meeting and any adjournment thereof.
The close of business on June 30, 1997 has been fixed as the record
date for the determination of shareholders entitled to notice of, and to vote
at, the Annual Meeting or any adjournment or postponement thereof. A complete
list of shareholders entitled to vote at the Annual Meeting will be available
for inspection by shareholders at the offices of the Company during the
Company's ordinary business hours beginning ten days prior to the Annual
Meeting for any purpose germane to the Annual Meeting.
Accompanying this Notice of Annual Meeting and Proxy Statement are: a
letter to the Company's shareholders from the President and the form of proxy
card to be returned in the enclosed envelope.
By Order of the Board of Directors
Sabine Austin
Secretary
Los Gatos, California
July 31, 1997
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY MAIL THE ENCLOSED FORM OF PROXY IN THE RETURN ENVELOPE PROVIDED. ANY
PERSON GIVING A PROXY MAY REVOKE IT AT ANY TIME, AND SHAREHOLDERS WHO ARE
PRESENT AT THE MEETING MAY WITHDRAW THEIR PROXIES AND VOTE IN PERSON.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF PROXY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PROPOSAL 1: ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Board Meetings and Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Option Grants in Last Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values . . . 6
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 6
Security Ownership of Directors, Executive Officers and Certain Shareholders . . . . . . 7
Report of the Board of Directors on Executive Compensation . . . . . . . . . . . . . . . 10
Performance Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Compliance with Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . 11
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . 12
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
i
<PAGE> 5
CENSTOR CORP.
540 N. SANTA CRUZ AVE., SUITE 277
LOS GATOS, CA 95030
(408) 298-8400
___________________
PROXY STATEMENT
___________________
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 3, 1997
This Proxy Statement is furnished to the holders of Common Stock and
Preferred Stock of Censtor Corp. (the "Company" or "Censtor") in connection with
the solicitation by the Board of Directors of the Company of proxies in the form
enclosed to be voted at an Annual Meeting of Shareholders of the Company to be
held at the Pruneyard Inn, 1995 S. Bascom Ave., Campbell, California at 11 a.m.
on September 3, 1997 (the "Annual Meeting"). This Proxy Statement and the
accompanying form of proxy are being mailed to the Shareholders on or about July
31, 1997 and the Company is bearing the cost of this solicitation.
PURPOSE OF THE MEETING
At the Annual Meeting, the Shareholders of the Company (the
"Shareholders") will be asked to consider and act upon the following proposals:
1. To elect three (3) directors to serve for the ensuing year and
until their successors are elected;
2. To ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending June 30,
1997; and
3. To transact such other business as may properly come before
the Annual Meeting and any adjournment thereof.
PROPOSALS OF SECURITY HOLDERS
Proposals of Company shareholders intended to be presented at the
Company's next annual meeting must be received by the Company at its principal
address no later than April 2, 1998.
VOTING RIGHTS
Shareholders of record of the Company as of the close of business on
June 30, 1997 have the right to receive notice of and to vote at the Annual
Meeting. On June 30, 1997, the Company had issued and outstanding 23,533,801
shares of capital stock entitled to vote, consisting of 8,545,994 shares of
Common Stock, 6,617,299 shares of Series A Preferred Stock and 8,370,508 shares
of Series B Preferred Stock. Each share of Common Stock, Series A Preferred
Stock and Series B Preferred Stock is entitled to one vote. For action to be
taken at the Annual Meeting, the majority of the shares entitled to vote must
be represented at the meeting in person or by proxy.
While the Company's Restated Articles of Incorporation authorize the
holders of the Company's Series B Preferred stock voting as a separate class to
elect one member of the Company's Board of Directors, to date, the holders of
the Series B Preferred Stock have not chosen to do so. Therefore, the holders
of Preferred Stock and Common Stock, voting together as a single class, will
elect all the members of the Board of Directors.
Every shareholder voting for the election of directors may cumulate
such shareholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
the shareholder's shares are entitled, or distribute the shareholder's votes on
the same principle among as many candidates as the shareholder thinks fit,
provided that votes cannot be cast for more than the number of directors to be
elected. However, no shareholder shall be entitled to cumulate votes unless a
shareholder has given notice at the Annual Meeting, prior to
<PAGE> 6
voting, of his or her intent to cumulate votes and no shareholder cumulating
votes may vote for a candidate for director unless such candidate's name has
been placed in nomination prior to the voting.
