SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1996
OR
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 08354
nStor Technologies, Inc.
(Formerly IMGE, Inc.)
(exact name of registrant as specified in its charter)
Delaware 95-2094565
(State of Incorporation) (I.R.S. Employer ID No.)
100 Century Blvd., West Palm Beach, Florida 33417
(Address of principal executive offices)
Registrant's telephone number, including area code: 561-640-3131
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.05 per share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
AGGREGATE MARKET VALUE OF THE VOTING STOCK
HELD BY NONAFFILIATES OF THE REGISTRANT
Common Stock, par value $.05 per share ("Common Stock"), was the
only class of voting stock of the Registrant outstanding on October
31, 1996. Based on the last sales price of the Common Stock on the
Over-the-Counter ("OTC") Market on December 31, 1996 (2-5/8), the
aggregate market value of the approximately 12,252,000 shares of
the Common Stock held by persons other than officers, directors and
persons known to the Registrant to be the beneficial owners (as
that term is defined under the rules of the Securities and Exchange
Commission) of more than five percent of the Common Stock on that
date was approximately $32.2 million. By the foregoing
statements, the Registrant does not intend to imply that any of
these officers, directors or beneficial owners are affiliates of
the Registrant or that the aggregate market value, as computed
pursuant to rules of the Securities and Exchange Commission, is in
any way indicative of the amount which could be obtained for such
shares of Common Stock.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all
documents and reports required to be filed by Section 12, 13, or
14(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes ____ No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest practicable
date:
18,670,477 shares of Common Stock, par value $.05
per share, were outstanding as of December 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement of nStor Technologies, Inc.
for the 1997 Annual Meeting of Stockholders
(incorporated in Part III)
PART I
Item 1. Business
General
nStor Technologies, Inc. (formerly IMGE, Inc. - the "Company"),
through its operating subsidiary, nStor Corporation, Inc.
("nStor"), has been engaged in the development, manufacture and
marketing of a full range of computer disk array products, known as
RAID (Redundant Array of Independent Disks) subsystems (the "RAID
Business") since June 3, 1996, the effective date of nStor's
acquisition of the RAID Business (the "nStor Acquisition").
nStor's RAID subsystems provide users with high capacity, fault-tolerant
storage, allow uninterrupted access to data and support a
variety of operating systems, including Novell NetWare, Microsoft
NT Server, SCO UNIX, IBM OS/2 LAN Server, and IBM OS/2 WARP. The
RAID subsystems provide data storage solutions, particularly for
applications requiring substantial storage capacity, such as
document imaging, video and multimedia, or transaction-intensive
environments, such as banking and order entry systems. nStor's
products are sold through a network of original equipment
manufacturers ("OEM's") and distributors located worldwide.
nStor acquired the RAID Business from a subsidiary of Seagate
Technologies, Inc. ("Seagate"), effective June 3, 1996, for
$592,000 in cash, including acquisition costs, and agreed to pay a
royalty to Seagate, estimated at $800,000, based upon 5% of nStor's
sales of certain products during the 15 month period beginning
October 1, 1996.
Prior to the nStor Acquisition, the Company's only assets were
securities issued by IMNET Systems, Inc. ("IMNET"), which the
Company had acquired in October 1992 in exchange for substantially
all of the Company's operating assets. During the time in which
the Company owned the IMNET securities, the Company's only
activities consisted of monitoring its investment in IMNET and
evaluating potential business opportunities. During 1996, the
Company sold the IMNET securities and recognized a gain of
$11,955,000.
The Company maintains its executive offices at 100 Century
Boulevard, West Palm Beach, Florida 33417 and its telephone number
is (561) 640-3131. The Company's nStor operating subsidiary is
located in Lake Mary, Florida (in the Orlando area). Information
regarding the Company can be accessed through the World Wide Web at
http:// www.nstor.com.
RECENT DEVELOPMENT - ACQUISITION OF ASSETS OF PARITY SYSTEMS, INC.
("PARITY")
Effective December 1, 1996, nStor acquired substantially all the
assets and assumed certain liabilities of Parity (the "Parity
Acquisition"), a privately-owned company, headquartered in Los
Gatos, California. Parity was engaged in the design, manufacture
and sale of computer storage 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. The Parity
Acquisition will enable nStor to gain access to the rapidly-expanding
mid-range UNIX market and expands nStor's product line to
include high-performance storage and data protection/management
solutions, backup/data recovery solutions, hierarchial storage
management, visual asset management systems and compact disc
recorder technology.
The purchase price for Parity's assets consisted of approximately
$5.8 million in cash, including approximately $3 million in the
form of the repayment of the outstanding balance of Parity's bank
line of credit, and a warrant (exercisable at any time during the
three years following the date of the Parity Acquisition) to
purchase 500,000 shares of the Company's Common Stock at $2.10 per
share, the market price for the Company's Common Stock on October
17, 1996, the date of execution of the Letter of Intent regarding
the Parity acquisition. The purchase price included $300,000 to be
held in escrow for up to three years in connection with certain
indemnifications made by Parity.
The Parity Acquisition will be accounted for under the purchase
method of accounting. Allocation of the purchase price will be
determined in 1997. The Company's preliminary estimate indicates
that the fair value of the net assets acquired as of the date of
acquisition is approximately $3.5 million, consisting of
approximately $9.7 million of assets (principally accounts
receivable, inventories and intellectual assets), less
approximately $6.2 million of liabilities, including the
aforementioned bank line of credit subsequently repaid.
RAID TECHNOLOGY
RAID, a concept developed in 1988 by a team of researchers from the
University of California at Berkeley, is an emerging storage
technology consisting of two or more disk drives working together
as one, using proprietary hardware, firmware and software to
achieve extremely fast data transfer rates, high levels of
redundancy and large storage capacity. The key characteristics of
RAID subsystems' performance are as follows:
Data Transfer Rate. RAID subsystems are able to achieve much
faster data transfer rates than individual disk drives because of
their ability to spread data among all of the component disk drives
and retrieve the data from all drives simultaneously at very fast
speeds. nStor's RAID subsystems can achieve data transfer rates of
up to 40 million bytes of data per second.
Redundancy. Redundancy refers to the replication of certain
data within the RAID subsystem so that if one disk drive or other
redundant component, such as a power supply, fails within the disk
array, no data is lost and the application continues uninterrupted.
In the event of such a failure, the failed component can be "hot-swapped"
for a new component (exchanged without necessitating taking down
the system).
Storage Capacity. By linking together multiple disk drives,
RAID subsystems achieve very large storage capacities. nStor's
disk arrays are able to store up to several hundred terabytes of
data.
Multiple levels of RAID have been defined by the research team from
Berkeley, which levels have been endorsed by The RAID Advisory
Board. The levels are differentiated by the manner in which they
write data to the disks. Below is a brief explanation of those
levels utilized by the nStor product line:
Level Technology Benefits Applications
RAID O Disk striping - Parallel disk input/ Those requiring high
data is written output ("I/O") for performance, but no
across multiple fast performance, fault-tolerance, video
disk drives. maximized storage editing, temporary
capacity, low up- data base scratch
front cost. areas.
RAID 1 Disk mirroring - Complete data re- Small servers ( 8GB),
duplicate data dundancy, easy to systems requiring
is written to implement, fast maximum performance
two separate read/write with fault-tolerance.
drives. performance.
RAID 3 Striping & parity - Enhanced performance Optimal for applications
data is striped for single user, in which large blocks of
across drives and sequential file sequential data must be
parity is main- systems. transferred quickly,
tained on a dedi- such as real-time audio/
cated parity drive. video, document imaging.
RAID 5 Disk striping Fault tolerance, Multi-user, OLTP, LAN
of both data efficient storage, servers 8GB requiring
and parity data excellent perfor- fault-tolerance.
across multiple mance in transac-
disks. tion processing
environments.
RAID 10 Combination of Fast performance Those that can justify
RAID O and 1 - and complete 100% redundancy of
data is striped redundancy. mirrored arrays and
across disks as the needs of the
in RAID O and enhanced I/O perform-
each disk has a ance of striped
mirror disk as in arrays.
RAID 1.
RAID 50 Combination of Fast performance. Those requiring highly
RAID O and 5. reliable storage, high
request rates, and high
data transfer
performance.
Connor Storage Systems Group, which owned nStor's RAID Business
prior to Seagate, co-developed (with Intel Corp.) the SAF-TE (SCSI
Accessed Fault-Tolerant Enclosures) specification. SAF-TE is an
industry-wide standard means of status reporting and control for
storage subsystems which facilitates local and remote automated
alert notification particularly for customers using high volume
servers. SAF-TE facilitates integration by system manufacturers of
servers, peripheral packaging and controllers by providing an open,
low-cost non-proprietary specification for communicating with
fault-tolerant enclosures. The SAF-TE specification allows system
administrators to monitor the status of all vital components of the
entire computer memory subsystem, including the disk drives, power
supplies and cooling fans, in contrast to many other RAID
subsystems which only report disk drive failures.
Other technology innovations in nStor's product line include:
Single Connector Attach (SCA) drives, first introduced in early
1994, used by such industry leaders as Intel, IBM and AT&T as the
in-server standard; Client-Server GUI (Graphical User Interface)
RAID Alert Management software used in Windows NT and NetWare
environments, providing management, monitoring and control features
in a point and click format; SMART enclosure technology,
incorporating an intelligent backplane (a circuit board attachment
between disk drives and the controller rather than a cable
attachment) to support hot swap disk drives and cooling fans,
facilitating the process by which local area network (LAN)
administrators manage fault-tolerant storage; and, ULTRA SCSI which
provides for a faster rate of data flow between the server and RAID
subsystem.
INDUSTRY
The rapid expansion and advancement of computer system technology
and the growing reliance upon "networks", including LAN's,
intranets, and the Internet, has created a necessity for much
greater amounts of secure data storage support and "redundancy"
(see below Item 1. Business - RAID Technology). Users of computer
systems in business and government environments are increasingly
demanding continuous data flows and uninterrupted access to
critical information. Such demands are especially important in
banking and other industries that through on-line computer access,
make these services and products available to customers on a full-time basis.
As businesses increase their use of client server
systems, data storage requirements on both networks and specialized
workstations are growing dramatically, and there is almost no
tolerance for system downtime.
RAID technology has evolved into an effective tool to protect
network computer users from the loss of critical data. Management
believes that RAID subsystems will continue to play a significant
role as the preferred vehicles for data storage in network
environments. Management also believes that nStor is well-positioned
to provide fault-tolerant information storage systems to
all segments of the market and will be able to participate in the
forecasted growth in the information storage market. However,
there can be no assurance that the Company will be successful in
these efforts due to the possibility of increased competition and
the advancement of alternative technologies.
PRODUCTS
Listed below is a summary of the family of nStor disk array
products.
Product Description and Features
CR 2 Series Stackable dual bay system with single enclosure
capacity containing two or four gigabyte (GB) disk
drives (up to 8 GB's of storage per enclosure).
Single system may be configured for mirroring or
duplexing. Systems may be daisy-chained and
configured for RAID 5 applications.
CR 6 Series 6-bay small footprint desktop system, containing 1, 2
or 4 GB disk drives (up to 24 GB's of storage per
enclosure). May be configured for RAID levels O, 1,
3 or 5. Hot-swappable disk drives, power supplies and
cooling fans. Data transfer rates of up to 20 MB's
per second.
CR 6e Series 6-bay, small footprint SAF-TE compliant desktop
subsystem, containing 2 or 4 GB disk drives (up to 24
GB's of storage per enclosure). May be configured for
RAID levels 0, 1, 3 or 5. Hot-swappable disk drives,
power supplies and cooling fans, on-the-fly disk
capacity expansion and RAID level migration. Data
transfer rates of up to 20 MB's per second.
CR 8 Series 8-bay rack-mountable or deskside tower enclosure
containing 1, 2, 4 or 9 disk drives (up to 72 GB's of
storage per enclosure). May be configured for RAID
levels 0, 1, 3 or 5. Hot-swappable disk drives, power
supplies and cooling fans. Data transfer rates of up
to 20 MB's per second.
CR 8e Series 8-bay rack-mountable or deskside tower SAF-TE
compliant subsystem containing 4 or 9 GB disk drives
(up to 72 GB's of storage per enclosure). May be
configured for RAID levels 0, 1, 3, 5, 10 or 50.
Hot-swappable disk drives, power supplies and cooling
fans, on-the-fly disk capacity expansion and RAID
level migration. Supports Ultra/Wide SCSI-3 with data
transfer rates of up to 40 MB's per second.
CR 12 Series 12-bay deskside tower subsystem containing 2 or 4 GB
disk drives (48 GB's of storage per enclosure). May
be configured for RAID levels 0, 1 and 5. Hot-swappable
disk drives, power supplies and cooling fans.
Supports data transfer rates of up to 20 MB's per second.
PRODUCT DISTRIBUTION AND CUSTOMERS
nStor distributes its products primarily through two sales channels
represented by OEM's and a world-wide network of independent
wholesale distributors. One customer represented approximately 53%
of total sales reported for fiscal 1996. The nStor customer base
ranges from small businesses to Fortune 500 firms and government
organizations. To strengthen its international presence and sales
efforts, nStor has recently opened a sales office in the United
Kingdom, and plans to continue to broaden its international
distribution base to effectively penetrate emerging markets in
Europe, Asia and Latin America. nStor also maintains a sales office
in Costa Mesa, California.
OEM's. nStor markets its products to OEMs, who in turn
generally incorporate those products into their own computer systems
and finished products. Sales to OEMs accounted for 74% of nStor's
sales for the five months ended October 31, 1996.
Wholesale Distributors. nStor also markets its products
through a network of regional, national and international wholesale
distributors. Generally, distributors sell these products to value-added
resellers (VARs) and smaller system integrators, who in turn
sell their products to end users. Sales to distributors accounted
for 26% of nStor's sales for the five months ended October 31, 1996.
nStor has purchasing and marketing agreements with its major OEM's
and wholesale distributors. These agreements typically contain
provisions relating to stock rotation privileges and price
protection. As is typical in the computer industry, nStor works
with OEM's and wholesale distributors to monitor inventory levels
which results in returns of unsold products on a limited basis in
exchange for other products on terms previously negotiated. In
addition, in the event nStor reduces its prices, credits are issued
for the difference between the purchase price of products remaining
in their inventory and the reduced price for such products on terms
previously negotiated. nStor has established reserves for product
returns, price protection and warranty claims which management
believes are adequate and are consistent with general industry
practices. However, there can be no assurance that product returns,
price protection or warranty claims will not have a material adverse
effect on nStor's future results of operation.
SALES AND MARKETING
Sales. nStor sells its products primarily through its direct
sales force which consisted of seven employees at October 31, 1996,
one of whom is located in the United Kingdom. The direct sales
organization recruits new distributors, supports existing nStor
distributors, markets products to OEMs and system integrators and
participates in trade shows.
Marketing. nStor utilizes a variety of programs to market its
products including direct mailings, advertisements in industry trade
publications, product brochures, joint marketing development fund
advertising, and participation in regional, national and
international trade shows.
TECHNICAL SUPPORT AND CUSTOMER SERVICE
nStor believes that its ability to provide prompt and reliable
technical support has significantly enhanced its marketing efforts.
A toll-free telephone number is provided for support to all OEM's,
wholesale distributors and end users. nStor employs an engineering
and support staff (about 16 people as of October 31, 1996) all of
whom have extensive training and strive to work with all levels of
distribution and end users in order to satisfy its customers.
In addition, nStor provides all customers with a limited three year
warranty which permits customers to return for repair or replacement
all enclosures not operating as warranted. Disk drives are warranted
for five years through the manufacturer. Thus far, nStor has not
experienced material warranty claims; however, there can be no
assurance that warranty claims will not have a material adverse
effect on future operating results.
MANUFACTURING AND SUPPLIERS
nStor typically assembles its products from components and
prefabricated parts, such as controllers, cabinets, multiple disk
drives and power supplies, manufactured and supplied by others. The
Company has established strategic relationships with certain of its
suppliers to manage inventory in such a manner that the Company is
better able to fulfill changing customer needs. nStor has an OEM
relationship with Seagate, which it believes is a reliable source of
disk drives, and a license agreement with Intel, which allows
incorporation of the SAF-TE specification into nStor's products (see
Item 1. Business - RAID Technology). The license agreement has no
specific term and does not require any specific payments. nStor
believes that the INTEL/SAF-TE relationship enhances its ability to
market its product line. nStor believes that there are a sufficient
number of suppliers available to meet its manufacturing needs.
The sophisticated nature of the Company's products requires extensive
testing by skilled personnel. The Company utilizes specialized
testing equipment and maintains an internal test engineering group of
about 3 people to provide this product support.
BACKLOG
nStor manufactures its products based on its forecast of near-term
demand and maintains inventory in advance of receipt of firm orders
from customers. Shipments are generally made shortly after receipt
of a firm order. Customers may reschedule orders with little or no
penalty. As a result, nStor's backlog at any given time is not
necessarily indicative of future sales levels.
