UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
December 30, 1996
nStor Technologies, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-8354 95-2094565
(Commission File No.) (I.R.S. Employer
Identification No.)
100 Century Blvd.
West Palm Beach, Florida 33417
(Address of principal executive offices)
(561) 640-3103
Registrant's telephone number, including area code
Not Applicable
(Former name or former address,
if changed since last report)
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
Report of Independent Auditors, dated March 15, 1996 (December 1,
1996 as to Note 9), and the accompanying balance sheets of Parity
Systems Inc. as of December 31, 1995 and 1994, and the related
statements of income, stockholders' equity and cash flows for the
years ended December 31, 1995 and 1994.
Report of Independent Auditors, dated February 23, 1994, and the
accompanying balance sheets of Parity Systems Inc. as of December
31, 1993 and 1992, and the related statements of income,
stockholders' equity and cash flows for the years ended December
31, 1993 and 1992.
Balance sheet as of November 30, 1996 and the related statements
of operations and cash flows for the eleven months ended November
30, 1996 and 1995.
(b) Pro Forma Financial Information
nStor Technologies, Inc. and Subsidiaries Proforma Condensed
Combined Financial Statements.
(c) Exhibits
Description of Documents
10.2 Employment Agreement Between nStor Corporation, Inc. and
Norbert Witt, effective as of December 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities and
Exchange Act of 1934, Registrant has duly caused this
report to be signed on its behalf by the undersigned
hereunto duly authorized.
nSTOR TECHNOLOGIES, INC.
/s/ Jack Jaiven
___________________________
Jack Jaiven, Vice President
Date: March 13, 1997
PARITY SYSTEMS INC.
Financial Statements for the Years Ended
December 31, 1994 and 1995
and
Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
Parity Systems Inc.:
We have audited the accompanying balance sheets of Parity Systems
Inc. as of December 31, 1994 and 1995 and the related statements of
income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financil statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Parity Systems Inc. at
December 31, 1994 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with
generally accepted accounting principles.
March 15, 1996
(December 1, 1996 as to Note 9)
PARITY SYSTEMS INC.
BALANCE SHEETS
December 31,
-----------------------
ASSETS 1994 1995
---------- ----------
CURRENT ASSETS:
Cash and equivalents $ 29,674 $ 88,698
Accounts receivable, less allowance
for doubtful accounts of $186,447
in 1994; $197,000 in 1995 5,249,867 4,519,206
Inventories 2,888,477 3,922,877
Warranty spares inventory 141,186 100,264
Prepaid expenses 96,582 99,744
Deferred income taxes 34,448 37,641
---------- ----------
Total current assets 8,440,234 8,768,430
PROPERTY AND EQUIPMENT, Net 186,985 213,479
OTHER ASSETS 94,889 46,890
DEFERRED INCOME TAXES - 14,049
---------- ----------
TOTAL $8,722,108 $9,042,848
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $3,187,677 $2,640,298
Bank line of credit 2,886,010 3,334,345
Accrued expenses 663,689 759,883
Deferred revenue 23,123 53,901
---------- ----------
Total current liabilities 6,760,499 6,788,427
NOTE PAYABLE TO STOCKHOLDER 200,000 200,000
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, no par value;
2,000,000 shares authorized;
825,500 shares outstanding 83,326 83,326
Retained earnings 1,678,283 1,971,095
---------- ----------
Total stockholders' equity 1,761,609 2,054,421
---------- ----------
TOTAL $8,722,108 $9,042,848
========== ==========
See notes to financial statements.
PARITY SYSTEMS INC.
STATEMENTS OF INCOME
Years Ended
December 31,
-------------------------
1994 1995
----------- -----------
SALES $30,739,446 $32,743,862
COST OF GOODS SOLD 25,773,120 26,414,786
----------- -----------
Gross profit 4,966,326 6,329,076
----------- -----------
EXPENSES:
Sales and marketing 2,779,659 3,356,543
General and administrative 995,420 1,246,895
Research and development 523,130 520,209
----------- -----------
Total expenses 4,298,209 5,123,647
----------- -----------
INCOME FROM OPERATIONS 668,117 1,205,429
INTEREST EXPENSE, Net 202,502 280,870
----------- -----------
INCOME BEFORE INCOME TAXES 465,615 924,559
STATE INCOME TAXES (Note 4) 43,301 87,317
----------- -----------
NET INCOME $ 422,314 $ 837,242
=========== ===========
See notes to financial statements.
PARITY SYSTEMS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 21, 1994 AND 1995
Total
Common Stock Stock-
---------------- Retained holders'
Shares Amount Earnings Equity
------- ------- ---------- ----------
BALANCE, January 1,
1994 825,500 $83,326 $1,289,389 $1,372,715
Net income - - 422,314 422,314
Dividends - - (33,420) (33,420)
------- ------- ---------- ----------
BALANCE, December 31,
1994 825,500 83,326 1,678,283 1,761,609
Net income 837,242 837,242
Dividends (544,430) (544,430)
------- ------- ---------- ----------
BALANCE, December 31,
1995 825,500 $83,326 $1,971,095 $2,054,421
======= ======= ========== ==========
See notes to financial statements.
PARITY SYSTEMS INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------
1994 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 837,242 $ 422,314
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 104,981 133,862
Loss on disposal of equipment 8,545 -
Deferred income taxes (17,242) (3,848)
Change in operating assets and
liabilities:
Accounts receivable 730,661 (1,683,540)
Inventories (1,034,400) (1,215,459)
Warranty spares inventory 40,922 119,931
Prepaid expenses (3,162) (76,568)
Accounts payable (547,379) 1,265,148
Accrued expenses 96,194 101,701
Deferred revenue 30,778 23,123
Other assets 47,999 (73,040)
---------- ----------
Net cash provided by (used in)
operating activities 295,139 (986,376)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (140,420) (84,883)
Proceeds from sale of equipment 400 -
---------- ----------
Net cash used in investing activities (140,020) (84,883)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank line of credit 448,335 1,109,760
Dividends paid (544,430) (33,420)
---------- ----------
Net cash provided by (used in)
financing activities (96,095) 1,076,340
---------- ----------
NET INCREASE IN CASH AND EQUIVALENTS 59,024 5,081
CASH AND EQUIVALENTS:
Beginning of year 29,674 24,593
---------- ----------
End of year $ 88,698 $ 29,674
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Income taxes paid $ 90,099 $ -
========== ==========
Interest paid $ 264,697 $ 221,646
========== ==========
See notes to financial statements.
