<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-52787
PROSPECTUS
9,913,276 SHARES
nSTOR TECHNOLOGIES, INC.
COMMON STOCK
------------------------------
This Prospectus relates to an aggregate of up to 9,913,276 shares (the
"Shares") of common stock, $.05 par value (the "Common Stock"), of nStor
Technologies, Inc. (the "Company"), being offered for sale from time to time by
the selling stockholders named in this Prospectus (the "Selling Stockholders")
as follows:
(i) up to 8,233,276 shares issuable upon the conversion (the "Conversion
Shares") from time to time of the Company's Series B 8% Convertible
Preferred Stock, $.01 par value (the "Series B Preferred Stock");
(ii) up to 280,000 shares issuable upon the exercise (the "Private Placement
Warrant Shares") of warrants issued in connection with the private
placement of the Company's Preferred Stock in April 1998 (the "Private
Placement Warrants");
(iii) up to 400,000 shares issuable upon the exercise (the "Borg Warrant
Shares"; the Private Placement Warrant Shares and the Borg Warrant
Shares sometimes collectively referred to as the "Warrant Shares") of
warrants issued in connection with the Company's acquisition of all of
the outstanding capital stock of Borg Adaptive Technologies, Inc. (the
"Borg Warrants"; the Private Placement Warrants and the Borg Warrants
sometimes collectively referred to as the "Warrants"); and
(iv) up to 1,000,000 shares of Common Stock to be sold by a Selling
Stockholder.
If all of the Warrants are exercised, the Company would receive
$970,000. See "USE OF PROCEEDS." The Company will not receive any funds upon the
conversion of the Series B Preferred Stock. All expenses of registration
incurred in connection with this offering are being borne by the Company, but
all brokerage commissions, discounts and other expenses incurred by individual
Selling Stockholders will be borne by the individual Selling Stockholders. The
Company will not be entitled to any of the proceeds from such sales.
The Common Stock is quoted on the American Stock Exchange under the
symbol "NSO". On June 18, 1998, the last reported sales price of the Common
Stock on the American Stock Exchange was $.75 per share.
No dealer, salesman or other person has been authorized to give any
information or to make any representation other than those contained or
incorporated by reference in this Prospectus in connection with the offering
described herein. If given or made, such information or representation must not
be relied upon as having been authorized by the Company or any Selling
Stockholder. Neither the delivery of this Prospectus nor any offer or sale made
hereunder shall, under any circumstances, imply that there has been no change in
the affairs or operations of the Company since the date of this Prospectus, or
that the information herein is correct as of any time subsequent to such date.
INVESTORS SHOULD CAREFULLY CONSIDER CERTAIN SPECIAL FACTORS RELATING TO
THE COMPANY. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------------------------------
The date of this Prospectus is June 24, 1998
<PAGE> 2
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
("SEC") a Registration Statement on Form S-3 (together with any amendments
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Shares offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in schedules and exhibits to the Registration
Statement as permitted by the rules of the SEC. For further information with
respect to the Company and the Shares, reference is made to the Registration
Statement and the exhibits thereto. Statements contained in this Prospectus as
to the contents of any contract or any document referred to are not necessarily
complete. With respect to each such contract or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matters involved, and each such statement shall
be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the SEC. All
reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the SEC at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the
regional offices of the SEC located at 7 World Trade Center, Suite 1300, New
York, New York 10048, and the Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained by mail
at prescribed rates from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The SEC maintains a web
site that contains reports, proxy and information statements, and other
information regarding registrants that file electronically with the SEC with a
web site address of http://www.sec.gov. All reports, proxy statements and other
information filed by the Company with the SEC will also be filed with the
American Stock Exchange ("Amex") and should be available for inspection at its
facility at 86 Trinity Place, New York, New York 10006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE;
ADDITIONAL INFORMATION
The following documents filed with the SEC by the Company are incorporated
herein by reference:
1. The Company's Annual Report filed on Form 10-K for the fiscal year
ended December 31, 1997, as amended by a Form 10-K/A filed on April 30, 1998;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998; and
3. The description of the Common Stock contained in the Company's
Registration Statement filed on Form 8-A, as filed with the SEC on
April 16, 1997, pursuant to Section 12(b) of the Exchange Act.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment which indicates that all remaining securities offered
have been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference in this Prospectus and to be part
thereof from the date of filing of such documents
Any statement in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or replaces such statement. Any statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon
written or oral request of such person, a copy of any and all information that
has been incorporated by reference in this Prospectus (not including exhibits to
the information that is
1
<PAGE> 3
incorporated by reference unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Such request
should be directed to the President, nStor Technologies, Inc., 100 Century
Boulevard, West Palm Beach, Florida 33417, telephone number (561) 640-3103.