RESEARCH AND DEVELOPMENT
The Company operates in an industry which is subject to rapid
technological change. Its ability to compete successfully is largely
dependent upon the timely development and introduction of products
and its ability to anticipate and respond to change. The Company
uses engineering design teams that work with marketing managers,
application engineers and customers to develop products and product
enhancements. Computer input/output interface standards are
maintained and an extensive disk drive qualification program is in
place to monitor disk drives to ensure the quality and performance of
the disk drives integrated into the Company's disk arrays. As part
of its development strategy, the Company actively seeks available,
cooperative and co-development activities with industry leaders in
the hardware, software and systems businesses.
Research and development expenses during the five months ended
October 31, 1996 amounted to $701,000. All of the Company's research
and development expenditures are expensed as incurred. As of October
31, 1996, the Company had 17 full-time employees engaged in research
and development.
COMPETITION
The market for all levels of RAID subsystems is subject to intense
competition. nStor competes not only with other disk array
manufacturers, but also with manufacturers of proprietary, integrated
computer systems and system integrators which sell computer systems
containing general purpose RAID subsystems, some of which may have
significantly greater financial and technological resources or larger
distribution capabilities than nStor. Such competitors may offer
their products at lower sales prices than nStor; accordingly, nStor
must often compete on the basis of product quality, performance and
reliability in specific applications. nStor's continued ability to
compete will largely depend upon its ability to continue to develop
high performance products at competitive prices while continuing to
provide superior technical support and customer service.
EMPLOYEES
As of October 31, 1996, nStor employed 50 full-time employees, of
which 17 were involved in engineering, product development and
technical support, 13 in sales and marketing, 11 in manufacturing
and operations, and 9 in finance, management and administration. As
a result of the Parity Acquisition, as of December 31, 1996, nStor
employed approximately 84 full-time employees. nStor's employees are
not covered by a collective bargaining agreement, there have been no
work stopages and nStor believes its employee relations are good.
Management believes that the future success of nStor will largely
depend upon its ability to continue to attract, employ and retain
competent qualified technical, marketing and management personnel.
Experienced personnel are in great demand and nStor must compete with
other technology firms, some of which may offer more favorable
economic incentives to attract qualified personnel.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Hilcoast Advisory Services, Inc. ("Advisor")
Since July 1, 1996, Advisor has provided certain financial consulting
and administrative services to the Company under a one-year agreement
which provides for the payment of $6,000 per month, plus
reimbursement for all out-of-pocket expenses, and which may be
terminated by the Company upon 60 days notice and by Advisor upon 180
days notice. H. Irwin Levy, a director and principal shareholder of
the Company, is the Chairman of the Board, Chief Executive Officer
and a principal shareholder of the parent of Advisor. Management
believes that the terms of this agreement are no less favorable to
the Company than those that would be received from other sources.
Intelligent Manufacturing Systems, Inc. ("IMS")
R. Daniel Smith, a director of the Company, is also the Chief
Executive Officer and sole shareholder of IMS, which specializes in
providing software solutions. In July 1996, nStor purchased an
integrated software package from IMS, including installation,
consulting and training support, at a cost of approximately $172,000.
The software package was purchased to facilitate the internal
operations of nStor and includes finance, planning and production,
sales and marketing, service and engineering modules. Management
believes that the terms of this transaction were no less favorable to
nStor than those that would be paid to other vendors.
Item 2. Properties
nStor leases 100% of an approximately 22,000 square foot building in
Lake Mary, Florida, under a lease which expires in April 2000, at a
present annual base rent of approximately $152,000. This facility
accommodates all current operations of nStor including administration
and management, engineering, product development, manufacturing,
technical support and sales and marketing.
nStor also leases office suites in Costa Mesa, California, and
Bedford, England, under leases which expire in 1997. The Company's
executive offices consist of a minor amount of space located at 100
Century Blvd., West Palm Beach, Florida.
As a result of the Parity Acquisition, nStor has been negotiating to
lease approximately 18,000 square feet of additional manufacturing
space in Lake Mary to meet anticipated occupancy requirements. The
Company believes that its existing facilities and additional
available facilities will be adequate to meet future needs.
Item 3. Legal Proceedings
In June and August 1996, the Company, two of its directors and nStor
were served with two separate Complaints filed in the Supreme Court
of the State of New York, County of Nassau, in which the plaintiffs
claim to have had contractual and proprietary interests in the
prospect of a transaction to purchase certain net assets acquired by
nStor (see Note 2 to Consolidated Financial Statements). The
plaintiffs seek compensatory damages, punitive damages, and equitable
relief for alleged interference with the plaintiffs' alleged rights.
Both cases are in preliminary stages; however, the Company is unaware
of any facts that would support any of the plaintiff's claims and,
accordingly, the Company believes that the claims are without merit.
From time to time, the Company is subject to legal proceedings and
other claims arising in the ordinary course of business. In the
opinion of management, the Company is not a party to any litigation
the outcome of which would have a material adverse effect on its
business or operations.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matters to the vote of its security
holders during the fourth quarter of its 1996 fiscal year. However,
on October 29, 1996, the Board of Directors of the Company voted
unanimously to change the name of the Company from IMGE, Inc. to
nStor Technologies, Inc. The name change was approved by the written
action of the holders of 9,437,261 shares (53%) of the Company's then
outstanding shares of common stock. On November 21, 1996, a notice
of the name change by written consent was sent to all of the
Company's shareholders. On November 7, 1996, the Company filed a
Certificate of Amendment to its Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware to effectuate
the name change.
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
The Company's Common Stock is traded on the over-the-counter ("OTC")
market under the symbol NSTT. The following table sets forth the
market price range of the Common Stock for each quarter during the
years ended October 31, 1996 and 1995, based on the high and low
closing sales prices as reported by the National Association of
Securities Dealers' Automated Quotation System. Such prices
reflect interdealer prices without retail markup, markdown or
commission and may not necessarily represent actual transactions.
The Company has not paid any dividends and does not expect to pay any
dividends in the near future. No assurance can be given that the
Company will pay any dividends on its Common Stock.
Market Price Range
--------------------
1996 High Low
---- -------- --------
First quarter 7/8 3/8
Second quarter 3/4 3/8
Third quarter 1-13/16 11/16
Fourth quarter 2-11/16 1
1995
----
First quarter 1/8 1/32
Second quarter 5/32 1/32
Third quarter 25/64 3/32
Fourth quarter 3/4 7/32
As of December 31, 1996, the Company had 18,670,477 shares of Common
Stock outstanding and approximately 2,200 holders of record of such
stock.
Item 6. Selected Financial Data
(dollars in thousands, except per share data)
The following table summarizes certain selected consolidated
financial data for the Company for each of the years in the five-year
period ended October 31, 1996. Certain amounts for years prior to
fiscal 1996 have been reclassified to conform to the 1996
presentation. The selected financial data has been derived from the
Company's audited consolidated financial statements and is qualified
by reference to, and should be read in conjunction with, the
Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations", included elsewhere in this report:
Year Ended October 31,
-------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- --------
Statement of Operations:
Net sales $ 5,619 $ - $ - $ - $ -
Cost of sales 3,547 - - - -
------- ------- ------- ------- -------
Gross profit 2,072 - - - -
Operating expenses (1,957) - - - -
------- ------- ------- ------- -------
Income from operations 115 - - - -
Other, net 12,117(1) (61) (71) (894) (159)
------- ------- ------- ------- -------
Income (loss) from con-
tinuing operations
before extraordinary
gains 12,232 (61) (71) (894) (159)
Extraordinary gains 566 - 343 92 -
Loss from discontinued
operations - - - - (3,537)
------- ------- ------- ------- -------
Net income (loss) $12,798 ($ 61) $ 272 ($ 802) ($ 3,696)
======= ======= ======= ======= =======
Per common stock:
Income (loss) from
continuing opera-
tions before extra-
ordinary gains $ .70 ($ .00) ($ .00) ($ .05) ($ .01)
Extraordinary gains .03 - .02 - -
Loss from discontinued
operations - - - - (.20)
------- ------- ------- ------- -------
Net income (loss) $ .73 ($ .00) $ .02 ($ .05) ($ .21)
======= ======= ======= ======= =======
Average number of common
shares outstanding 17,606,477 17,600,477 17,600,477 17,600,477 17,531,292
========= ========== ========== ========== ==========
Balance Sheet Data:
Working capital $11,045 $11,408 ($ 586) ($ 567) ($ 644)
======= ======= ======= ======= =======
Total assets $15,677 $12,054 $ 26 $ 37 $ 488
======= ======= ======= ======= =======
Long-term debt $ 510 $ 476 $ 444 $ 735 $ 386
======= ======= ======= ======= =======
Stockholders' equity
(deficit) $12,390 $10,932 ($ 1,030) ($ 1,302) ($ 542)
======= ======= ======= ======= =======
- ----------
(1) Principally consists of $11,955 gain from the sale of IMNET stock
(see Note 3 to Consolidated Financial Statements).
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Operating results for fiscal 1996 include the operations of nStor
from June 3, 1996, the effective date of the nStor Acquisition (see
Note 2 to Consolidated Financial Statements). As a result of the
acquisition, nStor develops, manufactures and markets a full range of
computer disk array products, known as RAID (Redundant Array of
Independent Disks) subsystems, which provide users with high
capacity, fault-tolerant storage and uninterrupted access to data.
Allocations have been made to reflect the estimated fair values of
the net assets acquired resulting in asset bases which differ from
those of the previous owner. In addition, certain of nStor's
operating policies and accounting procedures are different from those
of the previous owner. Accordingly, comparative financial data of
nStor's business for periods prior to June 3, 1996 are not presented
in this section since they would be neither comparable nor
informative.
From the date the Company disposed of substantially all of its
operating assets in October 1992 in exchange for shares in IMNET (see
Note 3 to Consolidated Financial Statements) until the nStor
Acquisition in June 1996, the Company's only activities consisted of
monitoring its investment in IMNET and evaluating potential business
opportunities. Accordingly, operating results for fiscal 1995
consist of administrative and interest expense, partially offset by
financial support which IMNET had agreed to provide for minimal
operational costs and essential activities of the Company. This
financial support ceased in January 1996, when the Company was able
to sell its shares in IMNET.
Results of Operations
1996 Compared to 1995
The Company reported net income of $12,798,000 for the year ended
October 31, 1996 as compared to a net loss of $61,000 for the year
ended October 31, 1995.
Results of operations for fiscal 1996 included a gain of $11,955,000
resulting from the disposition of 100% of the Company's investment in
IMNET (see Note 3 to Consolidated Financial Statements) and an
extraordinary gain of $566,000 on extinguishment of debt (see Note 7
to Consolidated Financial Statements).
Sales
During its initial five months of operations, nStor's net sales
amounted to $5,619,000 generated through a network of OEM's and
wholesale distributors located worldwide. Future sales are expected
to increase significantly principally due to the Parity Acquisition,
effective December 1, 1996 (see Note 11 to Consolidated Financial
Statements), nStor's recent introduction of new RAID products, and
the completion of agreements with several new OEM's. Sales are also
expected to be positively affected as nStor's product line is made
available to Parity's customer base. For the twelve month period
prior to the Parity Acquisition, Parity's sales were approximately
$28.5 million. The foregoing statements regarding increases in
nStor's future sales are forward looking statements that may prove
not to be accurate. Factors that could cause such statements not to
be accurate include, but are not limited to, increased competition
for nStor's products, improvements in alternative technologies, a
lack of market acceptance for new products introduced by nStor and
the failure of nStor to successfully market its products.
Cost of Sales/Gross Margin
Gross margins for fiscal 1996 amounted to 37%. nStor's gross margins
are dependent, in part, on product mix which is anticipated to
fluctuate from time to time. nStor has been able to increase its
gross margins over those achieved by its predecessor due to a greater
emphasis on selling higher margin enhanced storage devices and
certain cost efficiencies. Although nStor expects to achieve higher
gross margins in the future on sales of products related to the nStor
Acquisition, gross margins on product sales associated with the
Parity Acquisition are not anticipated to reach that level during the
transition period. However, nStor expects to be able to gradually
increase gross margins on the Parity product line during 1997 as
operating efficiencies are realized and nStor's component servicing
capabilities allow the Parity product line to be manufactured at a
lower cost. The foregoing statements regarding increases in
nStor's future gross margins are forward looking statements that may
prove not to be accurate. Factors that could cause such statements
not to be accurate include, but are not limited to, increases in the
cost of components or raw materials used in nStor's products,
increased labor costs, higher production costs for new products
developed by nStor, decreases in the price of nStor's products, and
a shift in product sales to less profitable products.
Operating Expenses
nStor's operating expenses for its initial five months ended October
31, 1996 amounted to $1,957,000, consisting of $701,000 in research,
development and other engineering costs and $1,256,000 in selling,
general and administrative expenses. Operating expenses are expected
to increase in the future due to the Parity Acquisition and as nStor
continues to focus on improvements and innovations to its existing
product lines and expansion of its customer base. However, nStor
expects to realize certain operating efficiencies in light of the
Parity Acquisition through elimination of duplicate activities and
locations. The foregoing statements regarding achieving operating
efficiencies in nStor's future operating expenses are forward looking
statements that may prove not to be accurate. Factors that could
cause such statements not to be accurate include, but are not limited
to, difficulty in reducing or reallocating nStor's work force, an
inability to consolidate nStor's physical plants and production
capabilities, and delays in the integration of nStor's operational
and sales efforts following the Parity Acquisition.
Other, net
Other, net principally consists of interest income, net of investment
expenses, and amounted to $234,000 in fiscal 1996 as compared to
$9,000 for the preceding fiscal year. This increase was attributable
to interest income earned on the net proceeds received from the sale
of the Company's investment in IMNET.
Income Taxes
Income tax expense was not provided on the Company's pre-tax income
during fiscal 1996 due to utilization of net operating loss
carryforwards. (See Note 5 to Consolidated Financial Statements).
1995 Compared to 1994
The Company reported a net loss of $61,000 for the year ended October
31, 1995 as compared to net income of $272,000 for the year ended
October 31, 1994. During both years, the Company's only activities
consisted of monitoring its investment in IMNET and exploring
potential business opportunities.
Fiscal 1994 results included an extraordinary gain of $343,000
resulting from the Company's extinguishment of debt.
Liquidity and Capital Resources
Net cash used by operating activities increased to $441,000 during
the year ended October 31, 1996, as compared to $11,000 in the
preceding year, principally attributable to increases in accounts
receivable ($1,731,000) and inventory ($391,000) subsequent to the
nStor Acquisition partially offset by higher accounts payable and
other liabilities ($1,574,000). nStor did not acquire accounts
receivable nor assume accounts payable as a result of the nStor
Acquisition. Net cash provided by investing activities amounted to
$11,049,000 during 1996, primarily as a result of $11,955,000 of net
proceeds received on the sale of IMNET, less $592,000 paid in
connection with the nStor Acquisition.
Since the nStor Acquisition, nStor's working capital needs have been
funded by cash flow from operations and the Company's cash balances.
At October 31, 1996, the Company's cash and cash equivalents amounted
to $10,608,000 of which $7,352,000 was invested in high quality
short-term corporate securities. Effective December 1, 1996, nStor
completed the Parity Acquisition and paid approximately $5.8 million
in cash, including approximately $3 million to repay the outstanding
balance of Parity's bank line of credit. nStor is presently
negotiating for an asset based bank line of credit to finance its
expanding working capital needs and maintain a high level of
liquidity. Management believes that nStor's cash flow generated from
operations and the Company's cash balances will be sufficient to
satisfy nStor's working capital and capital expenditure needs for at
least the next twelve months as currently planned.
Effect of Inflation
Inflation has not had any impact on nStor's operations and the
Company does not expect that it will have any material impact in
1997.
Forward Looking Information: Certain Cautionary Statements
Certain statements contained in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and elsewhere in
this Form 10-K, that are not related to historical results, are
forward looking statements. Actual results may differ materially from
those projected or implied in the forward looking statements.
Further, certain forward looking statements are based upon
assumptions of future events which may not prove to be accurate.
These forward looking statements involve risks and uncertainties
including but not limited to nStor's future cash flows, sales, gross
margins and operating costs, the effect of conditions in the
technology industry and the economy in general, legal proceedings, as
well as certain other risks. Subsequent written and oral forward
looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by cautionary
statements in this paragraph and elsewhere described in this Form 10-K
and in other reports filed by the Company with the Securities and
Exchange Commission.
Item 8. Financial Statements and Supplementary Data
Table of Contents to Consolidated Financial Statements
Page
Report of Independent Certified Public Accountants 21
Consolidated Financial Statements:
Balance Sheets - October 31, 1996 and 1995 22
Statements of Operations - Years Ended
October 31, 1996, 1995 and 1994 23
Statements of Stockholders' Equity - Years
Ended October 31, 1996, 1995 and 1994 24
Statements of Cash Flows - Years Ended
October 31, 1996, 1995 and 1994 25
Notes to Consolidated Financial Statements 26-35
Schedules are omitted because of the conditions under which they are
required, or because the information required therein is set forth in
the consolidated financial statements or the notes thereto.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
nStor Technologies, Inc.