PROXIES
Proxies for use at the Annual Meeting are being solicited by the Board
of Directors of the Company from its shareholders.
Shares represented by properly executed proxies received by the
Company will be voted at the Annual Meeting in accordance with the instructions
thereon. Shares represented by executed proxies received by the Company with
no instructions will be voted in favor of all proposals set forth in the Notice
of Meeting. The Company intends to include abstentions as present or
represented for purposes of establishing a quorum for the transaction of
business. Abstentions are counted as votes against a proposal for purpose of
determining whether or not a proposal has been approved.
Any person giving a proxy in the form accompanying this Proxy
Statement has the power to revoke it at any time before its exercise by (i)
filing with the Secretary of the Company a signed written statement revoking
his or her proxy or (ii) submitting an executed proxy bearing a date later than
that of the proxy being revoked. A proxy may also be revoked by attending the
Annual Meeting and voting in person. Attendance at the Annual Meeting will not
by itself constitute the revocation of a proxy.
No persons have been authorized to give any information or to make any
representations other than those contained in this Proxy Statement in
connection with the solicitation of proxies and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or any other person. This Proxy Statement does not
constitute the solicitation of a proxy in any jurisdiction to any person to
whom it is not lawful to make any such solicitation in such jurisdiction. The
delivery of this Proxy Statement does not, under any circumstances, create an
implication that there has been no change in the affairs of the Company since
the date hereof or that the information herein is correct as of any time
subsequent to its date.
The approximate date on which this Proxy Statement is being mailed to
the Company's shareholders is July 31, 1997. This Proxy Statement is
accompanied by the form of proxy card to be signed and returned in the enclosed
envelope, a letter to the shareholders from the President and Notice of Annual
Meeting.
FORWARD LOOKING STATEMENTS
The statements in this Proxy Statement that relate to future plans,
events or performance are forward-looking statements. Actual results could
differ materially due to a variety of important factors, including for example,
the Company's ability to exploit its portfolio of licenses, failure of the
Company's licensees to perform under existing or future licenses, the
development of competing technology and the risks associated with protecting
the Company's intellectual property rights from adverse claims. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation
to publicly release the result of any revisions to these forward looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
2
<PAGE> 7
SUMMARY OF PROXY STATEMENT
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Proxy Statement.
DATE, TIME AND PLACE OF An Annual Meeting of Shareholders of Censtor Corp.,
ANNUAL MEETING OF a California corporation (the "Company"), will be
SHAREHOLDERS held on September 3, 1997 at 11 a.m., local time,
at the Pruneyard Inn, 1995 S. Bascom Ave.,
Campbell, CA 95008.
PURPOSE OF THE MEETING At the Annual Meeting, the shareholders of the
Company will be asked to (i) elect three (3)
directors and (ii) ratify and appoint Ernst & Young
LLP as independent auditors for the fiscal year
ending June 30, 1997.
PROPOSAL 1:
ELECTION OF DIRECTORS
CURRENT BOARD The board currently consists of the following five
(5) members: James A. Cole, Garrett A. Garrettson,
B. Kipling Hagopian, Edwin V.W. Zschau and Russell
M. Krapf.
NOMINEES Pursuant to a Board resolution, the number of
Directors shall be reduced to three (3) as of the
date of the Annual Meeting. The three (3) nominees
for election by the shareholders to fill these
slots are Gary J. Summers, Charles C.
Pierpoint III and Sabine Austin.
.
PROPOSAL 2:
APPOINTMENT OF INDEPENDENT AUDITORS
CURRENT AUDITORS Ernst & Young LLP were appointed as the Company's
independent auditors for its fiscal year ending
June 30, 1996, and the Board of Directors has
appointed Ernst & Young LLP as the Company's
independent auditors for its fiscal year ending
June 30, 1997, pending shareholder ratification.
PROPOSED AUDITORS The shareholders are asked to ratify appointment
of Ernst & Young LLP as the independent auditors
for fiscal year ending June 30, 1997.
3
<PAGE> 8
PROPOSAL 1:
ELECTION OF DIRECTORS
The Company has been unsuccessful in its efforts to sell licenses to
the Company's technology to prospective licensees who, in management's opinion,
are infringing the Company's patents. Accordingly, management and the Board of
Directors have concluded that the Company would benefit from leadership with
extensive experience in patent enforcement. Management has sought, and found,
such capability and has entered into a relationship with Mr. Gary Summers, Mr.
Charles C. Pierpoint III, Teklicon, Inc. ("Teklicon") and I. P. Managers, Inc.