FORWARD LOOKING STATEMENTS
From time to time, information provided by the Company or statements
made by its directors, officers or employees may constitute "forward-looking"
statements under the Private Securities Litigation Reform Act of 1995 and are
subject to numerous risks and uncertainties. Any statements made in this
Registration Statement, including any statements incorporated herein by
reference (See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE; ADDITIONAL
INFORMATION"), that are not statements of historical fact are forward-looking
statements (including, but not limited to, statements concerning the
characteristics and growth of the Company's market and customers, the Company's
objectives and plans for future operations and products and the Company's
expected liquidity and capital resources). Such forward-looking statements and
other forward-looking statements made by the Company or its representatives are
based on a number of assumptions and involve a number of risks and
uncertainties, and, accordingly, actual results could differ materially. Factors
that may cause such differences include, but are not limited to: the continued
and future acceptance of the Company's products; the rate of growth in the
industries to which the Company markets its products; the presence of
competitors with greater technical, marketing and financial resources; the
Company's ability to promptly and effectively respond to technological change to
meet evolving customer needs; capacity and supply constraints or difficulties;
and the Company's ability to successfully expand its operations. For a further
discussion of these and other significant factors to consider in connection with
forward-looking statements, reference is made to the discussion in this
Prospectus under the heading "RISK FACTORS."
THE COMPANY
Since 1996, the Company has been developing, manufacturing, and
marketing a full range of multi-platform storage solutions including advanced
external RAID (Redundant Array of Independent Disks) subsystems (the "RAID
Business"), tape backup systems, UNIX-based memory products, digital media
management products and enterprise resource planning software. The Company was
incorporated as a Delaware corporation in 1959.
In October 1992, the Company exchanged substantially all of the
operating assets of its previous business for securities issued by IMNET
Systems, Inc. ("IMNET"). In 1996, the Company sold its IMNET securities and in
June 1996, through its wholly owned subsidiary, nStor Corporation, Inc.
("nStor"), acquired the RAID Business from Seagate Technologies, Inc. In
December 1996, nStor acquired substantially all of the assets and assumed
certain liabilities of Parity Systems, Inc. ("Parity"). The assets acquired from
Parity are used in the design, manufacture and sale of computer storage
subsystems, memory devices and peripheral equipment, and the integration of
storage management solutions, digital index management, and client/server
systems for UNIX and Windows NT server environments. (UNIX and Windows NT are
computer operating systems.) On April 23, 1998, nStor acquired all of the
outstanding common stock of Borg Adaptive Technologies, Inc. ("Borg"). Borg is
the developer of Adaptive RAID, a patented next-generation RAID technology.
On June 15, 1998, the Company had 106 full-time employees. nStor's
operations are primarily conducted at a facility located in Lake Mary, Florida
(in the Orlando area). The Company's executive offices are located at 100
Century Boulevard, West Palm Beach, Florida 33417, its telephone number is (561)
640-3103.
2
<PAGE> 4
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock outstanding as of June 15, 1998 18,670,477 shares
Shares offered by Selling Stockholders:
Conversion Shares issuable upon conversion of outstanding Minimum: 2,430,556 shares (1)
Series B Preferred Stock Maximum: 8,233,276 shares (2)
Warrant Shares issuable upon exercise of Warrants 680,000 shares
Shares to be sold by Selling Stockholder 1,000,000 shares
Risk Factors The Shares involve a high degree of
risk. Investors should carefully
consider the information set forth
under "Risk Factors."
Proceeds to Company if the Warrants are exercised in full $970,000
Use of Proceeds Other than the proceeds received from the
exercise of the Warrants, the Company will
not receive any proceeds from the sale of
the Shares. See "USE OF PROCEEDS."
Amex trading symbol NSO
</TABLE>
- ------------------
(1) Represents the number of Conversion Shares that would be issuable if
all 3,500 shares of Series B Preferred Stock outstanding were converted
at the maximum Conversion Price of $1.44. See "DESCRIPTION OF
SECURITIES - Series B Preferred Stock."
(2) Represents the number of Conversion Shares offered by this Prospectus.
This number could be more or less than the number of Conversion Shares
that are ultimately issued. The exact number of Conversion Shares
issuable will depend on, among other things, the market price of the
Common Stock prior to such conversion election. Specifically, the
number of Conversion Shares issuable upon any conversion election will
equal (i) the purchase price of the Series B Preferred Stock ($1,000
per share) divided by (ii) the Conversion Price, which is equal to the
lesser of $1.44, or seventy-seven percent (77%) of the average closing
bid price of the Common Stock for the three (3) trading days
immediately preceding the date of conversion, multiplied by (iii) the
number of shares of Series B Preferred Stock being converted.
Additional shares of Common Stock may from time to time be issued as
dividends on the Series B Preferred Stock. Pursuant to the listing
rules of Amex and the Subscription Agreement relating to the Series B
Preferred Stock (the "Subscription Agreement"), the stockholders of the
Company have approved the issuance of certain shares of Common Stock at
below market prices. The stockholders have also approved an amendment
to the Company's Restated Certificate of Incorporation to increase the
aggregate number of authorized shares of Common Stock (the "Charter
Amendment") such that a sufficient number of shares of Common Stock
will be available on any given date to effect the conversion of all
outstanding shares of Series B Preferred Stock.
3
<PAGE> 5
RISK FACTORS
In addition to the other information in this Prospectus or incorporated
herein by reference, the following risk factors should be considered carefully
in evaluating the Company and its business before purchasing the shares offered
in this Prospectus.