PARITY SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995
1. Business and Significant Accounting Policies
Business - Parity Systems Inc. (the Company) supplies a wide range
of products for users of UNIX computer systems including SCSI
storage devices (disk drives, tape backup units and CD ROMS) and
disk storage arrays using RAID controller technology. The Company
provides archival backup and management hardware and software for
large data centers, along with consulting, installation and support
services, is an authorized reseller for several major RISC-based
workstation manufacturers and designs and manufactures memory
modules, some of which are patent protected and licensed by
workstation manufacturers.
Estimates and Assumptions - In accordance with generally accepted
accounting principles, the Company's management prepares the
financial statements utilizing certain estimates and assumptions
that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Such management
estimates include the allowance for doubtful accounts receivable
and the net realizable value of inventory and warranty spares.
Actual results could differ from those estimates.
Cash and Equivalents - The Company considers all highly liquid debt
investments purchased with maturities of three months or less to be
cash equivalents.
Inventories - Inventories consist of computer hardware parts and
subassemblies and are stated at the lower of cost, using the
first-in, first-out (FIFO) method, or market.
Warranty spares inventory is stated at its estimated net realizable
value.
Property and Equipment - Property and equipment are stated at cost.
Depreciation is computed over the estimated useful lives of three
to five years using the straight-line method.
Financial Instruments - The Company believes that the carrying
amount reported in the financial statements for cash and
equivalents as of December 31, 1995 approximates fair value. The
fair value of the bank line of credit approximates the carrying
amount based on the current rate offered to the Company for debt of
the same remaining maturities. The fair value of the note payable
to stockholder is not practicable to determine due to the related
party relationship.
Revenue Recognition - Sales are recognized at the time of product
shipment.
Income Taxes - Income taxes are accounted for in accordance with
Statement of Financial Accounting Standards No. 109 (SFAS 109),
which requires an asset and liability approach for financial
accounting and reporting of income taxes.
2. Property and Equipment
Property and equipment at December 31 consists of:
1994 1995
-------- --------
Computer equipment $599,922 $396,136
Furniture and other equipment 189,363 217,924
-------- --------
789,285 614,060
Accumulated depreciation (602,300) (400,581)
-------- --------
$186,985 $213,479
======== ========
3. Financing Arrangements
Bank Line of Credit
The Company has a line of credit agreement that expires on May 5,
1997. The agreement provides for borrowings of up to the lesser of
$5,000,000 or 80% of eligible trade accounts receivable and 25% of
inventory balances (eligible inventory balances not to exceed
$750,000). Borrowings bear interest at the bank's prime lending
rate (8.5% at December 31, 1995) plus 1.2%. The agreement
requires, among other things, that the Company satisfy certain
financial covenants for maintaining minimum levels of profit,
working capital and tangible net worth. The Company was in
compliance with these covenants at December 31, 1995.
Note Payable to Stockholder
The note payable to stockholder bears interest at 16.8%, is due
January 1998 and is subordinated to the security interest of the
bank credit agreement.
4. Income Taxes
The Company has elected S Corporation status for federal income tax
purposes. Accordingly, the stockholders are responsible for
reporting their pro rata share of the Company's federal taxable
income or loss on their individual tax returns.
The Company's 1994 state income tax expense of $43,301 consists of
a currently payable amount of $39,453 and an decrease in deferred
tax assets of $3,848. The Company's 1995 state income tax expense
of $87,317 consists of a currently payable amount of $104,559 and
an increase in deferred tax assets of $17,242. Deferred tax assets
at December 31, 1994 and 1995 primarily result from accruals and
reserves not yet recognized for tax return purposes. The Company's
effective income tax rate differs from the statutory rate
principally because of the Company's S corporation status for
federal income tax reporting.
5. Employee Benefit Plan
The Company has adopted a qualified SEP (Simplified Employee
Pension) plan, covering substantially all of its employees. Under
the plan, the Company may make annual tax deductible contributions
to its employees' individual IRA accounts. Company contributions
are at the discretion of the Board of Directors. The Company
accrued $51,735 and $108,974 to the plan for the years ended
December 31, 1994 and 1995, respectively.
6. Commitments
Operating Leases - Rent expense for office and warehouse facilities
was approximately $310,000 and $312,000 for the years ended
December 31, 1994 and 1995, respectively.
Future minimum operating lease payments at December 31, 1995 are as
follows:
Year Ending
December 31,
------------
1996 $252,688
1997 250,312
1998 24,817
--------
$527,917
========
Royalty Agreements - The Company has agreements which require
royalty payments on sales of certain of its products. Royalty
expense for the years ended December 31, 1994 and 1995 was $421,341
and $375,074, respectively.
7. Stock Options
Qualified Stock Options
The Company has reserved 100,000 shares of common stock under a
qualified incentive stock option plan. Under the plan, the Board
of Directors may grant options to key employees to purchase shares
of the Company's common stock at its estimated fair market value as
determined by the Board of Directors at the date of grant. The
option price for employees owning more than 10% of the Company's
outstanding stock would be 110% of the estimated fair market value
per share at the date of grant.
Outstanding stock options vest ratably over a four-year period.
The options may be exercised upon vesting over a five-year period
from the grant date. Information with respect to shares under
option is as follows:
Number Exercise
of Shares Price
--------- --------
Balance, January 1, 1994 15,000 $4.00
Granted 85,000 $2.00-$2.20
Cancelled (15,000) $4.00
------
Balance, December 31, 1995 and 1994 85,000 $2.00-$2.20
======
At December 31, 1995, options to purchase 2,500 shares of common
stock are available for future grant and options to purchase 52,188
shares of common stock are exercisable.