We have audited the accompanying consolidated balance sheets of nStor
Technologies, Inc. and subsidiaries as of October 31, 1996 and 1995
and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
October 31, 1996. 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of nStor Technologies, Inc. and subsidiaries as of October
31, 1996 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended October 31,
1996 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Orlando, Florida
January 10, 1997
nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
=========================================
(dollars in thousands)
October 31,
-----------------------
ASSETS (Note 2) 1996 1995
--------------- ---------- ----------
Current assets:
Cash and cash equivalents $ 10,608 $ 15
Accounts receivable 1,747 16
Inventories (Note 4) 1,385 -
Prepaid expenses and other 82 -
Investment in IMNET Systems, Inc. (Note 3) - 12,023
---------- ----------
Total current assets 13,822 12,054
Deferred tax asset (Note 5) 182 -
Furniture and equipment, net of $51
accumulated depreciation 694 -
Intellectual and other intangible
assets, net of $17
accumulated amortization 979 -
---------- ----------
$ 15,677 $ 12,054
LIABILITIES (Note 2) ========== ==========
--------------------
Current liabilities:
Accounts payable and other $ 1,694 $ 17
Notes payable (Note 7 ) - 629
Warranty liability 283 -
Royalty liability 800 -
---------- ----------
Total current liabilities 2,777 646
Convertible notes (Note 6) 510 476
---------- ----------
Total liabilities 3,287 1,122
---------- ----------
Commitments and contingencies (Notes 9 and 10)
STOCKHOLDERS' EQUITY (Note 2, 10 and 11)
----------------------------------------
Preferred stock, $.01 par; shares authorized
1,000,000; outstanding none - -
Common stock, $.05 par; shares authorized
24,000,000; outstanding 18,670,477 and
17,600,477 934 880
Additional paid-in capital 29,923 29,294
Net unrealized gain on securities
available for sale - 12,023
Deficit (18,467) (31,265)
---------- ----------
Total stockholders' equity 12,390 10,932
---------- ----------
$ 15,677 $ 12,054
========== ==========
______
See accompanying notes to consolidated financial statements.
nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Note 2)
=====================================
(dollars in thousands, except per share data)
Year Ended October 31,
---------------------------------
1996 1995 1994
------- ------- -------
Sales (Note 8) $ 5,619 $ - $ -
Cost of sales 3,547 - -
-------- ------- --------
Gross profit 2,072 - -
-------- ------- --------
Operating expenses:
Research and development 701 - -
Selling, general and administrative 1,256 - -
-------- -------- --------
Total operating expenses 1,957 - -
-------- -------- --------
Income from operations 115 - -
Gain from sale of IMNET Systems,
Inc. stock (Note 3) 11,955 - -
Interest income, net of investment
expenses 234 9 20
Interest expense (72) (70) (91)
-------- -------- --------
Income (loss) before
extraordinary gain 12,232 (61) (71)
Extraordinary gain from debt
extinguishment (Note 7) 566 - 343
-------- -------- --------
Net income (loss) $12,798 ($ 61) $ 272
======== ======== ========
Per common share:
Income (loss) before
extraordinary gain $ .70 ($ .00) ($ .00)
Extraordinary gain .03 - .02
------- ------- -------
Net income (loss) $ .73 ($ .00) $ .02
======= ======= =======
Average number of common shares
outstanding 17,606,477 17,600,477 17,600,477
========== ========== ==========
______
See accompanying notes to consolidated financial statements.
nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(NOTES 2, 10 and 11)
===============================================
(dollars in thousands)
Net
Unrealized
Common Stock Addi- Gain on
---------------- tional Securities
Par Paid-in Available
Shares Value Capital For Sale Deficit Total
---------- ----- -------- --------- -------- -------
Balances, October
31, 1993 17,600,477 $880 $29,294 $ - ($31,476) ($1,302)
Net income for the
year ended October
31, 1994 - - - - 272 272
---------- ---- ------- ------ ------- -------
Balances, October
31, 1994 17,600,477 880 29,294 - (31,204) (1,030)
Net unrealized gain
on securities
available for sale - - - 12,023 - 12,023
Net loss for the
year ended October
1995 - - - - (61) (61)
---------- ---- ------- ------- -------- --------
Balances, October
31, 1995 17,600,477 880 29,294 12,023 (31,265) 10,932
Change in net un-
realized gain on
securities avail-
able for sale - - - (12,023) - (12,023)
Issuance of common
stock in connec-
tion with:
Acquisition of
minority
interest 1,000,000 50 550 - - 600
Exercise of
warrants 60,000 3 57 - - 60
Extinguishment
of debt 10,000 1 22 - - 23
Net income for the
year ended
October 31, 1996 - - - - 12,798 12,798
---------- ----- ------- ------- ------- --------
Balances, October
31, 1996 18,670,477 $ 934 $29,923 $ - ($18,467) $12,390
========== ===== ======= ======= ======= ========
______
See accompanying notes to consolidated financial statements.
nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Note 2)
=====================================
(in thousands)
Year Ended October 31,
---------------------------
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES: ------- ------- -------
Net income (loss) $12,798 ($ 61) $ 272
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Gain from sale of IMNET Systems,
Inc. stock (11,955) - -
Extraordinary gain from debt
extinguishment (566) - (343)
Depreciation and amortization 68 - -
Deferred tax asset (182) - -
Minority interest in net income of
consolidated subsidiary 26 - -
Changes in assets and liabilities,
net of effects from acquisition:
Increase in accounts receivable (1,731) (16) -
Increase in inventories (391) - -
Increase in prepaid expenses
and other (82) - -
Increase in accounts payable
and other liabilities 1,574 66 60
------- ------- -------
Net cash used by operating activities (441) (11) (11)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of IMNET
Systems, Inc. stock 11,955 - -
Cash paid for acquisition (592) - -
Additions to furniture and equipment (314) - -
------- ------- -------
Net cash provided by investing activities 11,049 - -
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock warrants 60 - -
Cash paid for debt extinguishment (75) - -
------- ------- -------
Net cash used by financing activities (15) - -
------- ------- -------
Net increase (decrease) in cash
and cash equivalents during the year 10,593 (11) (11)
Cash and cash equivalents at the
beginning of the year 15 26 37
------- ------- -------
Cash and cash equivalents at the end of the year $10,608 $ 15 $ 26
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING ACTIVITIES:
Acquisitions:
Fair value of assets acquired $ 2,348 $ - $ -
Liabilities assumed (1,156) - -
Common stock issued (600) - -
------- ------- -------
Cash paid $ 592 $ - $ -
_________ ======= ======= =======
See accompanying notes to consolidated financial statements.
nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of nStor
Technologies, Inc. (formerly IMGE, Inc.) and all wholly-owned
subsidiaries (collectively, the "Company"). Significant
intercompany balances and transactions have been eliminated in
consolidation.
Business
The Company, through its operating subsidiary, nStor Corporation,
Inc. ("nStor" - see Note 2 to Consolidated Financial Statements)
has been engaged in the development, manufacture and marketing of
a full range of disk array products, known as RAID (Redundant Array
of Independent Disks) subsystems (the "RAID Business") since June
3, 1996, the effective date of nStor's acquisition of the RAID
Business (the "Acquisition"). nStor's RAID subsystems provide
users with high capacity, fault-tolerant storage, allow
uninterrupted access to data and support a variety of operating
systems. nStor's products are sold through a network of original
equipment manufacturers ("OEM's") and distributors located
worldwide.
Prior to the Acquisition, the Company's only assets were securities
issued by IMNET Systems, Inc. ("IMNET" - see Note 3 to Consolidated
Financial Statements), which the Company had acquired in October
1992 in exchange for substantially all of the Company's operating
assets. During the time in which the Company owned the IMNET
securities, the Company's only activities consisted of monitoring
its investment in IMNET and evaluating potential business
opportunities.
Fiscal Year
In November 1996, the Company changed its fiscal year from October
31 to December 31, effective with the calendar year beginning
January 1, 1997.
Investment Securities
Prior to the sale of IMNET securities in 1996 (see Note 3 to
Consolidated Financial Statements), the Company's investment in
IMNET was classified as available for sale and stated at fair
market value, with unrealized gains and losses excluded from
earnings and reported as a separate component of stockholders'
equity until realized.
Inventories
Inventories, consisting of raw materials, work-in-process and
finished goods, are stated at the lower of cost or market, with
cost being determined based on the first-in, first-out (FIFO)
method. Reserves are recorded as necessary to reduce obsolete
inventory to estimated net realizable value.
Revenue Recognition
Sales revenue is recognized upon shipment provided that there are
no significant post-sale obligations and the collectibility is
reasonably assured.
Warranty Costs
Warranty costs are provided on the basis of estimated net future
costs related to products sold.
Furniture, Equipment and Depreciation
Furniture and equipment is carried at cost. Depreciation is
provided under the straight-line method over the estimated useful
lives, principally five years.
Intellectual and Other Intangible Assets
Intellectual assets, consisting of trademarks and proprietary
technology, are carried at cost. Amortization is computed under
the straight-line method over the useful lives of the assets,
generally 15 years. The excess of cost over net assets acquired
(goodwill) is being amortized on a straight-line basis over 15
years.
The Financial Accounting Standards Board recently issued Statement
of Financial Accounting Standards No. 121 (SFAS 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
To Be Disposed Of", which the Company will be required to implement
for its fiscal year ending December 31, 1997. The statement
requires that long-lived assets must be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. If the sum of
the expected future cash flows (undiscounted and without interest
charges) from an asset to be held and used is less than the
carrying value of the asset, an impairment loss must be recognized
in the amount of the difference between the carrying value and fair
value. Assets to be disposed must be valued at the lower of
carrying value or fair value less costs to sell. The Company does
not expect adoption to have a material effect on its financial
position or results of operations.
Research and Development Costs
Research and development costs are expensed as incurred.
Income Taxes
Income taxes are provided on the liability method whereby deferred
tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases and
reported amounts of assets and liabilities.
Net Income (Loss) Per Common Share
Net income (loss) per common share is based on the weighted average
number of shares of common stock and common stock equivalents
outstanding during each period. During fiscal 1994 and 1995, there
were no common stock equivalents. The effect of common stock
equivalents in fiscal 1996 was not material.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers
all unrestricted highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
During the periods presented, no interest was paid by the Company.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments", requires disclosure of
fair value information about financial instruments. Fair value
estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of
October 31, 1996.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial
instruments include cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities. Fair values were assumed
to approximate carrying values for these financial instruments
since they are short term in nature and their carrying amounts
approximate fair values.
Reclassifications
Certain 1994 and 1995 amounts have been reclassified to conform to
the 1996 presentation.
Recently Issued Accounting Pronouncement
The Company is required to adopt the provisions of Statement of
Financial Accounting Standards No. 123, ("SFAS No. 123"),
Accounting for Stock Based Compensation during its fiscal year
ended Decembr 31, 1997. SFAS No. 123, among other things, requires
certain added disclosures regarding the fair value of equity
instruments, such as stock options, issued by the Company. In
addition, SFAS No. 123 encourages the recognition of expense for
the fair value of equity instruments issued by the Company.
The Company has not yet determined whether the optional expense
recognition provisions of SFAS No. 123 will be adopted, and
therefore, the effects of adopting SFAS No. 123 have not been
determined.
(2) ACQUISITIONS
Effective June 3, 1996, nStor acquired certain net assets (the
"Business") of Seagate Peripherals, Inc. ("Seagate") for $592,000
in cash, including acquisition costs, and a royalty to Seagate,
estimated at $800,000, payable based upon 5% of nStor's sales of
certain products during the 15 month period beginning October 1,
1996. At closing, the Company acquired 80% of the outstanding
stock of nStor for $500,000 in cash. Effective October 31, 1996,
the Company acquired the remaining 20% of nStor from R. Daniel
Smith, a director of the Company and the president and a director
of nStor, in exchange for one million shares of the Company's
common stock, valued at $600,000 (net of applicable discount ).
The minority interest in nStor's net income, amounting to $26,000,
has been included in operating expenses in fiscal 1996.
The acquisitions have been accounted for under the purchase method
of accounting, with assets acquired and liabilities assumed
recorded at estimated fair values as of the effective acquisition
dates, and the results of nStor's operations included in the
Company's consolidated financial statements from those dates. The
excess of the purchase price over the fair value of net assets
acquired (goodwill) approximated $381,000, which is being amortized
over 15 years.
The following unaudited proforma consolidated results of operations
have been prepared as if the acquisitions had occurred at the
beginning of fiscal 1996 and at January 1, 1995, the inception of
Seagate's operation of the Business. During its operation of the
Business, among other items, Seagate included a significant
allocation of its corporate overhead expenses to the operating
expenses of the Business. The proforma consolidated results do not
purport to be indicative of results that would have occurred had
the acquisitions occurred on those dates, or of future results (in
thousands):
Year Ended
October 31,
----------------------
1996 1995
---------- ----------
Net sales $14,915 $10,630
======= =======
Income (loss) before extraordinary
gain $11,014 ($ 2,661)
======= =======
Net income (loss) $11,580 ($ 2,661)
======= =======
Per common share:
Income (loss) before extra-
ordinary gain $.59 ($.14)
==== ====
Net income (loss) $.62 ($.14)
==== ====
(3) INVESTMENT IN IMNET SYSTEMS, INC. ("IMNET")
During 1996, a subsidiary of the Company sold all of its shares of
IMNET and received net proceeds of $11,955,000. For reporting
purposes, the Company had written off its entire investment in
IMNET in 1993, and accordingly, the Company recognized a gain of
$11,955,000 during 1996.
(4) INVENTORIES
At October 31, 1996, inventories are summarized as follows (in
thousands):
Raw materials $1,164
Work-in-process 143
Finished goods 78
------
$1,385
======
(5) INCOME TAXES
(a) As of December 31, 1995, the Company's tax year end, there
were unused net operating loss carryforwards (the "NOL's") for
regular federal income tax purposes of approximately $13.1
million for which no financial statement benefit had been
recognized. The Company expects to be able to utilize the
NOL's to offset fiscal 1996 regular federal taxable income.
The remaining NOL's, approximating $4.1 million as of October
31, 1996, principally expire in 2006. In addition, the
Company has research and development tax credit carryforwards
of approximately $453,000 which expire from 2002 through 2005
and in conjunction with the Alternative Minimum Tax ("AMT")
rules, the Company has available AMT credit carryforwards of
approximately $182,000, at October 31, 1996, which may be used
indefinitely to reduce regular federal income taxes.
(b) For the year ended October 31, 1996, the provision for federal
income tax expense (credit) is as follows (in thousands):
Current $182
Deferred (182)
----
-0-
====
(c) Income tax expense differs from the amount computed by
multiplying income before income tax expense by the statutory
federal income tax rate principally due to utilization of the
NOL's.
(d) The tax effects of temporary differences that gave rise to
significant portions of deferred tax assets follows (in
thousands):
October 31,
-------------------
1996 1995
-------- --------
NOL and tax credit carryforwards $ 2,025 $ 4,944
Investment in IMNET - 1,232
-------- --------
2,025 6,176
Less valuation allowance 1,843 (6,176)
-------- --------
Deferred tax asset $ 182 $ -
======== ========
(6) CONVERTIBLE NOTES
The Company's only long-term debt consists of convertible notes
with a carrying amount of $510,000 and $476,000 at October 31, 1996
and 1995, respectively. These notes have a face amount of
$400,000, have been discounted based on an effective interest rate
of 12%, include accrued interest of $197,000 and $189,000,
respectively, and mature in 2000. The notes are convertible into
160,000 shares of common stock of the Company (based on one
common share for each $2.50 of face amount).
(7) EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT
During 1996, the Company paid $75,000 in cash and issued 10,000
shares of its common stock in full satisfaction of the $664,000
outstanding balance (including accrued interest) of notes payable
which had been in dispute due to certain subordination provisions
contained in the notes. As a result of this settlement, the
Company recognized a $566,000 extraordinary gain from debt
extinguishment.
(8) SIGNIFICANT CUSTOMERS
One customer represented approximately 53% of sales for fiscal
1996. There are no other customers who accounted for 10% or more
during this period.
(9) LITIGATION
In June and August 1996, the Company, two of its directors and
nStor were served with two separate Complaints, in which the
plaintiffs claim to have had contractual and proprietary interests
in the prospect of a transaction to purchase certain net assets
acquired by nStor (see Note 2 to Consolidated Financial
Statements). The plaintiffs seek compensatory damages, punitive
damages, and equitable relief for alleged interference with the
plaintiffs' alleged rights. Both cases are in preliminary stages;
however, the Company is unaware of any facts that would support any
of the plaintiff's claims and, accordingly, the Company believes
that the claims are without merit.
From time to time, the Company is subject to legal proceedings and
other claims arising in the ordinary course of business. In the
opinion of management, the Company is not a party to any litigation
the outcome of which would have a material adverse effect on its
business or operations.
(10) STOCK OPTIONS AND WARRANTS
Under the Company's 1996 Stock Option Plan (the "Plan"), qualified
and non-qualified stock options to purchase up to 2.5 million
shares of the Company's common stock may be granted to officers,
directors, key employees and non-employees, of which 1,050,000
shares have been granted as of October 31, 1996. Summarized
information related to the Plan and previously granted warrants and
stock options follows:
Number Option price
of shares per share
--------- ---------
Outstanding at October 31,
1994 and 1995 105,000 $1.00
Fiscal 1996:
Granted 1,050,000 $1.22-$2.10
Exercised (60,000) $1.00
Expired (45,000) $1.00
Outstanding at October 31,
1996 1,050,000 $1.22-$2.10
(11) SUBSEQUENT EVENT
Effective December 1, 1996, nStor acquired substantially all the
assets and assumed certain liabilities of Parity Systems, Inc.