Indefinite Number of Shares Issuable Upon Conversion of Preferred Stock and
Company's Right of Redemption
The number of Conversion Shares issuable will increase if the market
price of the Common Stock decreases and decrease if the market price of the
Common Stock increases. Therefore, if the market price of the Common Stock
decreases, there is no theoretical limit on the number of Conversion Shares
issuable. However, the Subscription Agreement contains a change in control
provision (the "5% Beneficial Owner Limit") that prohibits any holder of shares
of Series B Preferred Stock (except H. Irwin Levy) from converting any portion
of the Series B Preferred Stock if such conversion would result in such holder
being deemed the beneficial owner, in accordance with the provisions of Rule
13d-3 of the Exchange Act, of 4.99% or more of the then outstanding Common
Stock.
In addition, the Company has the right, at its sole option, to redeem
in whole or in part the Series B Preferred Stock (rather than convert it) if the
Conversion Price is $.77 or less when the holder of shares of the Series B
Preferred Stock seeks to convert such shares into Common Stock. If the Company
exercises its right to redeem shares of the Series B Preferred Stock, the
redemption price is payable in cash in an amount equal to 130% of the face
amount of such shares. See "DESCRIPTION OF SECURITIES - Series B Preferred
Stock." Such payment of the redemption price will reduce the amount of cash
available to the Company for other purposes. If the Company has insufficient
cash reserves to pay the redemption price, the Company may be unable to exercise
its right of redemption even if it otherwise desires to do so, and the holders
of shares of Series B Preferred Stock will convert such shares into Common Stock
at the applicable Conversion Price ($.77 or less) resulting in substantial
dilution to the holders of outstanding Common Stock.
Shares Eligible for Future Sale
Except as provided below, substantially all of the shares of the Common
Stock (18,670,477 shares as of the date of this Prospectus) are freely tradable
without restriction or further registration under the Securities Act, unless
such shares are held by "affiliates" of the Company as that term is defined in
Rule 144 promulgated under the Securities Act. Approximately 7,807,191 shares of
Common Stock are held by officers and directors and are deemed restricted
securities within the meaning of Rule 144. Restricted securities may be sold in
the public market only if they have been registered under the Securities Act or
if their sales qualify under the Rule 144 safe harbor or another available
exemption from the registration requirements of the Securities Act. All of the
Conversion Shares and Warrant Shares offered for sale pursuant to this
Prospectus will be freely tradable if sold pursuant to this Prospectus. R.
Daniel Smith, a director of the Company, is offering 1,000,000 shares of Common
Stock for sale pursuant to this Prospectus, and, therefore, such shares will no
longer be deemed restricted securities within the meaning of Rule 144. See
"SELLING STOCKHOLDERS."
New Products and Technological Changes
The markets for the Company's products are characterized by rapidly
changing technology, evolving industry standards and relatively short product
life cycles. The Company's ability to compete successfully will depend on its
ability to enhance its existing products and introduce new products on a timely
and cost-effective basis. There can be no assurance that the Company will be
successful in introducing such new products or enhancements. Delays in product
enhancements and developments or the failure of the Company's new products or
enhancements to gain market acceptance would have an adverse effect on the
Company's business and operating results. In addition, there can be no assurance
that new products or technologies developed by others, or the emergence of new
industry standards, will not render the Company's products or technologies
noncompetitive or obsolete. Despite testing, new products may be affected by
quality, reliability or interoperability problems, which could result in
returns, delays in collecting accounts receivable, unexpected service or
warranty expenses, reduced orders or a decline in the Company's competitive
position.
4
<PAGE> 6
Competition
The market for the Company's products is highly competitive. The
Company's competitors may offer systems at lower prices than those offered by
the Company and the Company must compete on the basis of product performance in
specific applications. Some of these competitors have greater financial,
manufacturing and marketing resources than those of the Company.
The Company's ability to compete successfully depends upon its ability
to continue to develop high performance products that obtain market acceptance
and can be sold at competitive prices. Although the Company believes that its
products have certain significant competitive advantages, there can be no
assurance that the Company will be able to compete successfully in the future or
that other companies may not develop products with better performance and thus
reduce the demand for the Company's products. As more companies enter the
markets in which the Company sells its products, the Company may encounter
increased price competition for such products which could materially and
adversely affect the Company's operating results. The Company's original
equipment manufacturer customers and other manufacturers could develop their own
disk arrays or could integrate competitive RAID disk arrays into their systems
rather than the Company's products, which could materially and adversely affect
the Company's operating results.
Recent Acquisitions and Unproven Track Record
The Company has acquired all of its operating assets within the last
two years. The success of the Company's recent business combinations will depend
in large part on the Company's ability to consolidate its operations, integrate
departments, systems and procedures and obtain business efficiencies, economies
of scale and related cost savings. The significant management challenges
presented by such consolidation and integration may prevent the desired cost
savings. There can be no assurance that the Company will be able to successfully
consolidate its business operations or achieve returns that would justify the
Company's investment in its acquired businesses.