Nonqualified Stock Options
The Company has issued nonqualified stock options to directors to
acquire up to 10,000 shares of common stock at an exercise price of
$2.00 per share. The options vest ratably over 48 months beginning
April 1, 1993. The options terminate upon resignation from the
Board of Directors. At December 31, 1995, no options have been
exercised under this agreement and options to purchase 6,875 shares
of common stock are exercisable.
Recently Issued Accounting Standard - In October 1995, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 123, Accounting for Stock-Based
Compensation. The new standard defines a fair value method of
accounting for stock options and other equity instruments, such as
stock purchase plans effective 1996. The new standard permits
companies to continue to account for equity transactions with
employees under existing accounting rules but requires disclosure
in a note to the financial statements of the pro-forma net income
as if the Company had applied the new method of accounting. The
Company intends to follow these disclosure requirements for its
employee stock plans. As a result, adoption of the new standard
will not impact reported earnings and will have no effect on the
Company's cash flows.
8. Major Customers and Concentration of Credit Risk
Within the United States, the Company sells to a broad range of end
users in the commercial, federal government, and educational
marketplaces as well as to various system integrators who in turn
have their own markets. The Company purchases its products from a
broad range of suppliers. Due to high market demand for certain
products, the Company occasionally experiences product shortages.
During 1994, the petrochemical market (concentrated in Texas)
represented 22% of the Company's sales and 22% of year-end accounts
receivable (14% and 15%, respectively, in 1995). Foreign sales
were 15% of total sales in 1994 (11% in 1995) and accounted for 11%
of accounts receivable (11% in 1995); they were not, however,
concentrated in any given country.
At December 31, 1994 one customer accounted for 18% of total
accounts receivable balances. At December 31, 1995, two customers
accounted for 23% and 14% of total accounts receivable balances.
During 1994, one customer represented 17% of sales. During 1995,
two customers represented 18% and 11% of sales.
9. Subsequent Event
Effective December 1, 1996, nStor Technologies, Inc. purchased
certain assets and assumed certain liabilities from the Company for
$2,800,000 cash and a warrant to purchase 500,000 shares of common
stock of nStor Technologies, Inc.
PARITY SYSTEMS INC.
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1993 AND 1992
Board of Directors
Parity Systems Inc.
Los Gatos, California
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Parity Systems
Inc. as of December 31, 1993 and 1992, and the related statements
of income, stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Parity
Systems Inc. as of December 31, 1993 and 1992, and the results of
its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
As discussed in Notes 1 and 3 to the financial statements, the
Company changed its method of accounting for income taxes in the
year ended December 31, 1993 and changed its method of accounting
for capitalizing overhead costs in inventories in the year ending
December 31, 1992.
FRANK, RIMERMAN & CO., LLP
February 23, 1994
PARITY SYSTEMS INC.
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
ASSETS 1993 1992
------ ---------- ----------
CURRENT ASSETS
Cash $ 24,593 $ 9,082
Accounts receivable, less allowance
for doubtful accounts of $40,055
at 1993 ($86,077 at 1992) (Note 2) 3,543,768 3,238,365
Other receivables, net 22,559 10,272
Inventories, net (Note 2) 1,708,019 1,937,701
Warranty spares inventory, net (Note 2) 226,116 45,409
Prepaid expenses 20,014 42,442
Deferred income taxes (Note 3) 39,500 15,200
Deposits 21,849 -
---------- ----------
Total current assets 5,606,418 5,298,471
PROPERTY AND EQUIPMENT, net (Note 2) 235,966 321,424
DEPOSITS - 21,849
---------- ----------
$5,842,384 $5,641,744
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $1,897,594 $1,781,102
Short-term debt (Note 2) 1,776,252 1,815,411
Accrued commissions 213,336 189,109
Accrued expenses 249,476 206,780
Customer deposits 124,111 70,920
Deferred income taxes (Note 3) 4,200 -
Current maturities of long-term debt (Note 2) - 204,842
---------- ----------
Total current liabilities 4,264,969 4,268,164
---------- ----------
LONG-TERM DEBT, less current maturities (Note 2) 200,000 6,859
---------- ----------
DEFERRED INCOME TAXES (Note 3) 4,700 -
DEFERRED RENT, less current portion (Note 5) - 24,936
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDERS' EQUITY (Note 6)
Common stock, no par value; 2,000,000 shares
authorized; 825,500 shares issued and
outstanding 83,326 83,326
Retained earnings 1,289,389 1,258,459
---------- ----------
1,372,715 1,341,785
---------- ----------
$5,842,384 $5,641,744
========== ==========
See Notes to Financial Statements
PARITY SYSTEMS INC.