("IPM"), companies affiliated with Messrs. Summers and Pierpoint. IPM has an
exclusive contract with Teklicon, a high technology consulting firm
specializing in consulting and expert witness services to the legal profession,
whereby Teklicon will perform marketing and technology due diligence.
Management believes the Company's arrangement with IPM and Teklicon will
provide the best available leadership while minimizing the short term cash
obligations of the Company while it seeks to complete new license agreements
and collect royalties from existing licensees. The Board has further
determined to amend the Company's Bylaws to provide for the following: The
management of the Company shall regularly evaluate, no less frequently than on
a quarterly basis, the Company's liquidity and cash condition, and shall
distribute cash to the Company's shareholders promptly, to the fullest extent
practical and in the manner or manners most advantageous to the Company's
shareholders, subject in all cases to applicable law and the needs of the
Company to retain cash for future operations, as determined in good faith by
the management of the Company. In addition, the Company shall permit each
holder of at least five percent (5%) of the Company's capital stock (on an as-
converted-to-Common Stock basis), at such holder's expense, to visit and
inspect the Company's properties, to examine its books of accounts and records
(including copies of all notices, minutes, consents and other material that the
Company provides to its directors), to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be
requested by such holder, provided that the Company shall not be obligated
pursuant to the foregoing to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
Further, the Company shall permit each holder of at least five percent (5%) of
the Company's capital stock (on an as-converted-to-Common Stock basis) to
attend each meeting of the Company's Board of Directors and shall provide such
persons with copies of all notices, minutes, consents and other material that
the Company provides to its directors. The provisions of the preceding three
sentences may not be amended, nor may any amendment to these Bylaws be made
which has the effect of altering the effect of such sentences, without the
affirmative vote of a majority of the shareholders of the Company, voting
together as a class on an as-if-converted to Common Stock basis.
A board of three (3) directors is to be elected at the Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received
by them to elect as many of the nominees named below as can be elected by votes
represented by such proxies. None of such nominees are presently directors of
the Company. In the event that any of the nominees shall become unavailable
the proxy holders will vote in their discretion for a substitute nominee. It
is not expected that any nominee will be unavailable. The term of office of
each person elected as a director will continue until the next Annual Meeting
of Shareholders or until his successor has been duly elected and qualified.
The names of the nominees, and certain information about them, are set
forth below:
<TABLE>
<CAPTION>
Name Age Position with Censtor Director Since
----------------------------- ----- -------------------------------------- --------------------
<S> <C> <C> <C>
Gary J. Summers 54 Consultant ---
Charles C. Pierpoint III 56 Consultant ---
Sabine Austin 38 Corporate Secretary, Finance Director ---
</TABLE>
GARY J. SUMMERS is President, Chief Executive Officer and Founder of
Teklicon, Inc., a high technology consulting firm and wholly owned subsidiary
of Forensic Technologies International Corporation, that provides consulting
and expert witness services to the legal profession. In this capacity he is
providing consulting services to Censtor relative to prospective future
licensees. Mr. Summers has 25 years experience in the semiconductor, computer
and consumer electronics industries, with Bell Laboratories, RCA, Motorola,
Commodore, Warner-Atari, Teklicon and Pat, Inc. He has held various senior
management positions in engineering, manufacturing and marketing, has been CEO
4
<PAGE> 9
of Teklicon since 1985, and President of Pat, Inc. since 1991. During the last
10 years, Mr. Summers has focused on high technology intellectual property
Litigation, ADR and Licensing services in the areas of complex technologies
such as semiconductors, computer systems, software, mechanical and chemical
systems and telecommunications. He is a member of IEEE, ETA Kappa Nu, Tau Beta
Pi and the American Board of Certified Forensic Examiners. He received his
BSEE and MSEE degrees from the University of Houston in 1969 and 1970,
respectively.
CHARLES C. PIERPOINT III has been a sole practitioner of law in
California since 1976 and is a principal in IPM. From 1976 until 1986, he
practiced law at Thirkell, Pierpoint & Cretan. He also was a Trial Deputy and
Deputy Head of the Consumer and Business Fraud Division in the District
Attorney's Office in San Mateo County from 1972 until 1976. He is also
presently an instructor of Administration of Justice at the College of San
Mateo and previously taught Contract Law at San Mateo Law School. Mr.
Pierpoint graduated from the University of San Diego, School of Law, in 1972
and earned his Bachelor of Arts in Political Science from Pennsylvania Military
College in 1963.