("Parity"), a privately-owned company engaged in the design,
manufacture and sale of computer storage 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. The purchase
price consisted of approximately $5.8 million in cash, including
approximately $3 million to repay the outstanding balance of
Parity's bank line of credit, and a warrant (exercisable at any
time during the three years following the Parity acquisition) to
purchase 500,000 shares of the Company's common stock at $2.10 per
share, the market price for the Company's common stock on October
17, 1996, the date of execution of the Letter of Intent regarding
the Parity acquisition.
(12) RELATED PARTY TRANSACTIONS
Hilcoast Advisory Services, Inc. ("Advisor")
Since July 1, 1996, Advisor has provided certain financial
consulting and administrative services to the Company under a one-year
agreement which provides for the payment of $6,000 per month,
plus reimbursement for all out-of-pocket expenses, and which may be
terminated by the Company upon 60 days notice and by Advisor upon
180 days notice. H. Irwin Levy, a director and principal
shareholder of the Company, is the Chairman of the Board, Chief
Executive Officer and a principal shareholder of the parent of
Advisor. Management believes that the terms of this agreement are
no less favorable to the Company than those that would be received
from other sources.
Intelligent Manufacturing Systems, Inc. ("IMS")
R. Daniel Smith, a director of the Company and the president and a
director of nStor, is also the chief executive officer and sole
shareholder of IMS, which specializes in providing software
solutions. In July 1996, nStor purchased an integrated software
package from IMS, including installation, consulting and training
support, at a cost of approximately $172,000. The software package
was purchased to facilitate the internal operations of nStor and
includes finance, planning and production, sales and marketing,
service and engineering modules. Management believes that the
terms of this transaction were no less favorable to nStor than
those that would be paid to other vendors.
(13) LEASES
nStor leases its operating facilities under operating leases which
expire at various dates through April 2000. At October 31, 1996,
future minimum rental payments under operating leases that have
initial or remaining terms in excess of one year are as follows (in
thousands):
1997 $164
1998 152
1999 152
2000 152
----
$620
====
Rent expense was $62,000 for the period ended October 31, 1996.
(14) 401(k) PLAN
nStor established a 401(k) deferred contribution plan covering
substantially all employees meeting certain minimum age and service
requirements. Contributions to the plan will be determined by the
Board of Directors. There were no contributions made to the plan
during the fiscal year ended October 31, 1996.
Item 9. Disagreement on Accounting and Financial Disclosure
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
For information concerning this item, see the text under the
caption "Election of Directors" and "Management" in the Company's
definitive Proxy Statement (the "Proxy Statement") to be filed with
respect to the Company's 1997 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
Item 11. Executive Compensation
For information concerning this item, see the text and tables under
the caption "Executive Compensation", "Report on Compensation" and
the graph under the caption "Performance Graph", in the Proxy
Statement, which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial
Owners and Management
For information concerning this item, see the table and text of
"Security Ownership" and "Management" in the Proxy Statement, which
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
For information concerning this item, see the text under the
caption "Certain Transactions" in the Proxy Statement, which
information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a) (1) Financial Statements - See index to Consolidated
Financial Statements at page 20 of this Form 10-K.
(2) Financial statement schedules have been omitted because
of the conditions under which they are required, or
because the information required therein is set forth in
the Consolidated Financial Statements or the notes
thereto.
(3) Exhibits - See Exhibit Index at page 38 of this Form
10-K.
(b) The Registrant filed or amended reports on Form 8-K
during the fourth quarter of 1996 as follows:
(i) A report on Form 8-K/A dated June 18, 1996 and
filed September 3, 1996, reporting under Item 7 -
Financial Statements of Business Acquired, Proforma
Financial Information and Exhibits. (Reference
Form 8-K dated June 18, 1996, filed July 2, 1996)
EXHIBIT INDEX
Exhibit
Number Description
3.1 Certificate of Incorporation of the Company, as amended.
3.2 By-laws of the Company, as amended.
4.1 Certificate of Incorporation of the Company, as amended -
see Exhibit 3.1 above.
4.2 By-laws of the Company, as amended - see Exhibit 3.2 above.
10.1 Asset Purchase Agreement, dated May 23, 1996, between
Seagate Peripherals, Inc. as seller and Intelligent
Manufacturing Systems, Inc. as purchaser. (1)
10.2 Amendment No. 1 to the Asset Purchase Agreement, dated June
4, 1996, between Seagate Pheripherals, Inc. and Intelligent
Manufacturing Systems, Inc. (1)
10.3 Assignment of Asset Purchase Agreement by Intelligent
Manufacturing Systems, Inc. to nStor Corporation, Inc. (1)
10.4 Consent to Assignment of Asset Purchase Agreement by Seagate
Peripherals, Inc. (1)
10.5 Asset Purchase Agreement Between Parity Systems, Inc. and
nStor Corporation, Inc., dated November 30, 1996. (2)
10.6 Form of Warrant, dated December 30, 1996, granting Parity
Systems, Inc. the right to purchase 500,000 shares of the
Registrant's common stock. (2)
10.7 Agreement and Plan of Reorganization by and among nStor
Technologies, Inc., nStor Corporation, Inc. and R. Daniel
Smith, dated as of October 31, 1996.
10.8 1996 Stock Option Plan, dated October 5, 1996.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
______________
(1) Incorporated by reference to Exhibits previously filed as Exhibits to
Registrant's Form 8-K/A dated June 18, 1996, filed September 3, 1996.
(2) Incorporated by reference to Exhibits previously filed as Exhibits to
Registrant's Form 8-K dated December 30, 1996, filed January 13, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
nSTOR TECHNOLOGIES, INC.
/s/ Jack Jaiven
By:_____________________________________
Jack Jaiven, Vice President
Dated: January 27, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
/s/ Mark F. Levy
January 27, 1997 ______________________________________
Mark F. Levy, President and Director
/s/ Joseph D. Weingard
January 27, 1997 ______________________________________
Joseph D. Weingard, Vice President,
Secretary and Director
/s/ Jack Jaiven
January 27, 1997 ______________________________________
Jack Jaiven, Vice President,
Principal Financial Officer and
Principal Accounting Officer
/s/ H. Irwin Levy
January 27, 1997 ______________________________________
H. Irwin Levy, Director
/s/ R. Daniel Smith
January 27, 1997 _____________________________________
R. Daniel Smith, Director
January , 1997 ____________________________________
Michael L. Wise, Director
EXHIBIT 10.7
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF OCTOBER 31, 1996
nSTOR TECHNOLOGIES, INC.,
nSTOR CORPORATION, INC.
AND R. DANIEL SMITH
AGREEMENT AND PLAN OF REORGANIZATION
Table of Contents
1. Plan of Reorganization
2. Exchange of Shares
3. Closing
4. Delivery of Shares
5. Representations, Warranties and Covenants of Smith
6. Representations, Warranties and Covenants of nStor
7. Survival of Representations and Warranties
8. Indemnification
9. Conditions to Obligations of nStor
10. Conditions to Obligations of Smith
11. Termination
12. Notices
13. No Broker
14. Enforcement Costs
15. Miscellaneous
a. Characterization of the Transaction
b. Expenses
c. Captions
d. No Waiver
e. Successors and Assigns
f. Exclusive Agreement; Amendment
g. Counterparts
h. Governing Law
i. Gender and Number
j. Further Assurances
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement" or
"Plan of Reorganization"), dated as of October 31, 1996, by and
among nSTOR TECHNOLOGIES, INC., a Delaware corporation ("nSTOR"),
nSTOR CORPORATION, INC., a Delaware corporation (the "Company")
and R. DANIEL SMITH ("Smith"), an individual residing in the
State of Florida.
WITNESSETH:
WHEREAS, nSTOR owns an aggregate of one thousand two hundred
(1,200) shares of the common stock, par value $.05 per share of
the Company (the "Common Stock"), constituting eighty percent
(80%) of the issued and outstanding shares of Common Stock, and
Smith owns an aggregate of three hundred (300) shares of Common
Stock (the "Smith Shares"), constituting twenty percent (20%) of
the issued and outstanding shares of Common Stock, said shares
constituting all of the shares of Common Stock which are issued
and outstanding as of the date hereof; and
WHEREAS, Smith desires to exchange the Smith Shares for one
million shares of the voting common stock, par value $.05 per
share of nStor (the "nStor Shares"), upon the terms and
conditions hereinafter set forth; and
WHEREAS, the Board of Directors of nStor and the Company
deem it advisable and in the best interests of such corporations
that the exchange described above be completed on the terms and
conditions hereinafter set forth and in accordance with all
applicable laws.
NOW, THEREFORE, in consideration of these premises and of
the mutual promises of the parties hereto, the parties hereto
agree as follows:
1. Plan of Reorganization. It is the intention of the
parties hereto that pursuant to this Plan of Reorganization, the
Smith Shares shall be acquired by nStor in exchange solely for
the nStor Shares so as to qualify as a tax-free reorganization as
defined in section 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended (the "Code").
2. Exchange of Shares. Subject to the terms and
conditions contained in this Agreement and in reliance upon the
representations, warranties and covenants of the parties hereto,
and pursuant to the requirements of section 368(a)(1)(B) of the
Code and the regulations promulgated thereunder, on the Closing
Date (as hereinafter defined) nStor shall issue and deliver to
Smith the nStor Shares in exchange for the sale, transfer and
delivery by Smith to nStor of the Smith Shares. Immediately
after the exchange, nStor shall have "control" of the Company (as
defined in section 368(c) of the Code).
3. Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place
at the executive offices of nStor at 10:00 a.m. on December __,
1996, or at such other place, date and time as nStor and Smith
may mutually agree upon in writing (the "Closing Date").
4. Delivery of Shares. At the Closing:
(a) Smith shall deliver to nStor duly issued
certificate(s) representing the Smith Shares, duly endorsed for
transfer or accompanied by duly endorsed stock powers, as nStor
shall designate, together with any required documentary stamps
affixed and cancelled at the expense of Smith.
(b) nStor shall issue and deliver to Smith a duly
issued certificate representing the nStor Shares. Except for the
nStor Shares to be delivered to Smith pursuant to this Section 4,
Smith shall not receive any other consideration of any type or
kind in exchange for the Smith Shares, including, without
limitation, the payment of cash, the issuance of options, or the
assumption of any personal liabilities of Smith by nStor.
5. Representations, Warranties and Covenants of Smith.
Smith represents and warrants to, and covenants with nStor as
follows:
a. Smith is the sole lawful owner of record and
beneficially, of the Smith Shares, free and clear of all security
interests, liens, pledges, encumbrances, charges, options, rights
of first refusal, mortgages, indentures, assessments,
restrictions and claims of every type or kind (collectively
"Encumbrances"). The Smith Shares are not subject to any
restrictions on transfer of any kind. To the best knowledge of
Smith, upon the consummation of the transactions contemplated by
this Plan of Reorganization, nStor will be the sole owner of
record and beneficially, of all of the issued and outstanding
shares of the capital stock of the Company, free and clear of all
Encumbrances.
b. Smith has the full right, power and authority to
enter into and to perform this Agreement and all other
agreements, certificates and documents executed or delivered, or
to be executed or delivered by Smith in connection herewith.
Smith has the full right, power and authority to sell, assign,
transfer and deliver the Shares as provided in this Agreement,
and such delivery will convey to nStor lawful, valid and
marketable title to the Smith Shares, free and clear of all
Encumbrances. This Agreement has been duly authorized, executed
and delivered by Smith, and is a legal, valid and binding
obligation of Smith, enforceable in accordance with its terms,
subject to bankruptcy, reorganization, insolvency and other laws
affecting the enforcement of creditors' rights generally.
c. Except as set forth on Schedule 5(c), there is no
action, suit, claim, inquiry, proceeding, or investigation by or
before any court or governmental body pending or, to the best
knowledge of Smith, threatened against or involving Smith or the
Company, nor is there any valid basis for any such action,
proceeding or investigation. Neither Smith, nor to the best
knowledge of Smith the Company, is in default under, or in
violation of, any agreement, commitment or restriction to which
Smith or the Company is a party or by which Smith or the Company
or any of their respective properties or assets is bound.
d. Neither the execution and the delivery of this
Agreement, nor the consummation by Smith or, to the best
knowledge of Smith, the Company of the transactions contemplated
hereby, nor compliance with any of the provisions hereof will (i)
violate any statute, law, rule or regulation or any order, writ,
injunction or decree of any court or governmental authority or
(ii) violate, be in conflict with, or constitute a default (or an
event which, with notice or lapse of time or both, would
constitute a default) under any agreement or commitment to which
Smith or the Company is a party, or result in the termination of,
or accelerate the performance by any person of any of its
obligations thereunder, or cause the acceleration of the maturity
of any debt or obligation pursuant to, or result in the creation
or imposition of any Encumbrance upon any of their respective
properties or assets under any agreement or commitment to which
the Company or Smith is a party or by which any of their
respective properties or assets is bound. All consents of any
person or entity necessary for the execution, delivery and
performance of this Agreement by Smith or, to the best knowledge
of Smith, the Company have been obtained.
e. Smith understands and represents that: (i) Smith
must bear the economic risk of an investment in the nStor Shares
for an indefinite period of time because the nStor Shares have
not been registered under the Securities Act of 1933, as amended
(the "1933 Act"), or under any state securities laws and,
therefore, cannot be resold unless they are subsequently
registered under the 1933 Act and the pertinent state securities
laws or unless an exemption from such registration is available;
(ii) Smith is purchasing the nStor Shares for investment for the
account of Smith, not for the accountant of any other person, and
not with any present view toward resale or other "distribution"
thereof within the meaning of the 1933 Act; and (iii) Smith
agrees not to resell or otherwise dispose of all or any part of
the nStor Shares, except as permitted by law, including, without
limitation, any and all applicable provisions of this Agreement
and any regulations under the 1933 Act.
f. Smith is aware that an investment in the nStor
Shares is highly speculative and subject to substantial risks.
Smith is capable of bearing the high degree of economic risk and
burdens of this investment, including the possibility of a
complete loss of his investment and the lack of a public market
and limited transferability of the nStor Shares, which may make
the liquidation of this investment impossible for an indefinite
period of time. The financial condition of Smith is such that he
is under no present or contemplated future need to dispose of any
of the Smith Shares to satisfy any existing or contemplated
undertaking, need or indebtedness. Smith has such knowledge and
experience in financial and business matters that he is capable
of evaluating the merits and risks of an investment in the nStor
Shares. Smith has obtained, in his judgment, sufficient
information to evaluate the merits and risks of his receipt of
the nStor Shares and understands the business in which nStor is
engaged. Smith has been advised that he should obtain
professional accounting, tax, legal and financial advice with
respect to the economic, tax and legal ramifications of the
transactions contemplated in this Agreement.
g. Smith acknowledges that the nStor Shares purchased
pursuant to this Agreement are deemed "restricted securities" as
defined in the 1933 Act. Until the nStor Shares become
registered with the Securities and Exchange Commission, each
certificate representing the nStor Shares shall bear a legend in
substantially the following form:
THE SHARE(S) REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER ANY STATE SECURITIES LAWS, AND THE COMPANY
HAS RELIED UPON AN EXEMPTION TO THE REGISTRATION REQUIREMENT
UNDER THE ACT FOR THE SALE OF THE SHARES(S) REPRESENTED BY
THIS CERTIFICATE TO ITS HOLDER. THEREFORE, THE SHARES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED STOCK AND MAY
NOT BE SOLD OR TRANSFERRED TO ANY THIRD PARTY WITHOUT EITHER
BEING REGISTERED UNDER THE ACT OR AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
UNDER THE ACT.
h. Smith shall file all applications, reports,
notices and related documents with applicable regulatory
authorities necessary to consummate this Plan of Reorganization
and the transactions contemplated hereunder as determined by
nStor in its sole discretion.
6. Representations, Warranties and Covenants of nStor.
nStor represents and warrants to, and covenants with Smith as
follows:
a. nStor is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware, and has full corporate power and authority to execute
and deliver this agreement and to perform its obligations
hereunder. The execution, delivery and performance of this
Agreement have been duly authorized by all necessary corporate
action on the part of nStor. This Agreement constitutes a valid
and binding obligation of nStor and is enforceable against it in
accordance with its terms, subject to bankruptcy, reorganization,
insolvency, and other laws affecting the enforcement of
creditors' rights generally.
b. Neither the execution and delivery of this
Agreement nor the performance of the obligations of nStor
hereunder will: (i) violate any provision of its certificate of
incorporation or bylaws (or other governing instrument); (ii)
violate, be in conflict with or constitute a default (or an event
which, with notice or lapse of time, or both would constitute a
default) under any agreement or commitment to which it is a
party; or (iii) violate any statute, law rule or regulation of
any order, writ, injunction or decree of any court or
governmental authority.
c. Upon their issuance pursuant to the terms and
conditions hereof, the nStor Shares will be validly issued, duly
authorized, fully paid and nonassessable.
d. nStor has provided Smith with, or reasonable
access to, all information reasonably requested by Smith with
respect to nStor, including all available financial statements of
nStor.
e. nStor has filed with the United States Securities
and Exchange Commission (the "SEC") its Annual Report on Form 10-K
and its Annual Report to Shareholders for the year ended
October 31, 1995, all Quarterly Reports on Form 10-Q due to be
filed with the SEC since October 31, 1995, all necessary Current
Reports on Form 8-K since October 31, 1995, and nStor's Proxy
Statement for its 1995 Annual meeting of Shareholders
(collectively, the "SEC Documents"). Each of the SEC Documents,
as of the date the same were filed with the SEC, conformed in all
material respects to the requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations
thereunder, and, as of their filing date, none of such documents
contained an untrue statement of material fact or omitted to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading. nStor is not
aware of any event which would require the filing of a Form 8-K
after the date hereof.