STATEMENTS OF INCOME
Years Ended December 31, 1993 and 1992
1993 1992
----------- -----------
SALES $24,475,793 $22,908,239
COST OF GOODS SOLD 20,380,661 18,718,916
----------- -----------
Gross profit 4,095,132 4,189,323
----------- -----------
EXPENSES
Salaries and wages 1,725,004 1,803,496
Commissions 938,760 943,702
General and administrative 1,225,929 1,327,835
----------- -----------
3,889,693 4,075,033
----------- -----------
Income from operations 205,439 114,290
----------- -----------
OTHER
Interest income (443) (1,816)
Interest expense 149,077 134,618
----------- -----------
148,634 132,802
----------- -----------
Income (loss) before income taxes and
cumulative effect of accounting change 56,805 (18,512)
INCOME TAX EXPENSE (Note 3) 1,900 2,513
----------- -----------
Net income (loss) before cumulative
effect of accounting change 54,905 (21,025)
CUMULATIVE EFFECT ON PRIOR YEARS (TO
DECEMBER 31, 1992) OF CHANGING INCOME
TAX REPORTING METHOD (Note 3) 17,300 -
CUMULATIVE EFFECT ON PRIOR YEARS (TO
DECEMBER 31, 1991) OF CHANGING INVENTORY
CAPITALIZATION METHOD - 44,000
----------- -----------
Net income $ 72,205 $ 22,975
=========== ===========
See Notes to Financial Statements
PARITY SYSTEMS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1993 and 1992
Common Stock
----------------- Retained
Shares Amount Earnings
------- ------- ----------
BALANCE, December 31, 1991 825,500 $83,326 $1,276,759
Net income - - 22,975
Dividends ($.05 per share) - - (41,275)
------- ------- ----------
BALANCE, December 31, 1992 825,500 $83,326 $1,258,459
Net income - - 72,205
Dividends ($.05 per share) - - (41,275)
------- ------- ----------
BALANCE, December 31, 1993 825,500 $83,326 $1,289,389
======= ======= ==========
See Notes to Financial Statements
PARITY SYSTEMS INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993 and 1992
1993 1992
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 72,205 $ 22,975
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation (net of cumulative effect
of accounting change in 1992) 142,995 66,590
Bad debt expense 14,947 42,781
Deferred income taxes, net (15,400) 2,500
Change in operating assets and
liabilities:
Accounts receivable (320,350) (766,231)
Other receivables (12,287) 2,936
Inventories, net 229,682 177,189
Warranty spares inventory, net (180,707) (7,821)
Prepaid expenses 22,428 (11,671)
Refundable income taxes - 76,887
Accounts payable 116,492 (197,028)
Accrued commissions 24,227 (12,779)
Accrued expenses 42,696 (40,129)
Customer deposits 53,191 65,177
Deferred rent (24,936) -
-------- --------
Net cash provided by (used in)
operating activities 165,183 (578,624)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (57,537) (96,545)
-------- --------
Net cash used in investing activities (57,537) (96,545)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable to bank (11,701) -
Proceeds from (repayments on) short-term
debt, net (39,159) 530,411
Repayment of note payable to stockholder - (30,000)
Proceeds on issuance of stockholder note
payable - 55,000
Dividends paid (41,275) (41,275)
-------- --------
Net cash provided by (used in)
financing activities (92,135) 514,136
-------- --------
Net increase (decrease) in cash 15,511 (161,033)
CASH, beginning 9,082 170,115
-------- --------
CASH, ending $ 24,593 $ 9,082
========= ========
(Continued)
PARITY SYSTEMS INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993 and 1992
(Continued)
1993 1992
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Income taxes refunded $ (800) $(74,374)
======== ========
Interest paid $149,479 $134,931
======== ========
See Notes to Financial Statements
PARITY SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Significant Accounting Policies
Nature of Business
Parity Systems Inc. (Company) designs and manufactures
proprietary enclosures, data storage subsystems, memory modules
(SIMM's), and memory expansion boards for computer work
stations. The majority of these are sold into UNIX operating
system environments.
Within the United States, the Company sells to a broad range of
end users in the commercial, Federal government, and educational
marketplaces as well as to various system integrators who in
turn have their own individual markets. During 1993, the
petrochemical market (concentrated in Texas) represented 30
percent of the Company's sales and 40 percent of year-end
accounts receivables (25% and 21%, respectively, in 1992).
Foreign sales were 13 percent of total revenues in 1993 (16% in
1992) and accounted for 14 percent of accounts receivables (16%
in 1992); they were not, however, concentrated in any given
country.
Significant Accounting Policies
Inventories:
Inventories consist of computer hardware and related components
and are stated at the lower of cost or market using the first-in,
first-out (FIFO) method, net of applicable reserves.
In order to adequately service warranty obligations, the Company
maintains a supply of certain parts. These parts, reflected as
warranty spares inventory on the accompanying balance sheets,
are stated at their estimated net realizable value. It is the
Company's policy to sell these parts as deemed appropriate based
on estimated future warranty needs and applicable market prices.
Effective January 1, 1992, the Company revised its method of
applying certain overhead costs to inventory in order to more
accurately match overhead costs with related inventories. The
cumulative effect of the accounting change for prior years (to
December 31, 1991) resulted in an increase in income and
retained earnings of $44,000. Applicable income taxes
pertaining to the cumulative effect of the accounting change are
not significant.
Property and Equipment:
Property and equipment are as follows:
1993 1992
-------- --------
Computer equipment $555,594 $502,495
Furniture and other equipment 153,479 149,041
-------- --------
709,073 651,536
Less accumulated depreciation 473,107 330,112
-------- --------
$235,966 $321,424
======== ========
The Company estimates the useful life of its computer equipment
and furniture and fixtures from 3 to 5 years and uses the
straight-line method of depreciation for all fixed assets.
Maintenance and repairs are charged to operations as incurred.
Income Taxes:
In February 1992, The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109 (SFAS
109), Accounting for Income Taxes. SFAS 109 requires a change
from the deferral method of accounting for income taxes of APB
Opinion 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred
tax liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect
on deferred tax assets and labilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. Effective January 1, 1993, the Company adopted
SFAS 109; the cumulative effect of that change in the method of
accounting for income taxes (to December 31, 1992) is a $17,300
increase in income and retained earnings.
Research and Development Costs:
Research and development costs charged to operations in 1993
were approximately $477,000 ($597,000 in 1992).
Cash:
For purposes of the statements of cash flows, cash includes cash
in bank and certificates of deposit with an original maturity of
three months or less.
Reclassifications:
Certain reclassifications have been made to the 1992 balances to
conform to the current year classifications.
2. Financing Arrangements
Short-Term Debt:
The Company has a revolving bank credit agreement, subject to
annual renewal each July 1, that provides for borrowings of up
to the lesser of $2,500,000 or 75% of eligible trade accounts
receivable, and 30% of inventories (capped at $250,000).
Borrowings are secured by contract rights, equipment, general
intangibles, accounts receivable and inventories and are
guaranteed by a stockholder. Borrowings bear interest at the
bank's prime lending rate plus 2.25% (8.25% total at December
31, 1993). The agreement requires, among other items, that the
Company satisfy certain financial covenants for maintaining
minimum levels of profit, working capital, and tangible net
worth. At December 31, 1993, the Company was not in compliance
with one of these covenants; however, the bank has agreed to
waive its repayment right with respect to this violation.