SABINE AUSTIN is Corporate Secretary and Finance Director of Censtor
Corp. She has been an employee of the Company since March, 1987. Prior to
that, she was an investment advisor and stock trader at Wedbush, Noble, Cooke
and First Compass Securities. She also worked at Advanced Micro Devices from
1982 to 1983 as a financial analyst and cost accountant. Ms. Austin received
her BA degree in Math-Econ from the University of California at Santa Barbara
in 1981 and an MBA from Santa Clara University in 1986.
BOARD MEETINGS AND COMMITTEES
During fiscal 1997, the Company held eight (8) Board of Directors
meetings, two (2) of which were via teleconference. The Compensation Committee
did not meet in fiscal year 1997. The function of the Compensation Committee
is to review, and to recommend to the Board, management compensation and to
administer the Company's stock option plans. During fiscal year 1997, the Board
as a whole reviewed and approved management compensation issues and
administered the Company's stock option plans. No director participated in
fewer than 75% of the total number of meetings of the Board and all committees
of the Board on which he served that were held during the period he served on
the Board or such committees.
The Board does not have a nominating or audit committee.
DIRECTOR COMPENSATION
Employee directors receive no additional compensation for service on
the Board of Directors. Dr. Zschau, a non-employee director receives cash
compensation for attending meetings of the Board of Directors, consisting of
$1,000 for each meeting of the Board which he attends in person and $500 for
each telephonic board meeting in which he participates. Messrs. Cole, Hagopian
and Zschau are reimbursed for reasonable out-of-pocket expenses incurred in
connection with the attendance at Board meetings. Non-employee directors are
entitled to participate in the Company's 1990 Stock Plan. During the fiscal
year ended June 30, 1997, options to purchase 341,910 shares of the Company's
stock were granted to non-employee directors.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company
for the fiscal year ended June 30, 1997 to the Chief Executive Officer (the
"named officer"):
<TABLE>
<CAPTION>
Name and Principal Position Year Annual Compensation Long-Term All Other
Salary Bonus Compensation Compensation(3)
------ ----- --------------------- ---------------
Securities Underlying
Option(#)(1)(2)
---------------
<S> <C> <C> <C> <C> <C>
Russell M. Krapf(4) 1997 207,684 129,225 510,206 2,598
Chief Executive Officer 1996 184,381 9,654 75,000 488
and President 1995 166,730 26,650 100,000 775
</TABLE>
5
<PAGE> 10
- -------------------------
(1) The stock options granted to the named officer vest as to 1/48 of the
shares per month at the end of each month after the date of grant;
provided, however, that in certain cases options are not first
exercisable until six months after the date of grant. The options are
exercisable at a price of $0.046 per share and expire ten years from the
date of grant.
(2) There are no other long-term incentive compensation plans which require
disclosure.
(3) Reflects premiums paid by the Company on behalf of the named officer for
term life insurance with benefits payable to beneficiaries designated by
the officers.
(4) Mr. Krapf was appointed President and Chief Executive Officer effective
April 22, 1996 and resigned this position effective September 4, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning grants
of stock options to the named officer during the fiscal year ended June 30,
1997. Shown are the hypothetical gains or "option spreads" that would exist
for the respective options. These gains are based on the assumed rates of
annual compound stock price appreciation of 5% and 10% from the date the option
was granted over the full option term.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value
----------------- at Assumed Annual Rates
of Stock Price
Appreciation for
Option Term
--------------------------
Name Number of % of Total Exercise or Expiration 5%($) 10%($)
---------------- Securities Options Base Price Date
Underlying Granted to $/Share ----------
Options Employees in -----------
Granted (#) Fiscal Year
----------- -----------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Russell M. Krapf 510,206 38.65% $0.046 10/03/07 $14,755 $37,391
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth for the named officer information
regarding the fiscal year-end value of unexercised options for such person.
The named executive officer did not exercise options in the last fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at 1997 Year-End at 1997 Year-End
----------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------ --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Russell M. Krapf 57,861 136,300 0 0
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into the following transactions with its
officers and directors since July 1, 1996:
In September 1990, Harold J. Hamilton, a retired executive officer and
a past director of the Company, exercised stock options as to 244,821 shares of
the Company's Common Stock and, in lieu of payment to the Company for such
exercise, Mr. Hamilton delivered to the Company a promissory note in the
principal amount of $71,500. The note was called by action of the Board of
Directors on June 25, 1997.