Litigation
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. The plaintiffs seek compensatory
damages, punitive damages, and equitable relief for alleged interference with
the plaintiffs' alleged rights and for alleged breach of contract. Both cases
are in the preliminary stages. Counsel for the Company believes that the Company
has good defenses to both claims and that it will not incur any material
liability. 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. An unfavorable outcome in such litigation could have an adverse
effect on the Company.
Customers
The Company has no long-term purchase commitments from its customers
and customers generally may cancel their orders on 30 days' notice. Accordingly,
there can be no assurance that orders from existing customers, including the
Company's principal customers, will continue at their historical levels, or that
the Company will be able to obtain orders from new customers. In addition, there
can be no assurance that existing customers, including the Company's principal
customers, will not develop their own storage solutions internally and as a
result reduce or eliminate purchases from the Company. Loss of one or more of
the Company's principal customers, or cancellation or rescheduling of material
orders already placed, could materially and adversely affect the Company's
operating results.
5
<PAGE> 7
Risks Related to Patents and Proprietary Technology
The Company currently holds one patent and has one patent pending on
its products. In addition, the Company relies on a combination of trade secrets,
copyrights and trademarks and employee and third-party nondisclosure agreements
to protect its intellectual property rights. There can be no assurance that the
steps taken by the Company to protect its rights will be adequate to prevent
misappropriation of the Company's technology or to preclude competitors from
developing products with features similar to the Company's products.
Furthermore, there can be no assurance that, in the future, third parties will
not assert infringement claims against the Company or with respect to its
products for which the Company has indemnification obligations to certain of its
customers. Asserting the Company's rights or defending against third-party
claims could involve substantial expense, which the Company may not be able to
afford and which could have a material adverse effect on the Company's operating
results. In the event a third party were successful in a claim that one of the
Company's products infringed the third party's proprietary rights, the Company
may have to pay substantial damages or royalties, remove that product from the
marketplace or expend substantial amounts in order to modify the product so that
it no longer infringes such proprietary rights, any of which could have a
material adverse effect on the Company's operating results.
Dependence on Suppliers
The Company depends heavily on its suppliers to provide high quality
materials on a timely basis and at reasonable prices. Although many of the
components for the Company's products are available from numerous sources at
competitive prices, certain of the components used in the Company's products are
presently available to the Company from a limited number of suppliers or from a
single supplier. Furthermore, because of increased industry demand for many of
those components, their manufacturers may, from time to time, not be able to
make delivery of orders on a timely basis. In addition, manufacturers of
components on which the Company relies may choose, for numerous reasons, not to
continue to make those components, or the next generation of those components,
available to the Company.
The Company has no long-term supply contracts. There can be no
assurance that the Company will be able to obtain, on a timely basis, all of the
components it requires. If the Company cannot obtain essential components as
required, the Company could be unable to meet demand for its products, thereby
materially adversely affecting its operating results and allowing competitors to
gain market share. In addition, scarcity of such components could result in cost
increases and adversely affect the Company's operating results.
Possible Volatility of Stock Price
The Common Stock has experienced in the past, and could experience in
the future, substantial price volatility as a result of a number of factors,
including quarter to quarter variations in the actual or anticipated financial
results of the Company, announcements by the Company, its competitors or its
customers, government regulations, and developments in the industry. In
addition, the stock market has experienced extreme price and volume fluctuations
which have affected the market price of many technology companies in particular
and which have at times been unrelated to the operating performance of the
specific companies whose stock is traded. Broad market fluctuations and general
economic conditions may adversely affect the market price of the Common Stock.
Future Capital Needs; Uncertainty of Additional Funding
The Company has expended and will continue to be required to expend
substantial funds to continue research and development, and for other aspects of
its business. Although the Company believes that it has or has access to
resources sufficient to fund the operations of the Company for at least the next
twelve months, the Company may need or elect to raise additional capital. The
Company's capital requirements will depend on many factors, including the
problems, delays, expenses and complications frequently encountered by
technology companies; the progress of the Company's research, development and
product testing programs; the success of the Company's sales and marketing
programs; costs in filing, prosecuting, defending and enforcing intellectual
property rights; the extent and terms of any collaborative research,
manufacturing, marketing or other arrangements; and changes in economic,
regulatory or competitive conditions or the Company's planned business.
Estimates about the
6
<PAGE> 8
adequacy of funding for the Company's activities are based on certain
assumptions, including the assumption that research, development and testing
relating to the Company's products under development can be conducted at
projected costs and within projected time frames and that such products can be
successfully marketed.
To satisfy its capital requirements, the Company may seek to raise
funds in the public or private capital markets. The Company's ability to raise
additional funds in the public or private markets will be adversely affected if
the results of the Company's ongoing or future research and development programs
are not favorable. The Company may seek additional funding through corporate
collaborations and other financing vehicles. There can be no assurance that any
such funding will be available to the Company, or if available, that it will be
available on acceptable terms. If adequate funds are not available, the Company
may be required to curtail its operations significantly, or it may be required
to obtain funds through arrangements with future collaborative partners or
others that may require the Company to relinquish rights to some or all of its
technologies or products under development. If the Company is successful in
obtaining additional financing, the terms of the financing may have the effect
of diluting or adversely affecting the holdings or the rights of the holders of
Common Stock.