7. Survival of Representations and Warranties. All
representations, warranties, covenants and agreements contained
in this Agreement shall survive the Closing, notwithstanding any
investigation conducted or knowledge acquired with respect
thereto.
8. Indemnification. Smith hereby agrees to indemnify,
save harmless and defend nStor and each of its shareholders,
subsidiaries, affiliates, officers and directors, from and
against any and all losses, liabilities, fines, judgments,
claims, damages, settlement payments, actions or causes of
action, Encumbrances, costs and expenses (including reasonable
attorney's fees) incurred by any of them by reason of, or arising
out of: (i) any false or misleading or inaccurate representation
or warranty by Smith contained in this Agreement or in any
document, instrument, certificate, schedule or written statement
prepared for use and delivered to nStor by Smith in connection
with the transactions contemplated by this Agreement or any
breach of any such representation or warranty; (ii) any breach by
Smith of any provision of this Agreement; (iii) any matter or
event occurring or arising on or before the Closing Date which,
if known on the Closing Date, would, whether but for any
qualification as to materiality or the absence of actual
knowledge provided for in this Agreement, have constituted such a
false, misleading or inaccurate representation or warranty or
such breach.
9. Conditions to Obligations of nStor. The obligation of
nStor to perform this Agreement are subject to the satisfaction
of the following conditions on or prior to the Closing Date,
unless waived in writing by nStor, and Smith shall use his best
efforts to cause such conditions to be fulfilled:
a. The representations and warranties of Smith set
forth in this Agreement shall be true and correct in all
materials respects as of the date hereof and on the Closing Date
as though made on and as of the Closing Date.
b. Smith shall have duly performed and complied in all
material respects, on or before the Closing Date, all agreements
and obligations required to performed by him under this
Agreement.
c. Except as set forth on Schedule 9(c), no action,
suit or other proceeding shall be pending or overtly threatened
before or by any court, tribunal or governmental authority
seeking or threatening to restrain or prohibit the consummation
of the transactions contemplated by this Agreement or seeking to
obtain substantial damages in respect thereof, or involving a
claim that consummation thereof would result in the violation of
any law, decree, rule or regulation of any governmental authority
having appropriate jurisdiction. Smith shall have obtained all
necessary consents, waivers, permits and approvals, if any are
required, from third parties or governmental authorities in
connection with the execution, delivery and performance of his
obligations under this Agreement and the transactions con-
templated hereby including any consents, waivers, permits, or
approvals necessary to convey the Smith Shares to nStor.
10. Conditions to Obligations of Smith. The obligation of
Smith to perform this Agreement are subject to the satisfaction
of the following conditions on or prior to the Closing Date,
unless waived in writing by Smith, and nStor shall use his best
efforts to cause such conditions to be fulfilled:
a. The representations and warranties of nStor set
forth in this Agreement shall be true and correct in all
materials respects as of the date hereof and on the Closing Date
as though made on and as of the Closing Date.
b. nStor shall have duly performed and complied in all
material respects, on or before the Closing Date, with all
agreements and obligations required to performed by it under this
Agreement.
c. Except as set forth on Schedule 10(c), no action,
suit or other proceeding shall be pending or overtly threatened
before or by any court, tribunal or governmental authority
seeking or threatening to restrain or prohibit the consummation
of the transactions contemplated by this Agreement or seeking to
obtain substantial damages in respect thereof, or involving a
claim that consummation thereof would result in the violation of
any law, decree, rule or regulation of any governmental authority
having appropriate jurisdiction. nStor shall have obtained all
necessary consents, waivers, permits and approvals, if any are
required, from third parties or governmental authorities in
connection with the execution, delivery and performance of its
obligations under this Agreement and the transactions con-
templated hereby including any consents, waivers, permits, or
approvals necessary to convey the nStor Shares to Smith.
11. Termination. This Agreement may be terminated at any
time prior to the Closing Date:
a. by mutual consent in writing of all of the parties
hereto;
b. by Smith with written notice to nStor if one or
more of the conditions specified in Section 10 is not satisfied
at the time at which the Closing would otherwise occur;
c. by nStor with written notice to Smith if one or
more of the conditions specified in Section 9 is not satisfied at
the time at which the Closing would otherwise occur; or
d. by either nStor or Smith if there has been a
material breach of a representation, warranty or covenant
contained in this Agreement on the part of the other party.
In the event this Agreement is terminated pursuant to this
Section 11, this Agreement shall terminate and forthwith become
void, without any liability or further obligation of any party to
the other except to the extent that such termination results from
a material breach by any such party of any of its
representations, warranties or covenants set forth herein.
12. Notices. Any notice, payment, demand or communication
required or permitted to be given by any provision of this
Agreement shall be in writing and shall be delivered personally
to the party or to an officer of the party to whom the same is
directed, or sent by registered or certified mail, addressed to
the person to whom directed at the following address, or to such
other address as such party may from time to time specify by
notice to the parties:
if to nStor, to: Mark Levy, President
nStor Technologies, Inc.
100 Century Boulevard
West Palm Beach, Florida 33417
With a copy to: Richard B. Comiter, Esq.
Mitchell D. Schepps, Esq.
August, Comiter, Kulunas & Schepps, P.A.
250 Australian Avenue South, #1100
West Palm Beach, FL 33401
(407) 835-9600
If to the Company, to: nStor Corporation, Inc.
100 Century Boulevard
West Palm Beach, Florida 33417
Att: Mark Levy
If to Smith, to: Mr. R. Daniel Smith
nStor Corporation, Inc.
450 Technology Park
Lake Mary, Florida 32746
With a copy to: J. Bennett Grocock, Esq.
Grocock Loftis & Abramson
Suite 200
126 East Jefferson Street
Orlando, Florida 32801
Any such notice shall be deemed to be delivered, given and
received for all purposes as of the date so delivered, if
delivered personally or if sent by registered or certified mail,
postage and charges prepaid. Any Party may from time to time
specify a different address by choice to the other Parties.
13. No Broker. The parties acknowledge and agree that no
agent, broker, person or firm acting on behalf of Smith, nStor or
the Company is or will be entitled to any commission or brokerage
or finder's fee from any of the parties hereto or from any person
controlling, controlled by, or in a common control with any of
the parties hereto in connection with any of the transactions
contemplated by this Agreement.
14. Enforcement Costs. If any legal action or other
proceeding is brought for the enforcement of this Agreement or
because of any alleged dispute, breach, default or
misrepresentation in connection with any provision of this
Agreement, the successful or prevailing party or parties shall be
entitled to recover reasonable attorneys' fees, costs and all
expenses (including, without limitation, all such fees, costs and
expenses incident to appeals) incurred in that action or
proceeding, in addition to any other relief to which such party
or parties may be entitled.
15. Miscellaneous.
a. Characterization of the Transaction. The parties
hereto consent and agree that the transaction contemplated by
this Plan of Reorganization is intended to be characterized as a
tax-free code section 368(a)(1)(B) reorganization. Each party
shall take any and all necessary or appropriate action to ensure
that the transaction contemplated by this Agreement is
characterized consistent therewith.
b. Expenses. The parties shall bear their own
expenses incident to the preparation, negotiation, execution and
delivery of this Agreement.
c. Captions. The captions in this Agreement are for
convenience only and shall not be given any effect in the
interpretation of this Agreement.
d. No Waiver. The failure of a party to insist upon
strict adherence to any term of this Agreement on any occasion
shall not be considered a waiver or deprive that party of the
right thereafter to insist upon adherence to that term of any
other term of this Agreement. Any waiver must be in writing.
e. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their
respective successors and assigns; provided that this Agreement
may not be assigned by any party without the consent of the other
parties hereto.
f. Exclusive Agreement; Amendment. The recitals set
forth above are true and complete and are hereby incorporated
into this Agreement by reference. This Agreement supersedes all
prior agreements among the parties with respect to its subject
matter, and is intended as a complete and exclusive statement of
the terms of the Agreement among the parties with respect
thereto. This Agreement may be amended by, but only by, a
writing executed by all parties hereto. Upon the closing of the
Plan of Reorganization, that certain Shareholders' Agreement by
and among nStor Corporation, Inc., IMGE, Inc. and R. Daniel Smith
dated June 18, 1996 shall terminate and become null and void.
g. Counterparts. This Agreement may be executed in
two or more counterparts, all of which taken together shall
constitute an original.
h. Governing Law. This Agreement and (unless
otherwise provided) all amendments hereto and waivers and
consents hereunder shall be governed by the laws of the State of
Florida without regard to the conflicts of law principles
thereof. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts
of the State of Florida, and each of the parties hereby consents
to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any
objection to venue laid therein.
i. Gender and Number. All references in this
Agreement to the masculine gender shall include the feminine and
neuter genders, and vice versa, and all references to the
singular shall include the plural, and vice versa.
j. Further Assurances. The parties shall cooperate
and take such actions, and execute such other documents, as
either may reasonably request in order to carry out the
provisions or purpose of this Agreement, including without
limitation the execution and delivery by Smith of additional
stock powers duly executed in blank with respect to the Smith
Shares.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on the date first set forth above.
nSTOR:
nSTOR TECHNOLOGIES, INC.
/s/ Mark Levy
By:___________________________
Mark Levy
President
COMPANY:
nSTOR CORPORATION, INC.
/s/ R. Daniel Smith
By:_________________________
R. Daniel Smith
SMITH
/s/ R. Daniel Smith
____________________________
R. Daniel Smith
EXHIBIT 10.8
nSTOR TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
1. Purpose. The nStor Technologies, Inc. 1996 Stock
Option Plan (the "Plan") is intended to further the interest of
nStor Technologies, Inc., a Delaware corporation (the "Company"),
its subsidiaries and its shareholders by providing incentives in
the form of stock option grants to certain key employees who
contribute materially to the success and profitability of the
Company. The grants shall recognize and reward outstanding
individual performances and contributions and shall give such
persons a proprietary interest in the Company, thus enhancing
their personal interest in the Company's continued success and
progress. The Plan shall also assist the Company and any
subsidiaries it may have in attracting and retaining key
personnel. The Plan is also intended to provide the Company
flexibility and the means to reward directors and other non-employees
who render valuable contributions to the Company.
2. Definitions. The following definitions shall apply to
this Plan:
(a) "Agreement" means a written agreement entered into
between the Company and a Recipient that embodies the terms and
restrictions of the Option granted to the Recipient.
(b) "Board" means the board of directors of the
Company.
(c) "Change in Control" occurs if (i) there occurs any
transaction (which shall include a series of transactions
occurring within sixty (60) days) that has the result that
shareholders of the Company immediately before such transaction
cease to own at least fifty-one percent (51%) of the voting stock
of the Company or any entity that results from the participation
of the Company in a merger, reorganization, consolidation,
liquidation or any other form of corporate transaction; (ii) the
shareholders of the Company approve a plan of merger,
consolidation, reorganization, liquidation or dissolution in
which the Company does not survive (unless the approved merger,
consolidation, reorganization, liquidation or dissolution is
subsequently abandoned); (iii) the Company disposes of all or
substantially all of its assets; or (iv) a majority or more of
the directors nominated by the Board to serve as directors, each
having agreed to serve in such capacity, fail to be elected in a
contested election of directors.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a committee appointed by the
Board, in accordance with Section 3 hereof, to administer the
Plan.
(f) "Common Stock" means the common stock, par value
$.05 per share, of the Company or such other class of shares or
securities to which the Plan may apply pursuant to Section 13 of
the Plan.
(g) "Company" means nStor Technologies, Inc.
(h) "Date of Grant" means the date on which the Option
is granted.
(i) "Dispose Of" means pledge, hypothecate, give,
assign, encumber, sell, grant an option with respect to, or
otherwise transfer, to any party, whether or not such party is a
shareholder of the Company.
(j) "Effective Date" means October 5, 1996.
(k) "Eligible Person" means any person who performs or
has in the past performed services for the Company or any
Subsidiary, whether as a director, officer, employee, consultant
or other independent contractor, and any person who performs
services relating to the Company in his or her capacity as an
employee or independent contractor of a corporation or other
entity that provides services for the Company.
(l) "Employee" means any person employed on an hourly
or salaried basis by the Company or any parent or Subsidiary of
the Company that now exists or hereafter is organized or acquired
by or acquires the Company.
(m) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(n) "Fair Market Value" means the fair market value of
the Common Stock. If the Common Stock is not publicly traded on
the date as of which fair market value is being determined, the
Board shall determine the fair market value of the Shares using
such factors as the Board considers relevant, such as the price
at which recent sales have been made, the book value of the
Common Stock, and the Company's current and projected earnings.
In determining the fair market value of the Shares, the Board
may, but is not required to, utilize information from or opinions
of outside advisors. If the Common Stock is publicly traded on
the date as of which fair market value is being determined, the
fair market value shall be the average of the high and low sale
prices of the Common Stock as reported by the National
Association of Securities Dealer Automated Quotations ("Nasdaq")
on that date, or, if the Common Stock is listed on a stock
exchange, the average of the high and low sale prices of the
Common Stock on that date, as reported in The Wall Street
Journal. If trading in the Common Stock or a price quotation
does not occur on the date as of which fair market value is being
determined, the next preceding date on which the Common Stock was
traded or a price was quoted shall determine the fair market
value.
(o) "Incentive Stock Option" means a stock option
granted pursuant to either this Plan or any other plan of the
Company that satisfies the requirements of Section 422 of the
Code and Section 14 hereof and that entitles the Recipient to
purchase stock of the Company or in a corporation that at the
time of grant of the option was a parent or Subsidiary of the
Company or a predecessor corporation of any such corporation. If
the requirements of Section 14 of the Plan are in conflict with
any other provision of the Plan with respect to an Incentive
Stock Option, the provisions of Section 14 of the Plan shall
control.
(p) "Non-Employee Director" shall have the meaning
ascribed to such term in Rule 16b-3 promulgated under the
Exchange Act.
(q) "Nonqualified Stock Option" means an Option which
is not an Incentive Stock Option.
(r) "Option" means a stock option granted pursuant to
the Plan. Each Option shall be a Nonqualified Stock Option
unless expressly designated as an Incentive Stock Option by the
Plan Administrators in establishing the terms of the Option at
grant.
(s) "Option Shareholder" shall mean a Recipient who
has exercised his or her Option.
(t) "Option Shares" means Shares issued upon exercise
of an Option.
(u) "Permanent and Total Disability" shall have the
meaning ascribed to such term in Section 22(e)(3) of the Code.
(v) "Plan" means this nStor Technologies, Inc. 1996
Stock Option Plan.
(w) "Plan Administrators" shall have the meaning
ascribed to the term in Section 3 hereof.
(x) "Recipient" means a person who receives an Option.
(y) "Shares" means shares of the Common Stock, as
adjusted in accordance with Section 13 of the Plan.
(z) "Shareholder Approval" means a vote of the
shareholders of the Company to approve, or to ratify the approval
by the Company's Board of, this Plan in accordance with the laws
of the Company's state of incorporation and other laws or rules
applicable to the Company (including rules of any stock exchange
on which the Company's securities are listed or admitted for
trading).
(aa) "Subsidiary" means any corporation fifty percent
or more of the voting securities of which are owned directly or
indirectly by the Company at any time during the existence of
this Plan.
3. Administration. This Plan shall be administered by the
Board or the Committee (in either event, the "Plan
Administrators"). The Committee shall be comprised solely of two
or more members of the Board who shall be Non-Employee Directors.
The Plan Administrators shall have authority to interpret the
Plan, to establish, amend, and rescind any rules and regulations
relating to the Plan, to prescribe the form of any agreement or
instrument executed in connection herewith, and to make all other
determinations necessary or advisable for the administration of
the Plan. All such interpretations, rules, regulations and
determinations shall be conclusive and binding on all persons and
for all purposes. A majority of the Plan Administrators
constitutes a quorum for purposes of administering the Plan, and
all determinations of the Plan Administrators shall be made by a
majority of the members present at a meeting at which a quorum is
present or by the unanimous, written consent of the Plan
Administrators. Notwithstanding the foregoing, the Plan
Administrators shall not have any discretion with respect to
Options granted to Non-Employee Directors pursuant to Subsection
5(b)(2) of the Plan.
4. Shares Subject to Plan. Subject to the provisions of
Section 13 of the Plan, the maximum aggregate number of Shares
that may be subject to Options under the Plan shall be 2,500,000.
If an Option should expire or become unexercisable for any reason
without having been exercised, the unpurchased Shares that were
subject to the Option shall, unless the Plan has then terminated,
be available for other Options under the Plan.