6
<PAGE> 11
In September 1990, Edwin V.W. Zschau, a current director of the
Company, exercised stock options as to 283,092 shares of the Company's Common
Stock and in lieu of payment to the Company for such exercise, Dr. Zschau
delivered to the Company a promissory note in the principal amount of $82,500.
The note was due April 23, 1997 and was not extended. The Board of Directors
called the note on June 25, 1997.
In September 1990, Russell M. Krapf, current CEO and President of the
Company, exercised stock options as to 188,323 shares of the Company's Common
Stock and, in lieu of payment to the Company for such exercise, Mr. Krapf
delivered to the Company a promissory note in the principal amount of $55,000.
Upon his resignation in February, 1992, and pursuant to the terms of the
Restricted Stock Purchase Agreement between Mr. Krapf and the Company, the
Company repurchased 76,585 of these shares. On June 25, 1997, pursuant to its
terms, the promissory note was canceled upon surrender by Mr. Krapf of the
remaining shares.
The Company's Bylaws provide that the Company is required to indemnify
its officers and directors to the fullest extent permitted by California law,
including those circumstances in which indemnification would otherwise be
discretionary, and that the Company is required to advance expenses to its
officers and directors as incurred. Further, the Company has entered into
indemnification agreements with its officers and directors. The Company
believes that its charter and bylaw provisions and indemnification agreements
are necessary to attract and retain qualified persons as directors and
officers.
On July 7, 1997, Russell M. Krapf notified the Company that he intends
to resign his position as President and CEO effective September 4, 1997. On
July 29, 1997, the Company entered into a consulting agreement with Mr. Krapf
for a period up to one year. Mr. Krapf will be paid $45,000 for these
consulting services.
On July 29, 1997, the Company created an incentive compensation
program for Ms. Sabine Austin who will serve as Corporate Secretary, Finance
Director, and a director of the Company, if elected. This program will pay Ms.
Austin a bonus equal to 1.5% of all net licensing revenue received by the
Company as long as she serves in those positions.
On July 31, 1997, the Company entered into an exclusive license with
IPM, whereby IPM will be Censtor's agent to enforce its current licenses and to
negotiate licenses with prospective licensees. IPM also has an exclusive
contract with Teklicon whereby Teklicon will perform marketing and technology
due diligence. Under this agreement, IPM will be paid between 15-45% of the net
proceeds of such activities depending upon the source of revenue. Mr. Charles
Pierpoint is a principal with IPM and Mr. Gary Summers is a principal with
Teklicon.
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. All future transactions between the Company
and its officers, directors, principal shareholders and affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's outstanding shares of Common Stock and
Preferred Stock (on an as if converted basis) as of June 30, 1997 by (i) each
person known to the Company beneficially to own 5% or more of the outstanding
shares of its Common Stock or Preferred Stock, (ii) each of the Company's
directors, (iii) each of the Company's executive officers, and (iv) all
directors and executive officers as a group. Except as indicated in the
footnotes to this table, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock or Preferred Stock
shown as beneficially owned by them, subject to community property laws where
applicable.
7
<PAGE> 12
<TABLE>
<CAPTION>
Preferred Stock (1) Common Stock Totals (2)
------------------- ------------ ----------
Number of Percent
Number of Percent Number of Percent Common of Common
Shares of Class Shares of Class Equivalents Equivalents
Beneficially Beneficially Beneficially Beneficially Beneficially Beneficially
Name of Owner Owned Owned Owned Owned Owned Owned
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Brentwood Associates(3) ............ 1,298,244 8.66% 3,438,593 40.24% 4,736,837 20.13%
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, CA 90025
Aeneas Venture Corporation(4) ...... 2,938,225 19.60% 0 0 2,938,225 12.49%
600 Atlantic Avenue
26th Floor
Boston, MA 02210-2203
Wolfensohn Partners L.P.(5) ........ 413,172 2.76% 1,066,211 12.48% 1,479,383 6.31%
599 Lexington Avenue
New York, NY 10022
J.P. Morgan Investment (6) ......... 363,796 2.43% 1,060,244 12.41% 1,424,040 6.05%
60 Wall Street
New York, NY 10260-0060
New Enterprise Associates(7) ....... 1,424,590 9.50% 0 0 1,424,590 6.05%
1119 St. Paul Street
Baltimore, MD 21202
Morgenthaler Venture Partners(8) ... 314,669 2.10% 798,830 9.35% 1,113,499 4.73%
700 National City Bank Building
Cleveland, OH 44114
Fujitsu Limited .................... 0 0 784,682 9.18% 784,682 3.33%
1015 Kamikodanaka
Nakahara-ku, Kawasaki-shi
Kanagawa-ken 211
Japan
Garrett A. Garrettson(9) ........... 0 0 692,724 7.50% 692,724 2.86%
B. Kipling Hagopian(10) ............ 1,298,244 8.66% 3,460,852 40.39% 4,759,096 20.20%
Harold J. Hamilton(11) ............. 0 0 5,648 * 5,648 *
Russell M. Krapf(12) ............... 0 0 304,862 3.44% 304,862 1.28%
Richard C.E. Morgan(13) ............ 413,172 2.76% 1,075,627 12.59% 1,488,799 6.33%
James A. Cole(14) .................. 1,424,590 9.50% 22,259 * 1,446,849 6.14%
Edwin V.W Zschau(15) ............... 0 0% 27,318 * 27,318 *
All directors and executive officers 3,136,006 20.92% 5,589,290 58.13% 8,725,296 35.46%
as a group(7 persons)(16)
</TABLE>
- -----------------------------
* Less than one percent.