Future Acquisitions
The Company may pursue acquisitions of complementary technologies,
product lines or businesses. Future acquisitions by the Company could result in
dilutive issuances of equity securities and the incurrence of additional debt
and amortization expenses related to goodwill and intangible assets that could
adversely affect the Company's operating results. In addition, gross margins of
acquired products, necessary product or technology development expenditures and
other factors that may be involved in any such acquired business could result in
dilution to the Company's earnings. Acquisitions also may involve numerous other
risks, including difficulties in the assimilation of the operations and products
of the acquired business, dependence on new products and processes, the
diversion of management's attention from other business concerns, risks of
entering markets in which the Company has no or limited direct prior experience,
the potential loss of key employees of the acquired business and difficulties in
attracting additional key employees necessary to absorb added management
responsibilities. No assurance can be given as to the effect of any future
acquisition on the Company's business or operating results.
Year 2000 Concerns
The Company is presently reviewing the potential impact of Year 2000
compliance issues on its information systems and business operations, and has
preliminarily determined that any costs, problems or uncertainties associated
with the potential consequences of Year 2000 issues are not expected to have a
material impact on its future operations or financial condition. However, there
can be no assurance that no Year 2000 related operating problems or expenses
will arise with the Company's computer systems and software or in their
interface with the computer systems and software of the Company's vendors.
Anti-Takeover Provisions
The Company's Restated Certificate of Incorporation authorizes the
issuance of 1,000,000 shares of preferred stock (the "Preferred Stock"). The
Company's Board of Directors has the power to issue any or all of the shares of
Preferred Stock, including the authority to establish one or more classes or
series and to fix the powers, preferences, rights and limitations of such class
or series, without seeking shareholder approval. See "DESCRIPTION OF SECURITIES
- - Preferred Stock." Furthermore, as a Delaware corporation, the Company is
subject to Section 203 of the Delaware General Corporation Law regarding
"business combinations." This statutory provision and the power to issue
Preferred Stock may, in certain circumstances, deter or discourage takeover
attempts and other changes in control of the Company not approved by management
and the Board of Directors. As a result, the Company's shareholders may lose
opportunities to dispose of their shares at the higher prices generally
available in takeover attempts or that may be available under a merger proposal.
In addition, the statutory provision and the existence of Preferred Stock may
have the effect of permitting the Company's current management to retain its
position and place it in a better position to resist changes that shareholders
may wish to make if they are dissatisfied with the conduct of the business.
7
<PAGE> 9
RECENT DEVELOPMENTS
On April 23, 1998, nStor acquired all of the outstanding common stock
of Borg Adaptive Technologies, Inc. ("Borg"), a privately owned company
headquartered in Boulder, Colorado, and the developer of Adaptive RAID, a
patented next-generation RAID technology. The purchase price of such common
stock consisted of approximately $336,000 (of which $311,000 was used for the
retirement of debt) and the issuance of the Borg Warrants to purchase 400,000
shares of Common Stock. See "DESCRIPTION OF SECURITIES - Warrants."
SELLING STOCKHOLDERS
The following table sets forth certain information with regard to the
beneficial ownership of Common Stock by the Selling Stockholders (where
indicated by footnote, on a pro forma basis as if all 3,500 shares of the Series
B Preferred Stock had been converted into Common Stock on May 8, 1998), and the
number of shares of Common Stock to be offered by the Selling Stockholders (also
on the same pro forma basis where indicated). The actual number of shares of
Common Stock beneficially owned or offered may vary and will be reflected in a
supplement to this Prospectus. See "THE OFFERING."
<TABLE>
<CAPTION>
Percentage of
Shares of Shares of Shares of Common Stock
Common Stock Common Stock Common Stock Owned After the
Selling Stockholder Stock Owned Offered Hereby Retained Offering
- ----------------------- ----------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
CPR (USA) Inc. 980,106(1) 980,106 0 0
LibertyView Plus Fund 980,106(1) 980,106 0 0
LibertyView Fund, LLC 251,236(2) 251,236 0 0
H. Irwin Levy (3) 3,722,099(4) 1,256,182(5) 3,642,099 18.9%
David Stallmo 128,000(6) 128,000 0 0
Randy K. Hall 96,000(6) 96,000 0 0
Gerald Hohenstein 96,000(6) 96,000 0 0
Ambex Venture Group LLC 80,000(6) 80,000 0 0
R. Daniel Smith (7) 1,205,000(8) 1,000,000 205,000 1.1%
</TABLE>
- ------------
(1) Represents the maximum number of Conversion Shares and Private
Placement Warrant Shares in the aggregate that could be issued if the
Selling Stockholder converted all of its shares of Series B Preferred
Stock into Common Stock as of May 8, 1998. This number reflects the 5%
Beneficial Owner Limit, which prevents certain of the Selling
Stockholders from converting any portion of the Series B Preferred
Stock if such conversion would result in such holder being deemed the
beneficial owner of 4.99% or more of the then issued and outstanding
Common Stock. See "RISK FACTORS - Indefinite Number of Shares Issuable
Upon Conversion of Preferred Stock and Company's Right of Redemption."