5. Option Grants.
(a) Discretionary Grants. Any Eligible Person that
the Plan Administrators in their sole and absolute discretion
designate is eligible to receive an Option under this Plan. The
award by the Plan Administrators of an Option to a Recipient in
any year does not require the Plan Administrators to award an
Option to that Recipient in any other year. Furthermore, the
Plan Administrators may award different Options to different
Recipients and has full discretion to choose whether to grant
Options to any eligible person. The Plan Administrators may
consider such factors as it deems pertinent in selecting
Recipients and in determining the amount of their Options,
including, without limitation, (i) the financial condition of the
Company or its Subsidiaries; (ii) expected profits for the
current or future years; (iii) the contributions of a prospective
Recipient to the profitability and success of the Company or its
Subsidiaries; and (iv) the adequacy of the prospective
Recipient's other compensation. Recipients may include persons
to whom stock, stock options, stock appreciation rights, or other
benefits previously were granted under this or another plan of
the Company or any Subsidiary, whether or not the previously
granted benefits have been fully exercised or vested.
(b) Non-Employee Director Grants.
(1) Initial Grants. Each category of Non-Employee
Director of the Company described below shall be automatically
granted an Option to purchase shares of Common Stock of the
Company in the amounts, and effective as of the dates, set forth
below:
a. for any Non-Employee serving on the Board at the
Effective Date, the number of shares of Common Stock set forth on
Schedule A hereto, to be effective as of the Effective Date;
b. for any Non-Employee Director elected by the
shareholders of the Company subsequent to the Effective Date,
such number of shares of Common Stock as the Board may determine,
to be effective as of the date of such Non-Employee Director's
election to the Board; and
c. for any Non-Employee Director appointed by the
Board subsequent to the Effective Date, such number of shares of
Common Stock as the Board may determine, to be effective at the
time such Non-Employee Director's appointment to the Board
becomes effective.
(2) Annual Grants. Each Non-Employee Director shall
automatically be granted, effective each anniversary of his
appointment to the Board, an Option to purchase 20,000 shares of
Common Stock.
(3) Exercise Price. The exercise price of each Share
subject to an Option granted to an Non-Employee Director shall be
the Fair Market Value of the Common Stock on the date the Option
is granted.
(4) Exercise of Options. All Options granted to a Non-Employee
Director shall become exercisable on the first
anniversary of the Date of Grant provided, however, that such
Non-Employee Director continues to serve as a member of the
Company's Board as of such date. Options may be exercised by the
Non-Employee Director for a period of ten years from the Date of
Grant provided, however, that in the event of the death of a Non-Employee
Director, the Option shall be exercisable only within
the twelve months next succeeding the date of death, and then
only (i) by the executor or administrator of the Non-Employee
Director's estate or by the person or persons to whom the Non-Employee
Director's rights under the Option shall pass by the
Non-Employee Director's will or the laws of descent and
distribution, and (ii) if and to the extent that the Non-Employee
Director was entitled to exercise the Option at the date of the
Non-Employee Director's death, provided that in no event shall
the Option be exercisable more than ten years after the Date of
Grant.
(c) No Right of Employment. A Recipient's right, if any,
to continue to serve the Company and its Subsidiaries as an
officer, Employee, or otherwise shall not be enlarged or
otherwise affected by his designation as a Recipient under this
Plan, and such designation shall not in any way restrict the
right of the Company or any Subsidiary, as the case may be, to
terminate at any time the employment or affiliation of any
Recipient.
6. Option Requirements. Each Option granted to a
Recipient under Section 5 of the Plan shall contain such
provisions as the Plan Administrators at the Date of Grant shall
deem appropriate. Each Option granted to a Recipient shall
satisfy the following requirements:
(a) Written Agreement. Each Option granted to a
Recipient shall be evidenced by an Agreement. The terms of the
Agreement need not be identical for different Recipients. The
Agreement shall include a description of the substance of each of
the requirements in this Section 6 with respect to that
particular Option.
(b) Number of Shares. Each Agreement shall specify
the number of Shares that may be purchased by exercise of the
Option.
(c) Exercise Price. Unless provided otherwise by the
Plan Administrators in establishing the terms of the Option at
grant, the exercise price of each Share subject to an Option
shall not be less than the Fair Market Value of the Share on the
Option's Date of Grant.
(d) Duration of Option. Each Option granted to a
Recipient shall expire on the tenth anniversary of its Date of
Grant, or at such earlier or later date as is set by the Plan
Administrators in establishing the terms of the Option at grant,
or at such later date as is set by the Plan Administrators
subsequent to the Date of Grant but prior to the tenth
anniversary of the Date of Grant. If the Recipient's employment
or affiliation with the Company terminates before the expiration
date of an Option, the Options owned by the Recipient shall
expire on the earlier of the date stated in this Subsection 6(d)
or the date stated in following Subsections of this Section 6.
Furthermore, expiration of an Option may be accelerated under
Subsection 6(g) of the Plan.
(e) Vesting of Option and Exercisability. Unless
otherwise provided for by the Plan Administrators in establishing
the terms of the Option at grant, a Recipient's interest in an
Option shall vest according to the schedule described in this
Subsection 6(e) and shall be exercisable as to not more than the
vested percentage of the Shares subject to the Option at any
point in time. To the extent an Option is either unexercisable
or unexercised, the unexercised portion shall accumulate until
the Option both becomes exercisable and is exercised, subject to
the provisions of Subsection 6(d) of the Plan.
Anniversary of Date of Grant Percent Vested
Prior to 1st anniversary 0%
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
The Plan Administrators, in their sole and absolute discretion,
may accelerate the vesting of any Option at any time.
(f) Death, Disability or Termination of Service or
Affiliation.
(1) In the case of the retirement at or
after age 65, death or Permanent and Total Disability of the
Recipient, then all Options which would have otherwise vested and
become exercisable in the one (1) year period following such
event shall continue to so vest and become exercisable as so
scheduled and, together with any previously exercisable Options
held by the Recipient, shall expire on the one year anniversary
of the Recipient's retirement, death, or if earlier, the date
specified in Subsection 6(d), unless the Plan Administrators set
an earlier or later expiration date in establishing the terms of
the Options at grant or a later expiration date subsequent to the
Date of Grant but prior to the one year anniversary of the
Recipient's retirement or death.
(2) If the Recipient ceases employment or affiliation
with the Company for any reason other than retirement, death or
Permanent and Total Disability, all Options held by the Recipient
shall expire three months following the last day that the
Recipient is employed by or affiliated with the Company, or at
such earlier or later date as is set by the Plan Administrators
in establishing the terms of the Option at grant, or at such
later date as is set by the Plan Administrators subsequent to the
date of grant but prior to the thirtieth day following the last
day the Recipient is employed by or affiliated with the Company.
The Option may be exercised only for the number of Shares for
which it could have been exercised on such termination date
pursuant to Subsection 6(e), subject to any adjustment under
Section 13 of the Plan. Notwithstanding any provisions set forth
herein, if the Recipient shall (i) commit any act of malfeasance
or wrongdoing affecting the Company or any parent or any
Subsidiary, (ii) breach any covenant not to compete or employment
agreement with the Company or any parent or Subsidiary, or (iii)
engage in conduct that would warrant the Recipient's discharge
for cause, any unexercised part of the Option shall lapse
immediately upon the earlier of the occurrence of such event or
the last day the Recipient is employed by or affiliated with the
Company.
(g) Change in Control. Contingent upon the occurrence of
a Change in Control, the Board may, but is not required to, take
one or more of the following actions:
(1) accelerate the vesting of any Option;
(2) terminate all Options outstanding under the Plan
effective upon the date of the Change in Control and make, within
ninety days after the date of the Change in Control, a cash
payment to the Recipient equal to the difference between the
Exercise Price and the Fair Market Value of the vested but
unexercised Shares subject to the terminated Option on the date
of the Change in Control; or
(3) accelerate the expiration of the Options to a
date not earlier than the fifteenth day after the date of the
Change in Control.
(h) Conditions Required for Exercise. Options granted to
Recipients under the Plan shall be exercisable only to the extent
they are vested according to Subsection 6(e) hereof.
Furthermore, each Option granted under the Plan is exercisable
only if the issuance of Shares pursuant to the exercise would be
in compliance with applicable securities laws, as contemplated by
Section 9 hereof. The Plan Administrators may provide for
additional conditions for the exercise of any Option in
establishing the terms of the Option at grant.
7. Method of Exercise. Subject to the requirements of
Subsections 6(e) and 6(f) hereof, an Option granted under this
Plan may be exercised in whole or in part. An Option granted
under this Plan shall be deemed exercised when the person
entitled to exercise the Option (a) delivers written notice to
the Chief Executive Officer of the Company (or his designee) of
the decision to exercise, (b) concurrently tenders to the Company
full payment for the Shares to be purchased pursuant to the
exercise, (c) remits to the Company in cash upon demand an amount
sufficient to satisfy any federal (including FICA and FUTA
amounts), state, and/or local withholding tax requirements at the
time the Recipient or his beneficiary recognizes income for
federal, state, and/or local tax purposes as the result of the
receipt of Shares pursuant to the Plan and (d) complies with such
other reasonable requirements as the Plan Administrators
establish pursuant to Sections 9 and 10 hereof. Payment for
Shares with respect to which an Option is exercised may be made
in cash, or by certified check or wholly or partially in the form
of Common Stock having a Fair Market Value on the date of
exercise equal to the exercise price. No person shall have the
rights of a shareholder with respect to Shares subject to an
Option granted under this Plan until a certificate or
certificates for the Shares have been delivered to him. An
Option granted under this Plan may not be exercised in increments
of less than one hundred Shares, or, if less, one hundred percent
of the full number of Shares as to which it can be exercised. A
partial exercise of an Option shall not affect the holder's right
to exercise the Option from time to time in accordance with this
Plan as to the remaining Shares subject to the Option.
8. Option Share Transfer Restrictions and Repurchase
Rights. The Plan Administrators may, in establishing the terms
of an Option at grant, restrict the ability of the Recipient to
transfer Option Shares to any person other than the Company and
may grant to the Company the right to repurchase Option Shares.
9. Compliance with Law.
(a) Securities Laws. No Option granted hereunder
shall be exercisable, in whole or in part, and the Company shall
not be obligated to sell any Option Shares if such exercise and
sale would, in the opinion of counsel for the Company, violate
the applicable requirements of Federal or state securities laws.
Each Option shall be subject to the further requirement, that, if
at any time the Company shall determine in its sole discretion
that the listing or qualification of the Option Shares under any
securities exchange or market requirements or under any
applicable law, or the consent or approval of any governmental
body, is necessary or desirable as a condition of, or in
connection with, the issuance of Option Shares, such Option may
not be exercised unless such listing, qualification, consent or
approval shall have been effected or obtained free of any
conditions not acceptable to the Company.
(b) Delivery of Certificates. If any law or
regulation of any state of Federal commission or agency shall
require the Company or the Recipient to take any action with
respect to the Option Shares, then the date upon which the
Company shall deliver or cause to be delivered the certificate or
certificates for the Option Shares shall be postponed until full
compliance shall have been made with all such requirements. Any
certificate issued to evidence Option Shares may bear such
legends and statements, and shall be subject to such transfer
restrictions, as the Plan Administrators deem advisable to assure
compliance with federal and state laws and regulations and with
the requirements of this Section 9 and to reflect the provisions
of Section 8 hereof.
(c) Section 16 of the Exchange Act. With respect to
persons subject to Section 16 of the Exchange Act, transactions
under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 under the Exchange Act or its successor
under the Exchange Act. To the extent any provision of the Plan
or action by the Plan Administrators fails to so comply, it shall
be deemed null and void, to the extent permitted by law and
deemed advisable by the Plan Administrators.
10. Taxes. The Company shall have the right to withhold
from payments otherwise due and owing to the Recipient (or his
beneficiary) or to require the Recipient (or his beneficiary) to
remit to the Company in cash upon demand an amount sufficient to
satisfy any federal (including FICA and FUTA amounts), state,
and/or local withholding tax requirements at the time the
Recipient (or his beneficiary) recognizes income for federal,
state, and/or local tax purposes as the result of the receipt of
Shares pursuant to the Plan as a condition to the issuance of
Shares upon Option exercise (whether to the Recipient or to his
beneficiary). Each person who acquires the right to exercise an
Option or to ownership of Shares by bequest or inheritance may be
required by the Plan Administrators to furnish reasonable
evidence of ownership of the Option as a condition to his
exercise of the Option. In addition, the Plan Administrators may
require such consents and releases of taxing authorities as the
Plan Administrators deem advisable.
11. Designation of Beneficiary. Each Recipient shall
designate in the Agreement a beneficiary to receive Options
awarded hereunder in the event of his death prior to full
exercise of such Options; provided, that if no such beneficiary
is designated or if the beneficiary so designated does not
survive the Recipient, the estate of such Recipient shall be
deemed to be the Recipient's beneficiary. Recipients may, by
written notice to the Plan Administrators, change the beneficiary
designated in any outstanding Agreement.
12. Assignability. An Option granted under this Plan is
not transferable except by will or the laws of descent and
distribution. During the lifetime of a Recipient, all rights of
the Options are exercisable only by the Recipient.
13. Adjustment Upon Change of Shares. If a merger,
reorganization, consolidation, reclassification,
recapitalization, combination or exchange of shares, stock split,
stock dividend, rights offering, or other expansion or
contraction of the Common Stock of the Company occurs, the number
and class of Shares for which Options are authorized to be
granted under this Plan, the number and class of Shares then
subject to Options previously granted to Recipients under this
Plan, and the price per Share payable upon exercise of each
Option outstanding under this Plan shall be equitably adjusted by
the Board to reflect such changes. To the extent deemed
equitable and appropriate by the Board, subject to any required
action by shareholders, in any merger, consolidation,
reorganization, liquidation or dissolution, any Option granted
under the Plan shall pertain to the securities and other property
to which a holder of the number of Shares of stock covered by the
Option would have been entitled to receive in connection with
such event.
14. Incentive Stock Option Requirements. Notwithstanding
any other provision of the Plan, the following requirements apply
to each Incentive Stock Option granted pursuant to the Plan.
(a) Only Employees of the Company shall be eligible
to receive grants of Incentive Stock Options.
(b) The written agreement that evidences an Option
grant shall state that the Option is an Incentive Stock Option.
(c) The exercise price of each Share subject to an
Incentive Stock Option shall equal the Fair Market Value of the
Share on the Option's Date of Grant.
(d) Each Incentive Stock Option shall expire no later
than the earliest of:
(1) the tenth anniversary of the Option's Date of
Grant;
(2) the one year anniversary of the Recipient's
death; or
(3) ninety days following the termination of the
Recipient's employment or affiliation with the Company.
(e) An Incentive Stock Option granted to an
individual who, on the Date of Grant, owns stock possessing more
than ten percent of the total combined voting power of all
classes of stock of either the Company or any parent or
Subsidiary, shall be granted at an exercise price of 110 percent
of Fair Market Value on the Date of Grant and shall be
exercisable only during the five-year period immediately
following the Date of Grant. In calculating stock ownership of
any person, the attribution rules of Section 424(d) of the Code
shall apply. Furthermore, in calculating stock ownership, any
stock that the individual may purchase under outstanding options
shall not be considered.
(f) The aggregate Fair Market Value determined on the
Date of Grant, of stock in the Company with respect to which any
Incentive Stock Options under the Plan and all other plans of the
Company or its Subsidiaries (within the meaning of Section 422(b)
of the Code) may become exercisable by any individual for the
first time in any calendar year shall not exceed $100,000.
15. Liability of the Company. The Company, its parent and
any Subsidiary that is in existence or hereafter comes into
existence shall not be liable to any person for any tax
consequences expected but not realized by a Recipient or other
person due to the exercise of an Option.
16. Termination and Amendment of Plan. This Plan shall
automatically terminate at such time as the Company shall submit
a proposal to the Company's shareholders for Shareholder Approval
and such proposal fails to achieve the requisite number of votes.
Notwithstanding Shareholder Approval, the Board may amend or
terminate this Plan at any time or from time to time without the
approval of the shareholders of the Company as to such amendment
or termination; provided, however, that without the approval of
the shareholders to the extent provided in Section 422 of the
Code, no amendment shall be effective that:
(a) increases the aggregate number of Shares that may
be delivered upon the exercise of Options granted under the Plan;
(b) materially modifies the eligibility requirements
for participation in the Plan; or
(c) amends the requirements of Subsections 16(a) or
16(b) hereof.
Any amendment, whether with or without the approval of share-
holders, that alters the terms or provisions of an Option granted
before the amendment (unless the alteration is expressly
permitted under this Plan) shall be effective only with the
consent of the Recipient to whom the Option was granted or the
holder currently entitled to exercise it.
17. Expenses of Plan. The Company shall bear the expenses
of administering the Plan.
18. Duration of Plan. Options may be granted under this
Plan only during the ten years immediately following the
Effective Date.
19. Applicable Law. The validity, interpretation, and
enforcement of this Plan are governed in all respects by the laws
of Florida and the United States of America.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
IMGE DISTRIBUTION, INC.
IMGE R & D, INC.