(1) Includes Series A Preferred and Series B Preferred. Preferred Stock is
reflected on an as-converted to Common Stock basis. As of June 30, 1997,
each share of Series A and Series B Preferred converts into one share of
Common Stock.
(2) Reflects Preferred Stock (on an as-converted to Common Stock basis) and
Common Stock combined.
8
<PAGE> 13
(3) Includes: 1,257,196; 2,366,978; 875,764; and 236,899 shares held
respectively by Brentwood Associates II, Brentwood Associates III,
Brentwood Associates IV and Evergreen II, L.P., of which 229,289; 429,253;
160,002, and 43,343 shares, respectively, are shares of the Company's
Series A Preferred, and 108,494; 222,972; 82,519; and 22,372 shares,
respectively, are shares of the Company's Series B Preferred. Mr.
Hagopian, the Chairman and a Director of the Company is a General Partner
of Brentwood Associates. Mr. Hagopian disclaims beneficial ownership of
the shares owned by Brentwood Associates.
(4) Includes 2,678,141 shares of the Company's Series A Preferred and 260,084
shares of the Company's Series B Preferred.
(5) Includes 273,116 shares of the Company's Series A Preferred and 140,056
shares of the Company's Series B Preferred. Richard C.E. Morgan, a
Director of the Company, is a General Partner of Wolfensohn Partners L.P.
Mr. Morgan disclaims beneficial ownership of the shares held by Wolfensohn
Partners L.P.
(6) Includes 223,796 shares of the Company's Series A Preferred and 140,000
shares of the Company's Series B Preferred.
(7) Includes 1,274,853 and 149,737 shares held respectively by New Enterprise
Associates V ("NEA") and Spectra Enterprise Associates ("Spectra"), of
which 1,071,256 and 131,788 shares, respectively, are shares of the
Company's Series A Preferred and 203,597 and 17,949 shares, respectively,
are shares of the Company's Series B Preferred. NEA and Spectra are
independent partnerships; however, the General Partners of Spectra are
also General Partners of NEA. James A. Cole, a Director of the Company, is
a Partner of NEA and the Managing General Partner of Spectra. Mr. Cole
disclaims beneficial ownership of the shares owned by NEA and Spectra.
(8) Includes 332,352 and 784,335 shares held respectively by Morgenthaler
Venture Partners and Morgenthaler Venture Partners II.
(9) Includes 692,724 shares subject to stock options which are exercisable
within 60 days of June 30, 1997.
(10) Includes shares beneficially owned or held of record by entities
associated with Brentwood Associates, as described in footnote 3 above.
Mr. Hagopian is a General Partner of Brentwood Associates. Mr. Hagopian
disclaims beneficial ownership of such shares. Also includes 22,259 shares
subject to stock option which are exercisable within 60 days of June 30,
1997.
(11) Includes 5,648 shares held by Dr. Hamilton's two children, as to which
shares he disclaims beneficial ownership.
(12) Includes 304,862 shares subject to stock options which are exercisable
within 60 days of June 30, 1997.
(13) Includes shares beneficially owned or held of record by Wolfensohn
Partners L.P., as described in footnote 5 above. Mr. Morgan is a General
Partner of Wolfensohn Partners L.P. Mr. Morgan disclaims beneficial
ownership of such shares.