The actual number of Conversion Shares to be received by such Selling
Stockholder, which may be significantly more or less than the number
indicated, will be reflected in a supplement to (or amendment of) this
Prospectus following the conversion of such Series B Preferred Stock.
(2) Represents 235,236 shares issuable upon conversion of Series B
Preferred Stock as if all such shares were converted as of May 8, 1998
and 16,000 shares issuable upon exercise of Private Placement Warrants.
(3) Mr. Levy is a director of the Company.
(4) Includes 558,332 shares issuable upon the exercise of options which are
currently exercisable and includes 80,000 shares issuable upon exercise
of Private Placement Warrants. Does not include 1,176,182 shares
issuable upon conversion of Series B Preferred Stock held pursuant to a
lock-up period of six (6) months ending October 15, 1998.
(5) Represents 1,176,182 shares issuable upon conversion of Series B
Preferred Stock as if all such shares were converted as of May 8, 1998
and 80,000 shares issuable upon exercise of Private Placement Warrants.
(6) Represents shares issuable upon exercise of Borg Warrants.
(7) Mr. Smith is a former executive officer and a current director of the
Company.
(8) Includes 200,000 shares issuable upon the exercise of options which are
currently exercisable.
8
<PAGE> 10
USE OF PROCEEDS
If all of the Warrants are exercised, the Company will receive proceeds
in the amount of $970,000. Such proceeds will be contributed to the working
capital of the Company and used for general corporate purposes. The Company will
not receive any proceeds from the sale of the Shares by the Selling
Stockholders.
DESCRIPTION OF SECURITIES
The following description of the Company's capital stock is not
complete and is a subject in all respects to the Delaware General Corporation
Law and to the provisions of the Company's Restated Certificate of
Incorporation, as amended (the "Charter"), and Bylaws.
The authorized capital stock of the Company consists of 40,000,000
shares of Common Stock having a par value of $.05 per share and 1,000,000 shares
of Preferred Stock having a par value of $.01 per share.
Preferred Stock
The Board of Directors is permitted to issue shares of Preferred Stock
in one or more series and to fix the relative rights, preferences and
limitations of each series. Among such rights, preferences and limitations are
dividend rates, provisions of redemption, rights upon liquidation, conversion
privileges and voting powers. Should the Board of Directors elect to exercise
this authority, the rights and privileges of holders of shares of Common Stock
could be made subject to the rights and privileges of any such series of
Preferred Stock. The issuance of Preferred Stock could have the effect of making
it more difficult for a third party to acquire, or discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company.
Series B Preferred Stock
General. On or about April 16, 1998, the Company issued and sold in a
private placement to certain accredited investors a total of 3,500 shares of
Series A Preferred Stock at a purchase price of $1,000 per share, resulting in
gross proceeds to the Company of $3,500,000.
Exchange of Series A Preferred Stock for Series B Preferred Stock. On
June 1, 1998, the Company created a new class of Preferred Stock designated
Series B Preferred Stock, which is identical to the Series A Preferred Stock
originally issued with the single exception that the Series B Preferred Stock
may, under certain limited circumstances described below, be redeemed by the
Company for cash in the amount of 130% of the purchase price of the Series B
Preferred Stock. On June 9, 1998, each holder of the Series A Preferred Stock
exchanged one (1) share of Series B Preferred Stock for each share of Series A
Preferred Stock owned of record by such holder pursuant to a Share Exchange
Agreement dated June 9, 1998 between the Company and each holder. Upon such
exchange, the holders of shares of Series B Preferred Stock no longer have any
rights under the Series A Preferred Stock, and on June 12, 1998, the Company
filed a Certificate of Elimination with the Secretary of State of Delaware to
formally eliminate any reference to the Series A Preferred Stock from the
Company's Charter.
Conversion. Each holder of Series B Preferred Stock has the option to
convert any or all of such shares into Shares of Common Stock from time to time
beginning on the earlier to occur of: (i) the date upon which a registration
statement covering such shares of Common Stock is declared effective by the SEC,
or (ii) July 15, 1998. See "THE OFFERING," "SELLING STOCKHOLDERS," "PLAN OF
DISTRIBUTION," and "RISK FACTORS - Indefinite Number of Shares Issuable Upon
Conversion of Preferred Stock and Company's Right of Redemption."
On April 16, 2000, all shares of the Series B Preferred Stock then
outstanding will automatically be converted into Common Stock provided that all
shares of Common Stock issuable upon conversion of the Series B
9
<PAGE> 11
Preferred Stock are (i) authorized and reserved for issuance, (ii) registered
under the Securities Act for resale, and (iii) eligible to be traded on Amex or
another principal national securities market or system.
Other Rights and Preferences. Each holder of Series B Preferred Stock
is entitled to a dividend of eight percent (8%) on such Series B Preferred Stock
payable only on the conversion date in either (i) cash, or (ii) issuance of
additional shares of Common Stock at the discretion of the Board of Directors.