IMGE MARKETING, INC.
nSTOR CORPORATION, INC.
nSTOR EUROPE, LTD.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000075448
<NAME> NSTORE TECHNOLOGIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996<F1>
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<CASH> 10,608
<SECURITIES> 0
<RECEIVABLES> 1,747
<ALLOWANCES> 0
<INVENTORY> 1,385
<CURRENT-ASSETS> 13,822
<PP&E> 1,360
<DEPRECIATION> 68
<TOTAL-ASSETS> 15,677
<CURRENT-LIABILITIES> 2,777
<BONDS> 0
0
0
<COMMON> 934
<OTHER-SE> 11,456
<TOTAL-LIABILITY-AND-EQUITY> 15,677
<SALES> 5,619
<TOTAL-REVENUES> 17,808<F2>
<CGS> 3,547
<TOTAL-COSTS> 5,504
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72
<INCOME-PRETAX> 12,232
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 566
<CHANGES> 0
<NET-INCOME> 12,798
<EPS-PRIMARY> .73
<EPS-DILUTED> 0
<FN>
<F1>Registrant recently changed its fiscal year end to December 31
(reference Form 8-K filed November 15, 1996).
<F2>Total revenues includes the gain from the sale of IMNET Systems, Inc.
stock for $11,955.
</FN>
</TABLE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION OF
IMGE, INC.
The Restated Certificate of Incorporation of IMGE, Inc. was
filed with the Secretary of State of the State of Delaware on July
21, 1987, under the name Communications & Cable Inc. An Amendment
to the Restated Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on March 21, 1989, and
an additional Certificate of Amendment was filed with the Secretary
of State of the State of Delaware on October 7, 1992. A
Certificate of Renewal and Revival of Charter was filed with the
Secretary of State of the State of Delaware on November 8, 1995.
IMGE, Inc. does hereby certify that the within Amendment to the
Restated Certificate of Incorporation was duly adopted on November
4, 1996, in accordance with Section 242 of the Delaware General
Corporation Law by unanimous written consent in accordance with
Section 228 of the Delaware General Corporation Law.
1. Article 1 of the Restated Certificate of Incorporation, as
amended, is hereby deleted in its entirety and amended to read as
follows:
"1. The name of this corporation is nStor
Technologies, Inc."
IN WITNESS WHEREOF, IMGE, Inc. has caused this Certificate of
Amendment to the Restated Certificate of Incorporation of IMGE,
Inc. to be signed by its President and attested by its Secretary
this 5th day of November, 1996.
IMGE INC., a Delaware corporation
By: /s/ Mark F. Levy
Mark F. Levy, President
ATTEST:
/s/ Joseph Weingard
__________________________
Joseph Weingard
Secretary
RESTATED CERTIFICATE OF INCORPORATION
OF
COMMUNICATIONS & CABLE INC.
The original Certificate of Incorporation of Communications &
Cable Inc. (at the time known as Pacific Coast Properties, Inc.)
was filed with the Secretary of State of the State of Delaware on
November 23, 1959. Such Certificate of Incorporation, as
previously amended, is hereby restated in full to read as follows:
1. The name of the corporation is Communications & Cable Inc.
(the "Corporation").
2. The address of the Corporation's registered office in the
State of Delaware is 1209 Orange Street, City of Wilmington, 19801,
County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of Delaware.
4. (a) The total number of shares which this Corporation is
authorized to issue is twenty-five million (25,000,000). The
Corporation is authorized to issue two classes of shares to be
designated, respectively, "Preferred Stock" and "Common Stock".
The number of shares of Preferred Stock authorized to be issued is
one million (1,000,000) and the number of shares of Common Stock
authorized to be issued is twenty-four million (24,000,000). The
Preferred Stock shall have a par value of $.01 per share and the
Common Stock shall have a par value of $.05 per share. The
aggregate par value of all shares of Preferred Stock is $10,000 and
the aggregate par value of all shares of Common Stock is
$1,200,000. Each currently authorized, issued and outstanding
share of the Corporation's stock shall remain outstanding at one
share of Common Stock.
(b) The shares of Preferred Stock may be issued from time
to time in one or more series. The Board of Directors is
authorized, subject to limitations prescribed by law and the
provisions of this Article 4 to provide for the issuance of the
shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in
each such series, and to fix the designation, powers, preferences
and the rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
(c) The authority of the Board with respect to each
series shall include, but not be limited to, determination of the
following:
(i) The number of shares constituting that series and
the distinctive designation of that series;
(ii) The dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date
or dates, and the relative rights of priority, if any, of payment
of dividends on shares of that series;
(iii) whether that series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the
terms of such voting rights and whether the series shall have the
right to vote cumulatively;
(iv) Whether that series shall have conversion
privileges, and, if so, the terms and conditions of such
conversion, including a provision for adjustment of the conversion
rate in such events as the Board of Directors shall determine;
(v) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which they
shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and at
different redemption dates;
(vi) Whether that series shall have a sinking fund for
the redemption or purchase of shares of that series, and, if so,
the terms and amount of such sinking fund;
(vii) The rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, and the relative rights of priority,
if any, of payment of shares of that series;
(viii) Any other relative or participating rights,
preferences and limitations of that series.
4. (d) The number of authorized shares of Preferred Stock
may be increased or decreased by the affirmative vote of the
holders of a majority of the stock of the Corporation that is
entitled to vote without a class vote of the Preferred Stock or any
class or series thereof, except as may otherwise be provided in the
resolution or resolutions affixing the voting rights of such class
or series.
5. The Corporation shall have perpetual existence.
6. In furtherance and not in limitation of the powers
conferred by statue, the Board of Directors is expressly authorized
to make, alter, amend or repeal the By-Laws of the Corporation,
except to the extent that the By-Laws or this Certificate of
Incorporation otherwise provide.
7. The number of directors of the Corporation shall be fixed
and may be altered from time to time in the manner provided in the
By-Laws, and vacancies in the Board of Directors and newly created
directorships resulting from any increase in the authorized number
of directors may be filled, and directors may be removed, as
provided in the By-Laws.
8. At all elections of directors of the Corporation, each
holder of Common Stock shall be entitled to as many votes as shall
equal the number of votes which (except for such provision as to
cumulative voting) he would be entitled to cast for the election of
directors with respect to his shares of Common Stock multiplied by
the number of directors to be elected by him, and he may cast all
of such votes for a single director or may distribute them among
the number to be voted for, or for any two or more of them as he
may see fit.
9. Meetings of stockholders may be held without the State of
Delaware, as the By-Laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the
By-Laws of the Corporation.
10. To the fullest extent permitted by the Delaware General
Corporation Law, as the same exists or as may hereafter be amended,
a director of the Corporation shall not be personally liable to the
Corporation of its stockholders for monetary damages for breach of
fiduciary duty as a director. Neither any amendment nor repeal of
this Article 10, nor the adoption of any provision of this
Certificate of Incorporation inconsistent with this Article 10,
shall eliminate or reduce the effect of this Article 10 in respect
of any matter occurring, or any cause of action, suit or claim
that, but for this Article 10, would accrue or arise, prior to such
amendment, repeal or adoption of any inconsistent provision.
11. The election of directors need not be by written ballot
unless a stockholder demands election by written ballot as a
meeting of stockholders before the voting begins.
12. The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
IN WITNESS WHEREOF, this Restated Certificate of
Incorporation, which restates and integrates but also further
Amends the Certificate of Incorporation of Communications & Cable
Inc., was adopted by the Board of Directors and the stockholders of
the Corporation pursuant to Sections 242 and 245 of the Delaware
General Corporation Law, and has been executed by its duly
authorized officers this 13th day of July, 1987.
Communications & Cable Inc.,
a Delaware Corporation
/s/ Joseph Weingard
By________________________________
Joseph Weingard, President
Attest:
/s/ Mark F. Levy
By___________________________
Mark F. Levy, Secretary
EXHIBIT 3.2
RESTATED BY-LAWS
OF
nStor Technologies, Inc.
TABLE OF CONTENTS
ARTICLE I CORPORATE OFFICES . . . . . . . . . . . . . . . 1
1.1 REGISTERED OFFICE . . . . . . . . . . . . . . . .1
1.2 OTHER OFFICES . . . . . . . . . . . . . . . . . 1
ARTICLE II MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . 1
2.1 PLACE OF MEETINGS . . . . . . . . . . . . . . . 1
2.2 ANNUAL MEETINGS . . . . . . . . . . . . . . . . .1
2.3 SPECIAL MEETING . . . . . . . . . . . . . . . . 1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS. . . . . . . . 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. . 2
2.6 QUORUM. . . . . . . . . . . . . . . . . . . . . 2
2.7 ADJOURNED MEETING; NOTICE . . . . . . . . . . . 3
2.8 CONDUCT OF BUSINESS . . . . . . . . . . . . . . 3
2.9 VOTING. . . . . . . . . . . . . . . . . . . . . 3
2.10 WAIVER OF NOTICE. . . . . . . . . . . . . . . . 3
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING . . . . . . . . . . . . . . . . . . . . 4
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING;
GIVING CONSENTS . . . . . . . . . . . . . . . . .4
2.13 PROXIES . . . . . . . . . . . . . . . . . . . . 5
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE . . . . . 5
ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . 6
3.1 POWERS. . . . . . . . . . . . . . . . . . . . . 6
3.2 NUMBER OF DIRECTORS . . . . . . . . . . . . . . 6
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF
DIRECTORS . . . . . . . . . . . . . . . . . . . 6
3.4 RESIGNATION AND VACANCIES . . . . . . . . . . . 6
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. . . . 7
3.6 REGULAR MEETINGS. . . . . . . . . . . . . . . . 8
3.7 SPECIAL MEETINGS; NOTICE. . . . . . . . . . . . 8
3.8 QUORUM. . . . . . . . . . . . . . . . . . . . . 8
3.9 WAIVER OF NOTICE. . . . . . . . . . . . . . . . 9
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING 9
3.11 FEES AND COMPENSATION OF DIRECTORS. . . . . . . 9
3.12 APPROVAL OF LOANS TO OFFICERS . . . . . . . . . 9
3.13 REMOVAL OF DIRECTORS. . . . . . . . . . . . . . 10
ARTICLE IV COMMITTEES. . . . . . . . . . . . . . . . . . . 10
4.1 COMMITTEES OF DIRECTORS . . . . . . . . . . . . 10
4.2 COMMITTEE MINUTES . . . . . . . . . . . . . . . 11
4.3 MEETINGS AND ACTION OF COMMITTEES . . . . . . . 11
ARTICLE V OFFICERS. . . . . . . . . . . . . . . . . . . . 11
5.1 OFFICERS. . . . . . . . . . . . . . . . . . . . 11
5.2 APPOINTMENT OF OFFICERS . . . . . . . . . . . . 11
5.3 SUBORDINATE OFFICERS. . . . . . . . . . . . . . 12
5.4 REMOVAL AND RESIGNATION OF OFFICERS . . . . . . 12
5.5 VACANCIES IN OFFICES. . . . . . . . . . . . . . 12
5.6 CHAIRMAN OF THE BOARD . . . . . . . . . . . . . 12
5.7 CHIEF EXECUTIVE OFFICER . . . . . . . . . . . . 12
5.8 PRESIDENT . . . . . . . . . . . . . . . . . . . 13
5.9 VICE PRESIDENTS . . . . . . . . . . . . . . . . 13
5.10 SECRETARY . . . . . . . . . . . . . . . . . . . 13
5.11 TREASURER . . . . . . . . . . . . . . . . . . . 14
5.12 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. 14
5.13 AUTHORITY AND DUTIES OF OFFICERS. . . . . . . . 15
ARTICLE VI INDEMNITY . . . . . . . . . . . . . . . . . . . 15
6.1 THIRD PARTY ACTIONS . . . . . . . . . . . . . . 15
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION . 15
6.3 SUCCESSFUL DEFENSE. . . . . . . . . . . . . . . 16
6.4 DETERMINATION OF CONDUCT. . . . . . . . . . . . 16
6.5 PAYMENT OF EXPENSES IN ADVANCE. . . . . . . . . 17
6.6 INDEMNITY NOT EXCLUSIVE . . . . . . . . . . . . 17
6.7 INSURANCE INDEMNIFICATION . . . . . . . . . . . 17
6.8 THE CORPORATION . . . . . . . . . . . . . . . . 17
6.9 EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . 18
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII RECORDS AND REPORTS . . . . . . . . . . . . . . 18
7.1 MAINTENANCE AND INSPECTION OF RECORDS . . . . . 18
7.2 INSPECTION BY DIRECTORS . . . . . . . . . . . . 19
7.3 ANNUAL STATEMENT TO STOCKHOLDERS. . . . . . . . 19
ARTICLE VIII GENERAL MATTERS . . . . . . . . . . . . . . . . 19
8.1 CHECKS. . . . . . . . . . . . . . . . . . . . . 19
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS 19
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. . . . . 20
8.4 SPECIAL DESIGNATION ON CERTIFICATES . . . . . . 20
8.5 LOST CERTIFICATES . . . . . . . . . . . . . . . 21
8.6 CONSTRUCTION; DEFINITIONS . . . . . . . . . . . 21
8.7 DIVIDENDS . . . . . . . . . . . . . . . . . . . 21
8.8 FISCAL YEAR . . . . . . . . . . . . . . . . . . 22
8.9 SEAL. . . . . . . . . . . . . . . . . . . . . . 22
8.10 TRANSFER OF STOCK . . . . . . . . . . . . . . . 22
8.11 STOCK TRANSFER AGREEMENTS . . . . . . . . . . . 22
8.12 REGISTERED STOCKHOLDERS . . . . . . . . . . . . 22
ARTICLE IX AMENDMENTS. . . . . . . . . . . . . . . . . . . 22
RESTATED BY-LAWS
OF
nStor Technologies, Inc.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City
of Wilmington, State of Delaware. The name of the registered agent
of the corporation at such location is The Corporation Trust
Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices
at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or
outside the State of Delaware, as may be designated by the board of
directors. In the absence of any such designation, stockholders'
meetings shall be held at the registered office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on
a date and at a time designated by the board of directors. At the
meeting, directors shall be elected and any other proper business
may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any
time by the board of directors, or by the chairman of the board, or
by the chief executive officer, president or vice president, or by
one or more stockholders holding shares in the aggregate entitled
to cast not less than thirty five percent (35%) of the votes at the
meeting.
If a special meeting is called by any person or persons other
than the board of directors, the request shall be in writing,
specifying the time of such meeting and the general nature of the
business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the chief
executive officer, the president, any vice president, or the
secretary of the corporation. No business may be transacted at
such special meeting other than as specified in such notice. The
officer receiving the request shall cause notice to be promptly
given to the stockholders entitled to vote, in accordance with the
provisions of Section 2.4 and 2.5 hereof, that a meeting will be
held at the time requested by the person or persons calling the
meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given
within twenty (20) days after the receipt of the request, the
person or persons requesting the meeting may give the notice.
Nothing contained in this paragraph of this Section 23 shall be
construed as limiting, fixing, or affecting the time when a meeting
of stockholders called by action of the board of directors may be
held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be in writing
and shall be sent or otherwise given in accordance with Section 25
hereof not less than ten (10) nor more than sixty (60) days before
the date of the meeting to each stockholder entitled to vote at
such meeting. The notice shall specify the place, date and hour of
the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is
given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the
records of the corporation. An affidavit of the secretary or an
assistant secretary or of the transfer agent of the corporation
that the notice has been given shall in the absence of fraud, be
prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise
provided by statute or by the certificate of incorporation. If,
however, such quorum is not present or represented at any meeting
of the stockholders, then either (i) the chairman of the meeting or
(ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement
at the meeting, until a quorum is present or represented. At such
adjourned meeting at which a quorum is present or represented, any
business may be transacted that might have been transacted at the
meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, except
as otherwise specified herein notice need not be given of the
adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business that might have
been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.8 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including
the regulation of the manner of voting and the conduct of business.
2.9 VOTING
The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions
of Section 2.12 hereof, subject to the provisions of Sections 217
and 218 of the General Corporation Law of Delaware (relating to
voting rights of fiduciaries, pledgors and joint owners of stock
and to voting trusts and other voting agreements).
The stockholders' vote may be conducted by voice vote or by
written ballot; provided, however, that the stockholders' vote in
an election of directors must be conducted by written ballot if any
shareholder so demands at any meeting before the voting has begun.
Except as provided in the last paragraph of this Section 2.9
or as may be otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote for
each share of capital stock held by such stockholder. Stockholders
shall have such cumulative voting rights, if any, as shall be
provided in the certificate of incorporation.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the certificate of
incorporation or these by-laws, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of
a person at a meeting shall constitute a waiver of notice of such
meeting, except when the persons attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the stockholders
need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these by-laws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation,
any action required by applicable law to be taken at any annual or
special meeting of stockholders of a corporation, or any action
that may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice
and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent of the stockholders
shall be given to those stockholders who have not consented in
writing. If the action which is consented to is such as would have
required the filing of a certificate under any section of the
General Corporation Law of Delaware if such action had been voted
on by stockholders at a meeting thereof, then the certificate filed
under such section shall state, in lieu of any statement required
by such section concerning any vote of stockholders, that written
notice and written consent have been given as provided in Section
228 of the General Corporation Law of Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING
CONSENTS
In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of the stockholders
or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other
lawful action, the board of directors may fix, in advance, a record
date, which shall not be less than ten (10) nor more sixty (60)
days before the date of such meeting.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice
is given, or, if notice is waived, at the dose of business on the
day next preceding the day on which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting,
when no prior action by the board of directors is necessary, shall
be the day on which the first written consent is expressed.