Long-Term Debt:
Long-term debt is as follows:
1993 1992
-------- --------
Note payable to stockholder with
interest payable at 16.8%; due
January, 1996; subordinated to
the security interest of the
bank credit agreement $200,000 $200,000
Note payable to bank; secured
by equipment; paid May, 1993 - 11,701
-------- --------
200,000 211,701
Less current maturities - 204,842
-------- --------
$200,000 $ 6,859
======== ========
3. Income Taxes
The Company has elected S Corporation status for Federal income
tax purposes. Accordingly, the stockholders are responsible to
report on their individual tax returns their pro rata share of
the Company's Federal taxable income or loss.
The Company has not elected S Corporation status for state
income tax purposes. As discussed in Note 1, the Company
adopted SFAS 109, Accounting for Income Taxes, on January 1,
1993. The adoption of SFAS 109 resulted in the recognition of
previously unrecognized deferred income tax assets comprised
primarily of net operating loss carryforwards of approximately
$70,000 and research and development credit carryforwards of
approximately $20,000. The resulting increase in deferred
income tax assets has been recognized as a cumulative effect
adjustment to the 1993 statement of income.
The Company's 1993 state income tax liability was reduced to the
minimum $800 California franchise tax through the utilization of
the net operating loss carryforwards and approximately $5,000 of
the research and development credit carryforwards. The
Company's 1993 income tax expense of $1,900 results primarily
from the resulting reduction of the deferred income tax assets.
4. Employee Benefit Plan
The Company has adopted a qualified SEP (Simplified Employee
Pension) Plan, covering substantially all of its employees.
Under the SEP, the Company may make annual tax-deductible
contributions to its employees' individual IRA accounts.
Company contributions are at the discretion of the Board of
Directors. There were no contributions made for the years ended
December 31, 1993 and 1992.
5. Lease Commitment
The Company leases its office and warehouse facilities under a
noncancellable operating lease agreement that requires monthly
lease payments of $24,557 plus common-area expenses through
November, 1994. The Company has the option to renew the lease
for two consecutive one-year periods at substantially the same
rate. Rent expense on office and warehouse facilities for the
year ended December 31, 1993 was approximately $306,000
($304,000 at December 31, 1992).
The lease agreement provides for rent payments at a reduced
amount during the first 12 months of the lease term. The
Company provides for rent expense on a straight-line basis over
the term of the lease. Accordingly, deferrred rent expense is
created in the early lease period and amortized as the lease
reaches maturity. Included in accrued expenses at December 31,
1993 is $24,936 of deferred rent ($27,203 in 1992).
6. Stock Options
Qualified Stock Options
The Company has reserved 100,000 shares of common stock under a
qualified incentive stock option plan. Under the plan, the
Board of Directors may grant options to key employees to
purchase shares of the Company's common stock at estimated fair
market value at the date of grant. The option price for
employees owning more than 10% of the Company's outstanding
stock would be 110% of the estimated fair market value per share
at the date of grant. The common stock's estimated fair market
value was determined by the Board of Directors at the time of
grant.
Outstanding stock options vest ratably over a four-year period.
The options may be exercised upon vesting over a five-year
period from the grant date. Information with respect to shares
under option during 1993 is as follows:
Number Option
of Price Expiration
Shares Per Share Date
------ --------- ----------
Options outstanding,
December 31, 1991 52,500
Cancelled (15,000)
------
Options outstanding,
December 31, 1992 37,500
Cancelled (22,500)
------
Options outstanding,
December 31, 1993 15,000
======
Options exercised,
December 31, 1993 -
======
Options authorized, but
not granted, December
31, 1993 72,500
======
Options exercisable (fully
vested) December 31, 1993 15,000 $4.00 1995
======
6. Stock Options (continued)
Non-Qualified Stock Options
The Company has issued non-qualified stock options to directors
to acquire up to 5,000 shares of its common stock at an exercise
price of $5.00 per share. The options vest ratably over a four-year
period beginning January 1, 1990. The options terminate
upon resignation from the Board of Directors. At December 31,
1993, no options have been exercised under this agreement.
7. Litigation Contingency
During 1992, a former employee of the Company filed a complaint
with the Equal Employment Opportunity Commission (EEOC). In
January, 1994, the EEOC made a preliminary determination of
cause and is presently attempting to mediate a settlement. The
claimant is seeking approximately $50,000 in damages. The
Company is currently negotiating for settlement of this action;
however, the ultimate settlement amount and related legal costs
are not presently determinable. Therefore, at December 31,
1993, the Company has not provided for any liability that might
result from this action in the accompanying financial
statements.
PARITY SYSTEMS, INC.