(14) Includes shares beneficially owned or held of record by NEA and Spectra as
described in footnote 7 above. Mr. Cole is a Partner of NEA and the
Managing General Partner of Spectra. Mr. Cole disclaims beneficial
ownership of these shares. Also includes 22,259 shares subject to stock
options which are exercisable within 60 days of June 30, 1997.
(15) Includes 26,712 shares subject to stock options exercisable within 60 days
of June 30, 1997.
(16) Includes 1,068,816 shares subject to stock options exercisable within 60
days of June 30, 1997. See Notes 9, 10, 12, 14 and 15. Also includes
7,656,480 shares which may be deemed to be beneficially owned by certain
directors and officers. See Notes 10, 13, 14 and 15.
9
<PAGE> 14
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Compensation for the Company's executive officers was established by
the Board of Directors to consist of salary, bonus and stock options. In 1996,
the Board adopted a bonus plan for the Company's executive officers to insure a
close link between compensation and the achievement of corporate goals and
objectives. The Board had previously adopted an employee stock option plan to
retain qualified executives by providing long-term incentives. On June 25,
1997 the Board voted to discontinue this stock option plan and expects all
outstanding options to be canceled prior to calendar year end.
During 1993, the Internal Revenue Code of 1986 was amended to include
a provision that denies a deduction to publicly held corporations for
compensation paid to "covered employees" (defined as the chief executive
officer and the next four most highly compensated officers as of the end of the
taxable year) to the extent that compensation paid to any "covered employee"
exceeds $1 million in any taxable year of the corporation beginning after 1993.
Certain "performance-based" compensation qualifies for an exemption from the
limits on deductions. It is the Company's policy to qualify compensation paid
to its top executives for deductibility in order to maximize the Company's
income tax deductions, to the extent that so qualifying the compensation is not
inconsistent with the Company's fundamental compensation policies. Based on
the Internal Revenue Service's proposed regulations and compensation paid to
the Company's "covered employees" for the 1996 taxable year, all compensation
paid by the Company in 1996 to such covered employees was deductible to the
Company.
With respect to corporate performance criteria, management presents to
the Board a set of corporate goals for a subsequent period, generally 12
months, with specific goals for each of four quarters within this period.
These goals establish benchmarks for assessing overall corporate performance.
Progress toward the achievement of corporate goals is reviewed with the Board
periodically together with a description of any change in circumstances that
management believes may warrant an update to or revisions to these goals. The
major goals for fiscal 1997 were to 1) complete the sale of substantially all
of the Company's assets to Read-Rite Corporation and collect all cash due
thereby by April 18, 1997, 2) search for operating businesses which leverage
Censtor technology for acquisition or creation of such new businesses, and 3)
seek new licensees.
The above corporate goals are used to set individual goals for the
executive officers. The President and CEO meets quarterly with the Board of
Directors to establish and/or monitor individual goals, which are subject to
adjustment based on revised corporate goals, individual performance, and to a
lesser extent, general economic conditions. Goals of the President & CEO are
set and reviewed quarterly by the Board of Directors based on corporate goals
and individual performance. Factors and criteria upon which the President &
CEO's compensation was based included progress towards the major goals.
Periodic salary adjustments for executives are considered annually and
salary adjustments may be awarded on the basis of increased responsibilities of
individual executives over a period of time or the outstanding performance of
individual executives as exhibited by achievement of individual and corporate
goals and consistently high standards in the execution of duties, as presented
by the President & CEO to the Board. Company performance as a whole, measured
in part against the above goals, is a major consideration in the Board's
decision to award any salary increases and, to a lesser extent, the Board also
considers general economic conditions and trends. Bonuses are awarded to the
executives (other than the President & CEO) solely based on achievement of
pre-established goals approved in advance by the Board of Directors.
During 1997 there were no salary increases.
On October 3, 1996, the Company adjusted the exercise price of certain
stock options granted to employees, directors and consultants of the Company to
purchase an aggregate of 1,473,408 shares of the Company's common stock to
$0.046 per share, the fair market value on such date as determined by the
Company's Board of Directors and an independent consultant. The following
table sets forth certain information regarding this repricing for the named
officer.