(iii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which
the board of directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act
for him by a written proxy, signed by the stockholder and filed
with the secretary of the corporation, but no such proxy shall be
voted or acted upon after three (3) years from its date, unless the
proxy provides for a longer period. A proxy shall be deemed signed
if the stockholder's name is placed on the proxy (whether by manual
signature, typewriting, telegraphic transmission or otherwise) by
the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Section 212(c)
of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a
corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any
stockholder who is present. Such list shall presumptively determine
the identity of the stockholders entitled to vote at the meeting
and the number of shares held by each of them.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of
Delaware and any limitations in the certificate of incorporation or
these by-laws relating to action required to be approved by the
stockholders or by the outstanding shares, the business and affairs
of the corporation shall be managed and all corporate powers shall
be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
Subject to any limitations in the certificate of
incorporation, the board of directors shall consist of not less
than three (3) members, the exact number of which shall bc fixed by
resolution of the board of directors from time to time.
No reduction of the authorized number of directors shall have
the effect of removing any director before that director's term of
office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these by-laws, directors
shall bc elected at each annual meeting of stockholders to hold
office until the next annual meeting. Directors need not be
stockholders unless so required by the certificate of incorporation
or these by-laws, wherein other qualifications for directors may be
prescribed. Each director, including a director elected to fill a
vacancy, shall hold office until his successor is elected and
qualified or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
attention of the secretary of the corporation. When one or more
directors so resigns and the resignation is effective at a future
date, a majority of the directors then in office, including those
who have so resigned, prior to the effective date of their
resignations, shall have the power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of
other vacancies.
Unless otherwise provided in the certificate of incorporation
or these by-laws:
(i) Newly created directorships resulting from any
increase in the authorized number of directors elected by all
of the stockholders having the right to vote as a single class
or other vacancies may be filled by the majority of the
directors then in office, although less than a quorum, or by
a sole remaining director.
(ii) Whenever the holders of any class or classes of
stock or series thereof are entitled to elect one or more
directors by the provisions of the certificate of
incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of
the directors elected by such class or classes or series
thereof then in office, or by a sole remaining director so
elected.
If at any time, by reason of death or resignation or other
cause, the corporation should have no directors in office, then any
officer or any stockholder or an executor, administrator, trustee
or guardian of a stockholder, or other fiduciary entrusted with
like responsibility for the person or estate of a stockholder, may
call a special meeting of stockholders in accordance with the
provisions of the certificate of incorporation or these by-laws, or
may apply to the Court of Chancery for a decree summarily ordering
an election as provided in Section 211 of the General Corporation
Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a
majority of the whole board (as constituted immediately prior to
any such increase), then the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten
(10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the
directors then in office as aforesaid, which election shall be
governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings,
both regular and special either within or outside the State of
Delaware.
Unless otherwise restricted by the certificate of
incorporation or these by-laws, members of the board of directors,
or any committee designated by the board of directors, may
participate in a meeting of the board of directors, or any
committee, by means of conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at
the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be
determined by the board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or
purposes may be called at any time by the chairman of the board,
the chief executive officer, the president, or any two (2)
directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by
first-class mail or telegram, charges prepaid, addressed to each
director at that director's address as it is shown on the records
of the corporation. If the notice is mailed, it shall be deposited
in the United States mail at least four (4) days before the time of
the holding of the meeting. If the notice is delivered personally
or by telephone or by telegram, it shall be delivered personally or
by telephone or to the telegraph company at least forty-eight (48)
hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either
to the director or to a person at the office of the director who
the person giving the notice has reason to believe will promptly
communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held
at the principal executive office of the corporation.
3.8 QUORUM
At all meetings of the board of directors, a majority of the
authorized number of directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act
of the board of directors, except as may be otherwise specifically
provided by statute or by the certificate of incorporation. If a
quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the
meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors,
if any action taken is approved by at least a majority of the
required quorum for that meeting.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the certificate of
incorporation or these by-laws, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of
a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the directors, or
members of a committee of directors, need be specified in any
written waiver of notice unless so required by the certificate of
incorporation or these by-laws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to
be taken at any meeting of the board of directors, or of any
committee thereof, may be taken without a meeting if all members of
the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of
proceedings of the board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have
the authority to fix the compensation of directors.
3.12 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation
of, or otherwise assist any officer or other employee of the
corporation or of its subsidiaries, including any officer or
employee who is a director of the corporation or its subsidiaries,
whenever, in the judgment of the directors, such loan guaranty or
assistance may reasonably be expected to benefit the corporation.
The loan, guaranty or other assistance may be with or without
interest and may be unsecured or secured in such manner as the
board of directors shall approve, including, without limitation a
pledge of shares of stock of the corporation. Nothing in this
section contained shall be deemed to deny, limit or restrict the
powers of guaranty or warranty of the corporation at common law or
under any statute.
3.13 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these by-laws, any director or the entire board
of directors may be removed, with or without cause, by the holders
of a majority of the shares then entitled to vote at an election of
directors.
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of such
director's term of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority
of the whole board, designate one or more committees, with each
committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence
or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act
at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the
resolution of the board of directors or in the by-laws of the
corporation shall have and may exercise all the powers and
authority of the board of directors in the management of the
business and affairs of the corporation and may authorize the seal
of the corporation to be affixed to all papers that may require it;
but no such committee shall have the power or authority to (i)
amend the certificate of incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the
preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the
corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of
the same or any other class or classes of stock of the corporation
or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), (ii) adopt an
agreement of merger or consolidation under Sections 251 or 252 of
the General Corporation Law of Delaware, (iii) recommend to the
stockholders the sale, lease or exchange of all or substantially
all of the corporation's property and assets, (iv) recommend to the
stockholders a dissolution of the corporation or the revocation of
a dissolution, or (v) amend the by-laws of the corporation; and,
unless the board resolution establishing the committee, the
by-laws, or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a
certificate of ownership and merger pursuant to Section 253 of the
General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and
held and taken in accordance with, the provisions of Article III of
these by-laws, Section 35 (place of meetings and meetings by
telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of
notice), and Section 3.10 (action without a meeting), with such
changes in the context of those by-laws as are necessary to
substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular
meetings of committees may be determined either by resolution of
the board of directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of
the board of directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board
of directors may adopt rules for the government of any committee
not inconsistent with the provisions of these by-laws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a chief executive
officer, a secretary and a treasurer. The corporation may also
have, at the discretion of the board of directors, a chairman of
the board, a president, one or more vice presidents, one or more
assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the
provisions of Section 53 of these by-laws. Any number of offices
may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Sections 53 or 55
of these by-laws, shall be appointed by the board of directors,
subject to the rights, if any, of an officer under any contract of
employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the chief
executive officer to appoint, such other officers and agents as the
business of the corporation may require, each of whom shall hold
office for such period, have such authority, and perform such
duties as are provided in these by-laws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any
contract of employment, any officer may be removed, either with or
without cause, by an affirmative vote of the majority of the board
of directors at any regular or special meeting of the board or,
except in the case of an officer chosen by the board of directors,
by any officer upon whom such power of removal may be conferred by
the board of directors.
Any officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of
the receipt of that notice or at any later time specified in that
notice; and, unless otherwise specified in that notice, the
acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if
any, of the corporation under any contract to which the officer is
a party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation may be
filled by the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected,
shalL if present, preside at meetings of the board of directors and
exercise and perform such other powers and duties as may from time
to time be assigned to him by the board of directors or as may be
prescribed by these by-laws. If there is no chief executive
officer, then the chairman of the board shall also be the chief
executive officer of the corporation and shall have the powers and
duties prescribed in Section 5.7 of these bylaws.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such supervisory powers, if any, as may be given by
the board of directors to the chairman of the board, if there be
such an officer, the chief executive officer shall be the senior
officer of the corporation and shall subject to the control of the
board of directors, have general supervision, direction, and
control of the business and the officers of the corporation. He
shall preside at all meetings of the stockholders and, in the
absence or nonexistence of a chairman of the board, at all meetings
of the board of directors. He shall have the general powers and
duties of management usually vested in the office of chief
executive officer of a corporation and shall have such other powers
and duties as may be presented by the board of directors or these
by-laws.
5.8 PRESIDENT
The president shall be the chief operating officer of the
corporation, subject to control and supervision of the board of
directors and the chief executive officer of the corporation. In
the absence or disability of the chief executive officer, the
president shall perform the duties of the chief executive officer
and when so acting shall have all the powers of and be subject to
all the restrictions upon, the chief executive officer. The
president shall have such other powers ant perform such other
duties as from time to time may be prescribed by the board of
directors, these by-laws or the chief executive officer.
5.9 VICE PRESIDENTS
In the absence or disability of the president, the vice
presidents, if any, in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the
board of directors, shall perform all the duties of the president
and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time
to time may be prescribed for them respectively by the board of
directors, these by-laws, the chief executive officer or president.
5.10 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the
board of directors may direct, a book of minutes of all meetings
and actions of directors, committees of directors and stockholders.
The minutes shall show the time and place of each meeting, whether
regular or special (and, if special, how authorized and the notice
given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the
principal executive office of the corporation or at the office of
the corporation's transfer agent or registrar, as determined by the
board of directors, a share register, or a duplicate share
register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the
number and date of certificates evidencing such shares. and the
number and date of cancellation of every certificate surrendered
for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the board of directors required
to be given by law or by these by-laws. He shall keep the seal of
the corporation, if one be adopted, in safe custody and shall have
such other powers and perform such other duties as may be
prescribed by the board of directors, these by-laws or the chief
executive officer.
5.11 TREASURER
The treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of
the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital retained earnings, and
shares. The books of account shall at all reasonable times be open
to inspection by any director.
The treasurer shall deposit all moneys and other valuables in
the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. He
shall disburse the funds of the corporation as may be ordered by
the board of directors, shall render to the president and
directors, whenever they request it, an account of all his
transactions as treasurer and of the financial condition of the
corporation, and shall have other powers and perform such other
duties as may be prescribed by the board of directors, these
by-laws or the chief executive officer.
5.12 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, the
president, any vice president, the treasurer, the secretary or
assistant secretary of this corporation, or any other person
authorized by the board of directors, or the chief executive
officer, or the president or a vice president, is authorized to
vote, represent and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or
corporations standing in the name of this corporation. The
authority granted herein may be exercised either by such person
directly or by any other person authorized to do so by proxy or
power of attorney duly executed by such person having the
authority.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all
officers of the corporation shall respectively have such authority
and perform such duties in the management of the business of the
corporation as may be designated from time to time by the board of
directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by
or in the right of the corporation) by reason of the fact that he
is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other
enterprise, and may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
contemplated action, suit or proceeding, whether civil criminal,
administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was
an employee or agent of the corporation, or is or was serving at
the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful The termination of any
action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the corporation, or
is or was serving at the request of the corporation as a director
or officer of another corporation, partnership, joint venture,
trust or other enterprise, and may indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was an employee or agent of the corporation, or
is or was serving at the request of the corporation as an employee
or agent of another corporation, partnership, joint venture, trust
or other enterprise against all expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
6.3 SUCCESSFUL DEFENSE
To the extent that a director or officer of the corporation
has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 or 6.2, or
in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith and to the
extent that an employee or agent of the corporation has been
successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in Sections 6.1 or 6.2, or in
defense of any claim, issue or matter therein, he may be
indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 or 6.2 (unless ordered
by a court) shall be made by the corporation only as authorized in
the specific case upon a determination that the indemnification of
the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct
set forth in Sections 6.1 or 6.2. Such determination shall be made
(1) by the Board of Directors or by a majority vote of a quorum
consisting of directors who were not parties to such action, suit
or proceeding, or (2) if such quorum is not obtainable or, even if
obtainable, if a quorum of dis interested directors so directs, by
independent legal counsel in a written opinion, or (3) by the
stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred by a director or officer of the corporation
in defending a civil or criminal action, suit or proceeding shall
be paid by the corporation in advance of the final disposition of
such action, suit or proceeding and expenses incurred by an
employee or agent in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or
agent to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation as
authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or
granted pursuant to the other sections of this Article shall not be
deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under
any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving
at the request of the corporation, as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against him and
incurred by him in any such capacity or arising out of his status
as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this
Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "the
corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or
agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand
in the same position under and subject to the provisions of this
Article VI (including, without limitation the provisions of Section
6.4) with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its
separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person woo acted in good
faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this Article VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES
The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article VI shall, unless otherwise
provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of
such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall either at its principal executive office
or at such place or places as designated by the board of directors,
keep a record of its stockholders listing their names and addresses
and the number ant class of shares held by each stockholder, a copy
of these by-laws as amended to date, accounting books, and other
records.
Any stockholder of record, in person or by attorney or other
agent, shall upon written demand under oath stating the purpose
thereof, have the right during the usual hours for business to
inspect for any proper purpose the corporation's stock ledger, a
list of its stockholders, and its other books and records and to
make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a
stockholder. In every instance where an attorney or other agent is
the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing
that authorizes the attorney or other agent to so act on behalf of
the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its
principal place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's
stock ledger, a list of its stockholders, and its other books and
records for a purpose reasonably refuted to his position as a
director. The Court of Chancery is hereby vested with the exclusive
jurisdiction to determine whether a director is entitled to the
inspection sought. The Court may summarily order the corporation to
permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts
therefrom. The Court may, in its discretion, prescribe any
limitations or conditions with reference to the inspection, or
award such other and further relief as the Court may deem just and
proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by
vote of the stockholders, a full and dear statement of the business
and condition of the corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by
resolution which person or persons may sign or endorse all checks,
drafts, other orders for payment of money, notes or other evidences
of indebtedness that are issued in the name of or payable to the
corporation, and only the persons so authorized shall sign or
endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these
by-laws, may authorize any officer or officers, or agent or agents,
to enter into any contract or execute any instrument in the name of
and on behalf of the corporation; such authority may be general or
confined to special instances. Unless so authorized or ratified by
the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be represented by
certificates, provided that the board of directors of the
corporation may provide by resolution or resolutions that some or
all of any or all classes or series of its stock shall be
uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is
surrendered to the corporation. Notwithstanding the adoption of
such a resolution by the board of directors, every holder of stock
represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the d~airman or
vice-d~airman of the board of directors or the chief executive
officer, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been
pieced upon a certificate has ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be
issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
To the extent permitted by the General Corporation Law of
Delaware, the corporation may issue the whole or any part of its
shares as partly paid and subject to call for the remainder of the
consideration to be paid therefor. Upon the face or bade of each
stock certificate issued to represent any such partly paid shares,
upon the books and records of the corporation in the case of
uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall
be stated. Upon the declaration of any dividend on fully paid
shares, the corporation shall declare a dividend upon partly paid
shares of the same class, but only upon the basis of the percentage
of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class
of stock or more than one series of any class, then the powers, the
designations, the preferences and the relative, participating,
optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized
on the face or bade of the certificate that the corporation shall
issue to represent such class or series of stock; provided,
however, that, except as otherwise provided in Section 202 of the
General Corporation Law of Delaware, in lieu of the foregoing
requirements there may be set forth on the face or back of the
certificate that the corporation shall issue to represent such
class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests the
powers, the designations, the preferences and the relative,
participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates
for shares shall be issued to replace a previously issued
certificate unless the latter is surrendered to the corporation and
cancelled at the same time. The corporation may issue a new
certificate of stock or uncertificated shares in the place of any
certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the corporation may require the owner of
the lost, stolen or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to
indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or
uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions,
rules of construction and definitions in the General Corporation
Law of Delaware shall govern the construction of these by-laws.
Without limiting the generality of this provision, the singular
number includes the plural the plural number includes the singular,
and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions
contained in (i) the General Corporation Law of Delaware or (ii)
the certificate of incorporation, may declare and pay dividends
upon the shares of its capital stock. Dividends may be paid in
cash, in property, or in shares of the corporation's capital stock.
The directors of the corporation may set apart out of any of
the funds of the corporation available for dividends a reserve or
reserves for any proper purpose and may abolish any such reserve.
Such purposes shall include but not be limited to equalizing
dividends, repairing or maintaining any property of the corporation
and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by
resolution of the board of directors and may be changed by the
board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which may be
altered at pleasure, and may use the same by causing it or a
facsimile thereof to be impressed or affixed or in any other manner
reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or
authority to transfer, it shall be the duty of the corporation to
issue a new certificate to the person entitled thereto, cancel the
old certificate and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more
classes of stock of the corporation to restrict the transfer of
shares of stock of the corporation of any one or more classes owned
by such stockholders in any manner not prohibited by the General
Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to
receive dividends and to vote as such owner, shall be entitled to
hold liable for calls and assessments the person registered on its
books as the owner of shares, and shall not be bound to recognize
any equitable or other claim to or interest in such share or shares
on the part of another person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws
of Delaware.
ARTICLE IX
AMENDMENTS
The by-laws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however,
that the corporation may, in its certificate of incorporation,
confer the power to adopt, amend or repeal by-laws upon the
directors. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit
their power to adopt, amend or repeal by-laws.