BALANCE SHEET
November 30, 1996
(dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 2
Accounts receivable 2,825
Inventories 2,543
Prepaid expenses and other 104
------
5,474
Property and equipment, net 326
Other assets 14
------
$5,814
======
LIABILITIES
Current liabilities:
Note payable - bank $2,700
Accounts payable 2,641
Accrued expenses and other 992
------
Total liabilities 6,333
------
STOCKHOLDERS' DEFICIT
Common stock, no par value; 2,000,000
shares authorized; 825,500 shares
outstanding 83
Deficit (602)
------
Total stockholders' deficit (519)
------
$5,814
======
PARITY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
( in thousands)
Eleven
Months Ended
November 30,
-------------------
1996 1995
------- -------
(Unaudited) (Unaudited)
Sales $24,771 $29,094
Cost of sales 21,855 23,665
------- -------
Gross profit 2,916 5,429
Operating expenses 5,037 4,512
------- -------
Income (loss) from operations (2,121) 917
Interest expense 271 252
------- -------
Income (loss) before income taxes (2,392) 665
Income tax expense - 65
------- -------
Net income (loss) ($ 2,392) $ 600
======= =======
PARITY SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
Eleven
Months Ended
November 30,
-------------------
1996 1995
------- -------
Cash flows from operating activities:
Net income (loss) ($ 2,392) $ 600
Adjustments to reconcile net income
(loss) provided by operating
activities:
Depreciation 96 97
Allowance for doubtful accounts 159 464
Provision for inventory obsolescence 745 122
Changes in assets and liabilities:
Decrease in accounts receivable 1,535 1,373
Decrease (increase) in inventories 735 (1,734)
Decrease in prepaid expenses
and other 81 29
Decrease in accounts payable,
accrued expenses and other (22) (373)
------- -------
Net cash provided by operating activities 937 578
------- -------
Cash flows from investing activities:
Purchase of property and equipment (209) (139)
------- -------
Net cash used by investing activities (209) (139)
------- -------
Cash flows from financing activities:
Bank line of credit - net (634) 132
Dividends paid (181) (544)
-------- -------
Net cash used by financing activities (815) (412)
-------- -------
Net (decrease) increase in cash for
the period (87) 27
Cash at beginning of period 89 30
------- -------
Cash at end of period $ 2 $ 57
======= =======
PARITY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
ELEVEN MONTHS ENDED NOVEMBER 30, 1996 AND 1995
(1) Financial Statements
The condensed financial statements included herein have been
prepared without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations; however, management believes that the
disclosures are adequate to make the information presented not
misleading.
The condensed financial statements for the interim periods
included herein, which are unaudited, include, in the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position
and results of operations of Parity Systems, Inc. ("the
Company") for the periods presented. The results of operations
for interim periods should not be considered indicative of
results to be expected for the full year.
(2) Business / Subsequent Event: Acquisition
Until November 30, 1996, the Company was engaged in the design,
manufacture and sale of computer storge subsystems, memory
devices and peripheral equipment and the integration of storage
management solutions, digital media management, and
client/server systems for RISC-based UNIX and Windows NT Server
environments. Effective December 1, 1996, substantially all the
net assets of the Company were sold to a subsidiary of nStor
Technologies, Inc. The purchase price consisted of $2.8 million
in cash and a warrant (exercisable at any time through December
1999) to purchase 500,000 shares of nStor Technologies, Inc.
common stock at $2.10 per share.
nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Effective December 1, 1996, nStor Corporation, Inc. ("nStor"),
a subsidiary of nStor Technologies, Inc. ("the Company"), acquired
substantially all the net assets of Parity Systems, Inc. ("Parity")
for a purchase price consisting of $2,800,000 in cash and a warrant
(exercisable at any time through December 1999) to purchase 500,000
shares of the Company's common stock at $2.10 per share, valued at
$470,000. The transaction closed on December 30, 1996, on which
date nStor repaid the approximately $3 million outstanding balance
of Parity's bank line of credit.
The acquisition has been accounted for as a purchase, with
assets acquired and liabilities assumed recorded at estimated fair
values as of December 1, 1996 and the operating results of the
acquired business included in the Company's consolidated financial
statements from that date.
The following unaudited condensed combined financial
statements of the Company are derived from, and should be read in
conjunction with, the Company's historical balance sheet at October
31, 1996 and the Company's historical statement of operations for
the year then ended, as presented in the Company's Annual Report on
Form 10-K for the year ended October 31, 1996. It should also be
read in conjunction with Parity's historical balance sheet at
November 30, 1996 and Parity's historical statement of operations
for the eleven months then ended, included elsewhere herein.
The unaudited proforma condensed combined balance sheet at
October 31, 1996 gives effect to the acquisition as if it had
occurred on that date. The unaudited proforma condensed combined
statement of operations for the year ended October 31, 1996 gives
effect to this transaction as if it had occurred as of November 1,
1995.
The proforma condensed combined financial statements do not
purport to be indicative of the results of operations or financial
position which would have actually been reported had the
transaction been consummated on the dates indicated, or which may
be reported in the future.
nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
PROFORMA CONDENSED COMBINED BALANCE SHEET
(in thousands)
Historical
-----------------------
Parity nStor
Systems, Technologies,
Inc. Inc. Proforma
November October Adjust-
ASSETS 30, 1996 31, 1996 ments Proforma
- ------ -------- -------- -------- --------
Current assets:
Cash and cash
equivalents $ 2 $10,608 ($2,800)(1) $ 5,110
(2,700)(2)
Accounts receivable 2,825 1,747 - 4,572
Inventories 2,543 1,385 - 3,928
Prepaid expenses
and other 104 82 (80)(1) 106
------ ------- ------ -------
Total current assets 5,474 13,822 (5,580) 13,716
Deferred tax asset 14 182 (14)(1) 182
Property and equip-
ment, net 326 694 (38)(1) 982
Goodwill and other
intangible assets,
net - 979 4,769 (1) 5,748
------ ------- ------ -------
$5,814 $15,677 ($ 863) $20,628
====== ======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current labilities:
Note payable - bank $2,700 $ - ($2,700)(2) $ -
Accounts payable 2,641 1,137 - 3,778
Accrued expenses
and other 992 840 848 (1) 2,680
Royalty liability - 800 - 800
------ ------- ------ -------
Total current
liabilities 6,333 2,777 (1,852) 7,258
Convertible notes
payable - 510 - 510
------ ------- ------ -------
Total liabilities 6,333 3,287 (1,852) 7,768
Stockholders' equity
(deficit) (519) 12,390 989 (1) 12,860
------ ------- ------ -------
$5,814 $15,677 ($ 863) $20,628
====== ======= ====== =======
__________
See accompanying Proforma Adjustments.
nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(dollars in thousands, except per share data)
Historical
-----------------------
Parity nStor
Systems, Technologies,
Inc. Inc.