10
<PAGE> 15
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Length of
Market Price of Exercise Price Original Option
Number of Options Stock at Time of at Time of New Exercise Term Remaining
Repriced Repricing Repricing Price at Date of
Name Date (#) ($)(1) ($) ($) Repricing
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Russell M. Krapf 10/3/96 94,161 $ 0.046 $ 0.40 $ 0.046 7 years
- ----------------------------------------------------------------------------------------------------------------------------------
Russell M. Krapf 10/3/96 100,000 $ 0.046 $ 0.40 $ 0.046 8 years
- ----------------------------------------------------------------------------------------------------------------------------------
Russell M. Krapf 10/3/96 75,000 $ 0.046 $ 0.40 $ 0.046 9 years
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
_______________________
(1) The Company's stock is not publicly traded. The price shown is the fair
market value of the Company's Common Stock as determined by the Company's
Board of Directors and an independent consultant.
Generally, the non-employee members of the Board of Directors meet
with the President & CEO to discuss the performance of the other executive
officers and of the Company as a whole. The non-employee members of the Board
then meet in the absence of the President & CEO to discuss the performance of
the President & CEO.
In summary, the Board believes that it has established a program for
compensation of the Company's executives which is fair and which aligns the
financial incentives for executives with the interests of the Company's
shareholders.
During 1997, no executive officer of the Company served on the board
of directors or compensation committee of another company that had an executive
officer serve on the Company's Board of Directors.
PERFORMANCE CHART
A Performance Chart is not included because there is no established
public market for the Company's stock.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange 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 reports of ownership on Form 3 and changes in
ownership on Form 4 or 5 with the Securities and Exchange Commission and the
National Association of Securities Dealers. Such officers, directors and ten
percent shareholders are also required by Securities and Exchange Commission
rules to furnish the Company with copies of all Section 16(a) forms that they
file.
Based solely on its review of copies of such reports received or
written representations from certain reporting persons, the Company believes
that, during the fiscal year ended June 30, 1997, there has been no failure by
any of its officers, directors or ten percent shareholders to file on a timely
basis any reports required by Section 16(a).
11
<PAGE> 16
PROPOSAL 2:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP, the Company's
independent auditors, to audit the Company's consolidated financial statements
for its fiscal year ending June 30, 1997, and further recommends that
Shareholders vote for ratification of such appointment. In the event of a
negative vote on such ratification, the Board of Directors will reconsider its
selection. The Board of Directors recommends that Shareholders vote "FOR"
approval and ratification of such selection.
A representative of Ernst & Young LLP is expected to be available at
the Annual Meeting to make a statement if such representative desires to do so
and to respond to appropriate questions.
12
<PAGE> 17
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, is required to file reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Copies of
such reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional offices of the SEC: Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511; and Suite 1300, 7 World Trade Center, New York,
New York 10048. Copies of such material can be obtained at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
By Order of the Board of Directors,
Sabine Austin
Secretary
Los Gatos, California
July 31, 1997
13
<PAGE> 18
CENSTOR CORP.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 3, 1997
The undersigned hereby appoints Russ Krapf and Sabine Austin or either
of them, each with full power of substitution, as the proxyholder(s) of the
undersigned to represent the undersigned and vote all shares of the Common Stock
of and Preferred Stock of Censtor Corp. (the "Company") which the undersigned
would be entitled to vote if personally present at the Annual Meeting of
Shareholders of the Company to be held on September 3, 1997, and at any
adjournments or postponements of such meeting, as follows:
1. To elect as directors Gary J. Summers, Charles C. Pierpoint III and
Sabine Austin. .
[ ] For all nominees listed above (except as indicated below)
[ ] Withhold authority to vote (as to all nominees)
To withhold authority to vote for any individual nominee,
write that nominee's name on the following line:
2. To ratify appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending June 30, 1997:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy, when properly executed, will be voted in the manner
directed above. WHEN NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE
NOMINEES AND THE ABOVE PROPOSALS. This proxy may be revoked by the undersigned
at any time, prior to the time it is voted, by any of the means described in the
accompanying Proxy Statement.
_________________________ ______________________ Dated: _______, 1997
Signature of Shareholder Signature of Shareholder
Typed or Printed Name: Typed or Printed Name:
Please sign EXACTLY as your name appeared on the envelope transmitting
the Notice of Annual Meeting and print your name under your signature. If
signing for estates, trusts, corporations or other entities, title or capacity
should be stated. If shares are held jointly, each holder should sign.
TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO FILL IN,
DATE AND RETURN PROMPTLY THIS PROXY FORM IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. YOUR PROXY
CAN BE WITHDRAWN BY YOU AT ANY TIME BEFORE IT IS VOTED.
14