Each holder of shares of Series B Preferred Stock is entitled to a liquidation
preference equal to the amount per share of Series B Preferred Stock that would
have been payable had each share been converted into Common Stock immediately
prior to an event of liquidation, dissolution or winding up of the Company.
Except as otherwise provided by applicable law, each holder of shares of Series
B Preferred Stock shall be entitled to vote on all matters and shall be entitled
to that number of votes equal to the largest number of shares of Common Stock
into which such holder's shares of Series B Preferred Stock could be converted
at the record date for determining stockholders entitled to vote.
Conversion Price. The conversion price for the Series B Preferred Stock
is the lesser of (i) $1.44, or (ii) seventy-seven percent (77%) of the average
closing bid price of the Common Stock for the three (3) trading days immediately
preceding the date of conversion. The number of Conversion Shares issuable
equals the purchase price of the Series B Preferred Stock ($1,000 per share)
divided by the Conversion Price, multiplied by the number of shares of Series B
Preferred Stock converted. The number of Conversion Shares will increase if the
market price of the Common Stock decreases and will decrease if the market price
of the Common Stock increases. The table below illustrates how changes in the
market price of the Common Stock could affect the number of Conversion Shares
issuable without regard to the 5% Beneficial Owner Limit or the Company's right
of redemption:
<TABLE>
<CAPTION>
Assumed Conversion Number of Conversion As % of Common Stock
Price (1) Shares Issuable (2) Outstanding (3)
--------- ------------------- ---------------
<S> <C> <C>
$0.25 14,000,000 42.9%
$0.50 7,000,000 27.3%
$0.75 4,666,667 20.0%
$1.00 3,500,000 15.8%
$1.25 2,800,000 13.0%
$1.44 (4) 2,430,556 11.5%
</TABLE>
- ---------------
(1) The Conversion Price applicable to any conversion equals the lesser of
(i) $1.44 or (ii) seventy-seven percent (77%) of the average closing
bid price of the Common Stock for the three (3) trading days
immediately preceding the date of conversion.
(2) $1,000 divided by the Conversion Price, multiplied by the number of
shares of Series B Preferred Stock being converted (3,500).
(3) Assumes that the number of shares outstanding at the time of conversion
equals 18,670,477 shares of Common Stock issued and outstanding as of
the date of this Prospectus, plus the number of Conversion Shares
issuable at the Conversion Price indicated.
(4) The maximum Conversion Price under the terms of the Series B Preferred
Stock.
The Conversion Price is subject to adjustment for customary
anti-dilution events such as stock splits, stock dividends, reorganizations, and
certain mergers effecting the Common Stock. If a conversion occurs when the
Common Stock is involuntarily delisted from Amex or the Company receives a
delisting letter and cannot certify to the satisfaction of the holders of the
Series B Preferred Stock that the Company is in fact in compliance with the
listing requirements, the Conversion Price will equal the lesser of (i) $1.44,
or (ii) seventy-two percent (72%) of the average closing bid price for the last
three (3) trading days prior to the termination of trading.
Right of Redemption by Company. If the Company receives a notice of
conversion from a holder of shares of the Series B Preferred Stock when the
Conversion Price is $.77 or less, the Company, may, at its sole option, redeem
(rather than convert) all or a portion of the shares of Series B Preferred Stock
sought to be converted. If the Company exercises its right to redeem shares of
the Series B Preferred Stock, the redemption price is payable in cash in an
amount equal to the greater of (i) 130% of the purchase price of such shares, or
(ii) the closing bid price for the
10
<PAGE> 12
Common Stock on the date of the Company's receipt of the notice of conversion
multiplied by the number of shares of Common Stock that would be issuable upon
conversion of the shares of Series B Preferred Stock pursuant to such notice of
conversion.
Agreement with Director Relating to the Series B Preferred Stock. H.
Irwin Levy, a Director and principal stockholder of the Company and one of the
holders of shares of the Series B Preferred Stock, has agreed to a lockup period
of six (6) months during which he may not convert any of his shares of Series B
Preferred Stock.
Registration of Shares. Under a Registration Rights Agreement dated
April 14, 1998, the Company agreed to register under the Securities Act, 200% of
the number of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock on May 8, 1998 (4,116,638 shares based upon a Conversion Price
of approximately $0.85). The Company cannot determine the exact number of
Conversion Shares that will ultimately be issued. The exact number of Conversion
Shares issuable will depend on the market price at the time of conversion. The
number of Conversion Shares will increase if the market price of the Common
Stock decreases and will decrease if the market price of the Common Stock
increases. Therefore, the number of Conversion Shares may be more or less than
the number offered by this Prospectus. The Company is obligated to maintain the
effectiveness of the registration of the Conversion Shares under the Securities
Act until the earlier of (i) the date that all of the Conversion Shares and
Private Placement Warrant Shares have been sold under such registration, (ii)
the date that the Conversion Shares and Private Placement Warrant Shares may be
sold under the provisions of Rule 144, or (iii) three (3) years after the
effective date of the Registration Statement.