Year Ended Year Ended Proforma
November October Adjust-
30, 1996 31, 1996 ments Proforma
-------- -------- -------- --------
Sales $28,421 $ 5,619 $ - $34,040
Cost of sales 24,689 3,547 - 28,236
------- ------- ------- -------
Gross profit 3,732 2,072 - 5,804
Operating expenses (5,564) (1,957) 403(3) (7,118)
------- ------- ------- -------
Income (loss) from
operations (1,832) 115 403 (1,314)
Gain from sale of
Imnet Systems,
Inc. stock - 11,955 - 11,955
Interest and invest-
ment income
(expense) (300) 162 (76)(4) (214)
------- ------- ------- -------
Income (loss) before
extraordinary gain (2,132) 12,232 327 10,427
Extraordinary gain
from debt
extinguishment - 566 - 566
------- ------- ------- -------
Net income (loss) ($2,132) $12,798 $ 327 $10,993
======= ======= ======= =======
Per common share:
Income before
extraordinary
gain $.70 $.59
Extraordinary
gain .03 .03
---- ----
Net income $.73 $.62
==== ====
Average number of
common shares
outstanding 17,606,477 17,606,477
========== ==========
__________
See accompanying Proforma Adjustments
nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
PROFORMA ADJUSTMENTS
Condensed Combined Balance Sheet:
(1) To record the acquisition of substantially all the net assets
of Parity and the allocation of the purchase price on the
basis of the estimated fair values of the net assets acquired.
The components of the purchase price and its allocation to the
assets and liabilities of Parity are as follows (in
thousands):
Components of purchase price:
Cash $2,800
Warrant to purchase 500,000 shares
of the Company's common stock 470
Estimated accrued liabilities for
relocation of Parity's operations
and transaction costs 905
------
Total purchase price to be allocated $4,175
======
Allocation of purchase price:
Parity deficit ($ 519)
Goodwill 4,769
Other (75)
------
Net purchase price $4,175
======
(2) To record repayment of outstanding balance of Parity's bank
line of credit.
Condensed Combined Statement of Operations:
(3) To adjust Parity's historical operating expenses for the
change in the carrying amount of net assets resulting from the
allocation of the purchase price as described in proforma
adjustment (1) to the proforma condensed combined balance
sheet relating to (in thousands):
Reduction of personnel, occupancy
and other operating expenses
incurred in connection with reloca-
tion of Parity's operations,
capitalized by nStor on the date of
acquisition and included in the
determination of the purchase price ($ 721)
Amortization of goodwill 318
-----
Total decrease to operating expenses ($ 403)
=====
(4) To reduce interest income by the cost that would have been
incurred to finance the acquisition of Parity, net of
elimination of interest expense incurred by Parity on its bank
line of credit assumed to be repaid on November 1, 1995.
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is effective as of December 31,
1996, between nSTOR CORPORATION, INC., a Delaware corporation
("Employer"), and NORBERT WITT ("Employee").
RECITALS:
A. Employer desires assurance of the continued
association and services of Employee in order to retain his
experience, abilities, and knowledge, and is therefore willing
to engage his services as an employee.
B. Employee desires to be employed by Employer and is
willing to render services on the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the above recitals
and of the mutual promises and conditions in this Agreement,
the parties agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Duties of Employment. Employer shall employ
Employee as Executive Vice President or in such other capacity
as Employer may from time to time prescribe. During his
employment, Employee shall perform the duties specified for
his position by Employer, and shall devote his full business
time, energy, and ability to the business and interests of
Employer. Employee shall not, without Employer's prior
written consent, render to others services of any kind for
compensation, or engage in any other business activity that
would materially interfere with the performance of his duties
under this Agreement.
Employee represents to Employer that he has no other
outstanding commitments inconsistent with any of the terms of
this Agreement or the services to be rendered under it.
1.2 Term. Subject to earlier termination as provided in
this Agreement, Employee shall be employed for a term
beginning on the date of this Agreement and ending December
31, 1998.
ARTICLE II
COMPENSATION
2.1 Base Salary. During the term of this Agreement,
Employer agrees to pay Employee an annual Base Salary of Two
Hundred Thousand Dollars ($200,000). The Base Salary shall be
payable as current salary, in monthly installments subject to
all applicable withholdings and deductions.
2.2 Bonus Compensation. In addition to the Base Salary,
Employee shall be entitled to receive such bonuses, if any, as
shall be determined and paid in the sole and absolute
discretion of Employer.
2.3 Incentive Compensation. In addition to the Base
Salary, Employer shall pay to Employee as Incentive
Compensation (i) five percent (5%) of the net earnings of the
Parity Systems Division of Employer for calendar year 1997,
and (ii) three percent (3%) of the net earnings of the Parity
Systems Division of Employer for calendar year 1998, provided
that in no event shall Employee's Incentive compensation for
each such calendar year exceed One Hundred Thousand Dollars
($100,000).
Net earnings for the purpose of determining
Employee's Incentive Compensation shall mean the net earnings
of the Parity Systems Division of Employer as shown in
Employer's financial statements before deduction for interest
expense or taxes (EBIT).
Employee's Incentive Compensation shall be
determined quarterly during each calendar year and paid within
forty-five (45) days after the end of each calendar quarter,
subject to all applicable withholdings and deductions.
2.4 Stock Options. Upon qualification under applicable
securities laws of its Employee Stock Option Plan, Employer
shall grant Employee, pursuant to the terms of a Stock Option
Agreement entered into pursuant to such Plan, options to
purchase 100,000 shares of Employer's common stock at a price
of Two Dollars and Ten Cents ($2.10) per share. Employee's
options shall vest and be exercisable ratably in cumulative
monthly increments during the term of Employment.
2.5 Additional Benefits. During the employment term:
(a) Employee shall be entitled to receive all
benefits of employment generally available to other employees
when and as he becomes eligible for them, including health and
life insurance, and pension benefits. Employer reserves the
right to modify, suspend, or discontinue any and all of the
above benefit plans, policies, and practices at any time
without notice to or recourse by Employee, so long as such
action is taken generally with respect to other similarly
situated employees, and provided that no such modification,
supervision, or discontinuance shall have the effect of
reducing or eliminating a benefit which accrued prior to the
date of such change.