Stockholder Approvals Obtained. Pursuant to the listing rules of Amex
and the Subscription Agreement, on June 8, 1998, at the Company's 1998 Annual
Meeting, the stockholders approved (i) the issuance at below market prices of
more than 20% of the Common Stock outstanding on April 16, 1998, (ii) the
issuance of more than 5% of the Common Stock to all officers, directors and key
employees, in the aggregate, in any one year, and (iii) the issuance of more
than 10% of the Common Stock to all officers, directors and key employees, in
the aggregate, in any five year period. The Company also obtained stockholder
approval of the Charter Amendment such that a sufficient number of shares of
Common Stock will be available on any given date to effect the conversion of all
outstanding shares of Series B Preferred Stock .
Warrants
In connection with the original private placement of the Company's
Preferred Stock, the Company issued Private Placement Warrants to acquire
280,000 shares of Common Stock to the holders of shares of the Company's
Preferred Stock (now holders of Series B Preferred Stock) at an exercise price
of $1.50 per share. The Private Placement Warrants are currently exercisable and
expire on April 14, 2001. The Company is obligated to maintain the effectiveness
of the registration of the Private Placement Warrant Shares under the Securities
Act until the earlier of (i) the date that all of the Conversion Shares and
Private Placement Warrant Shares have been sold under such registration, (ii)
the date that the Conversion Shares and Private Placement Warrant Shares may be
sold under the provisions of Rule 144, or (iii) three (3) years after the
effective date of the registration statement.
In connection with the Borg acquisition, the Company issued Borg
Warrants to acquire 400,000 shares of Common Stock to certain key employees and
principal stockholders of Borg at an exercise price of $1.38 per share.
The Borg Warrants are currently exercisable and expire on December 26, 2000.
11
<PAGE> 13
PLAN OF DISTRIBUTION
Conversion Shares
The Company will issue Conversion Shares upon the conversion, from time
to time, of the outstanding shares of Series B Preferred Stock pursuant to the
Subscription Agreement.
Warrant Shares
The Company will issue Warrant Shares, from time to time, upon the
exercise of the Warrants by the holders thereof. The Company will receive from
such holders the exercise price of the Warrants upon such exercise. See
"DESCRIPTION OF SECURITIES - Warrants."
General
The Company will not receive any proceeds from the resale of the
Shares. The Shares are being registered for reoffers and resales by the Selling
Stockholders for their own accounts. Such shares of Common Stock may be sold
from time to time by any of the Selling Stockholders or by pledges, donees,
transferees or other successors in interest, directly to purchasers, in one or
more transactions (which may involve one or more block transactions) on Amex, in
sales occurring in the public market outside of Amex in separately negotiated
transactions or in a combination of such transactions, at market prices
prevailing at the time of such sale, at prices related to such prevailing prices
or at prices otherwise negotiated.
The Selling Stockholders may effect such transactions by selling the
shares to or through broker-dealers and such broker-dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Stockholders and/or the purchasers of the shares for whom such
broker-dealers may act as agent (which compensation may be less than or in
excess of customary commissions). In addition, any securities covered by this
Prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule
144 rather than pursuant to this Prospectus.
In order to comply with the securities laws of certain states, if
applicable, the Shares may be sold in such jurisdictions only through registered
or licensed brokers or dealers.
The Selling Stockholders and any broker-dealers that participate in the
distribution of the shares may be deemed "underwriters" within the meaning of
Section 2(11) of the Securities Act and any commissions received by them and any
profit on the resale of the shares sold by them may be deemed to be underwriting
discounts and commissions under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Shares may not simultaneously engage
in market making activities with respect to the Common Stock for a period of one
(1) business day prior to the commencement of such distribution. In addition and
without limiting the foregoing, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M. These provisions may
limit the timing of purchases and sales of shares of Common Stock by the Selling
Stockholders.
Upon the Company being notified by a Selling Stockholder that any
material arrangement has been entered into with a broker-dealer for the sale of
shares of Common Stock through a block trade, a special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, a
supplemental prospectus will be filed, if required, pursuant to Rule 424(c) of
the Securities Act, disclosing (i) the name of each such Selling Stockholder and
of the participating broker-dealer(s), (ii) the number of shares involved, (iii)
the price at which such shares were sold, (iv) the commissions paid or discounts
or concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this Prospectus and (vi) other facts
material to the transaction.
12
<PAGE> 14
The Company is required to maintain the effectiveness of the
Registration Statement until such time as all of the Shares have been disposed
of in accordance with the intended methods of disposition set forth in the
Registration Statement or the Shares are no longer subject to volume or manner
of sale restrictions under the securities laws. There can be no assurances that
any of the Selling Stockholders will sell any or all of the shares of Common
Stock offered by them hereunder.
LEGAL MATTERS
The validity of the issuance of the shares being offered hereby will be
passed upon for the Company by Holland & Knight LLP, One East Broward Boulevard,
Ft. Lauderdale, Florida 33301.
EXPERTS
The financial statements incorporated by reference in this Prospectus
have been audited by BDO Seidman, LLP, independent certified public accountants,
to the extent and for the periods set forth in their report incorporated herein
by reference, and are incorporated herein in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
13