(b) Employee shall be entitled to paid vacation in
accordance with Employer's policies and practices in effect
with respect to Employer's other similarly situated employees.
(c) To the extent that such expenditures satisfy
the criteria under the Internal Revenue Code for deductibility
by Employer for federal income tax purposes as ordinary and
necessary business expenses, Employer shall reimburse Employee
promptly for reasonable business expenses made and
substantiated in accordance with the policies and procedures
established from time to time by Employer.
ARTICLE III
CONFIDENTIALITY AND NON-DISCLOSURE
Employee acknowledges and understands that he presently
has now and will receive, during the term of employment,
confidential and proprietary information of Employer. In
order to preserve and protect such information, Employee
agrees to enter into and execute, concurrently with the
execution of this Agreement, the Employee Proprietary
Information Agreement in the form and on the terms attached as
Exhibit A.
ARTICLE IV
TERMINATION
4.1 Termination for Cause. Employer may terminate this
Agreement at any time upon written notice if Employee commits
any material act of dishonesty; commits a material breach of
this Agreement, the Employee Proprietary Information Agreement
and Noncompetition Agreement (copies of which are attached as
Exhibits A and B), is guilty of gross carelessness or willful
misconduct; habitually neglects his duties of employment; or
acts in a way that has a direct, substantial, and adverse
effect on Employer's reputation.
4.2 Termination Without Cause. Employer may terminate
this Agreement without cause upon sixty (60) days prior
written notice to Employee.
4.3 Resignation. Employee may terminate this Agreement
by giving Employer sixty (60) days prior written notice of
resignation.
4.4 Death or Disability. This Agreement shall
terminate immediately upon the death or disability of
Employee. "Disability" shall be deemed to occur at the end of
any calendar month during which Employee is and has been for
the [four] consecutive full calendar months then ending,
unable due to mental or physical illness or injury to perform
substantially all of his duties under this Agreement in the
normal and regular manner.
4.5 Benefits on Termination. Upon the termination of
Employee's employment pursuant to Section 4.1 (for cause), 4.3
(resignation), or 4.4 (death or disability), Employer shall
pay Employee his Base Salary and Incentive Compensation
accrued on a pro rata basis through the effective date of such
termination, and Employer shall thereafter have no further
obligations to Employee under this Agreement, except those
obligations provided by applicable law.
Upon the termination of Employee's employment
pursuant to Section 4.2 (without cause), Employer shall pay
Employee his Base Salary and Incentive Compensation for the
balance of the term specified in Section 1.2, and Employer
shall thereafter have no further obligations to Employee under
this Agreement.
ARTICLE V
GENERAL PROVISIONS
5.1 Entire Agreement. This Agreement (including
Exhibits A and B) contains the entire agreement between the
parties covering the subject matter described therein and
supersedes all prior oral and written agreements,
understandings, commitments, and practices between them,
including all prior employment agreements, whether or not
fully performed by Employee before the date of this Agreement.
No oral modifications, express or implied, may alter or vary
the terms of this Agreement. No amendments to this Agreement
may be made except by a writing signed by both parties.
5.2 Governing Law. The formation, construction, and
performance of this Agreement shall be construed in accordance
with the laws of the State of California, and the correct
venue for purposes of any proceeding brought to enforce or
interpret the provisions Agreement shall be deemed to be the
County of Santa Clara, State of California.
5.3 Notices. Any notices to Employer required or
permitted under this Agreement shall be given in writing to
Employer, either by personal service or by registered or
certified mail, postage prepaid, addressed to Employer at its
then principal place of business. Any such notice to Employee
shall be given in a like manner and, if mailed, shall be
addressed to Employee at his home address then shown in
Employer's files. Fur purposes of determining any time limit
in this Agreement, a notice shall be deemed to have been given
(i) on the date of service, if served personally, or (ii) on
the second business day after mailing.
5.4 Severability. If any provision of this Agreement
is held invalid or unenforceable, the remainder of this
Agreement shall nevertheless remain in full force and effect.
5.5 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be
an original, but all of which together will constitute one and
the same instrument.
5.6 Legal Fees and Expenses. Should any party
institute any action or proceeding to enforce this Agreement
or any provision thereof, or for damages by reason of any
alleged breach of this Agreement, or for a declaration of
rights hereunder, the prevailing party in any such action or
proceeding shall be entitled to receive from the other party
all costs and expenses, including reasonable attorney's fees,
incurred by the prevailing party in connection with such
action or proceeding.
5.7 Assignment. This Agreement and the rights, duties,
and obligations hereunder may not be assigned or delegated by
any party without the prior written consent of the other
party, and any attempted assignment or delegation without such
prior written consent shall be void and of no effect.
Notwithstanding the foregoing, Employer may assign or delegate
its rights, duties, and obligations hereunder to any affiliate
or to any person or entity which succeeds to all or
substantially all of the business of Employer through merger,
consolidation, reorganization, or other business combination
or by acquisition of all or substantially all of the assets of
Employer.
5.8 Binding Effect. This Agreement shall inure to the
benefit of, and the obligations hereunder shall continue to be
binding upon, the parties and their respective successors,
assigns, heirs, and personal representatives.
5.9 Non-Waiver. No failure or neglect of either party
hereto in any instance to exercise any right, power, or
privilege hereunder or under law shall constitute a waiver of
any other right, power, or privilege. All waivers by either
party must be contained in a written instrument signed by the
party to be charged.
5.10 Indemnification. Employer shall indemnify and hold
Employee harmless for actions taken in good faith while
performing services for Employer during the term of this
Agreement. Employer will advance and pay all expenses
(including reasonable attorney's fees) and costs actually and
necessarily incurred by Employee in connection with the
defense of any action, suit, or proceeding which has been
brought against Employee by reason of such indemnified actions
taken in good faith while performing services for Employer
during the term of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed as
of the date first set forth above.
EMPLOYER: EMPLOYEE:
nStor Corporation, Inc., a
Delaware corporation
/s/ D. Smith /s/ N. D. Witt
By___________________________
____________________________
NORBERT WITT
Its President
