SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
__X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________________________
Commission File Number: 0-8354
nSTOR TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 95-2094565
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 Technology Park
Lake Mary, Florida 32746
(Address of principal executive office)
(407) 829-3500
(Registrant's telephone number)
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 _____
Number of shares outstanding of the Registrant's Common Stock,
par value $.05 per share, as of October 31, 1998: 19,065,426
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nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September
30, 1998 (Unaudited) and December 31, 1997 3
Consolidated Statements of Operations (Unaudited)
for the three and nine months ended
September 30, 1998 and 1997 4
Consolidated Statements of Stockholders' Equity
for the nine months ended September 30, 1998
(Unaudited) 5
Consolidated Statements of Cash Flows (Unaudited)
for the nine months ended September 30, 1998
and 1997 6-7
Notes to Consolidated Financial Statements
(Unaudited) 8-16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 16-25
Item 3. Not applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26-28
Item 3, 4, and 5 - Not Applicable
Item 6. Exhibits and Reports on Form 8-K 29-30
SIGNATURES 30
2
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
Sept. 30, Dec. 31,
ASSETS (Note 3) 1998 1997
---------------- --------- ---------
Current assets:
Cash and cash equivalents:
Unrestricted $ 189 $ 61
Restricted 521 1,024
Accounts receivable (Note 2) 4,056 3,863
Inventories (Note 2) 2,497 3,577
Prepaid expenses and other 631 262
------- -------
Total current assets 7,894 8,787
Property and equipment, net of $1,100 and $457
accumulated depreciation (Note 2) 1,871 2,060
Goodwill and other intangible assets, net of $817
and $470 accumulated amortization (Note 2) 6,075 5,915
------- -------
$15,840 $16,762
LIABILITIES ======= =======
-----------
Current liabilities:
Borrowings (Note 3) $ 2,185 $ 3,445
Accounts payable and other 4,377 6,568
Royalty liability 208 208
------- -------
Total current liabilities 6,770 10,221
Long-term debt (Note 3) 5,582 1,504
------- -------
Total liabilities 12,352 11,725
------- -------
Commitments and contingencies
STOCKHOLDERS' EQUITY
--------------------
Preferred stock, $.01 par; shares authorized 1,000,000;
shares issued and outstanding at September 30, 1998-
Series A, Convertible Preferred Stock, 1,667;
Series B, Convertible Preferred Stock, 3,300;
Series C, Convertible Preferred Stock, 1,500;
none outstanding at December 31, 1997 - -
Common stock, $.05 par; shares authorized 40,000,000;
19,065,426 and 18,670,477 shares issued and outstanding
at September 30, 1998 and December 31, 1997, respectively 952 934
Additional paid-in capital 37,828 30,499
Deficit (35,292) (26,396)
------- -------
Total stockholders' equity 3,488 5,037
------- -------
$15,840 $16,762
======= =======
See accompanying notes to consolidated financial statements.
3
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nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
----------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
Sales $ 5,826 $ 5,950 $15,170 $20,527
Cost of sales 5,015 4,278 12,700 14,127
------- ------- ------- -------
Gross profit 811 1,672 2,470 6,400
------- ------- ------- -------
Operating expenses:
Selling, general and administrative 1,945 2,058 6,638 6,205
------- ------- ------- -------
Research and development:
nStor 582 672 1,515 2,096
Borg Adaptive Technologies
(Note 5) 166 - 382 -
------- ------- ------- -------
Total research and development 748 672 1,897 2,096
------- ------- ------- -------
Depreciation and amortization 361 129 991 503
------- ------- ------- -------
Total operating expenses 3,054 2,859 9,526 8,804
------- ------- ------- -------
Loss from operations (2,243) (1,187) (7,056) (2,404)
Interest income 16 33 56 103
Interest expense (242) (66) (723) (111)
------- ------- ------- -------
Net loss (2,469) (1,220) (7,723) (2,412)
Preferred stock dividends 68 - 128 -
Embedded dividend attributable
to beneficial conversion
privilege of Convertible
Preferred Stock (Note 6) 323 - 1,045 -
------- ------- ------- -------
Net loss applicable to common stock ($ 2,860) ($ 1,220) ($ 8,896) ($ 2,412)
======= ======= ======= =======
Loss per common share ($.15) ($.07) ($.47) ($.13)
======= ======= ======= =======
Average number of common
shares used in com-
puting loss per
common share 18,852,103 18,670,477 18,732,882 18,670,477
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
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nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
Preferred Addi-
Common Stock Stock tional
----------------- ------------- Paid-In
Shares Amount Shares Amount Capital Deficit Total
---------- ------ ------ ------ ------- ------- -------
Balances, December
31, 1997 18,670,477 $934 - - $30,499 ($26,396) $ 5,037
Net loss for the
nine months ended
September 30, 1998 (7,723) (7,723)
Issuance of Convert-
ible Preferred
Stock in private
placements:
Series A 1,667 1,000 1,000
Series B,
less $261 of
issuance cost 3,500 3,237 3,237
Series C 1,500 1,500 1,500
Issuance of common
stock in connection
with conversion
of Convertible
Preferred Stock,
Series B 394,949 18 (200) (18) -
Preferred stock
dividends (128) (128)
Embedded dividend
attributable to
beneficial conversion
privilege of Convert-
ible Preferred Stock,
Series B 1,045 (1,045) -
Issuance of warrants
to purchase common
stock made in
connection with:
Long term debt 417 417
Acquisition 148 148
---------- ---- ------ ------ ------- ------- -------
Balances, September
30, 1998 19,065,426 $952 6,467 - $37,828 ($35,292) $ 3,488
========== ==== ====== ====== ======= ======= =======
See accompanying notes to consolidated financial statements.
5
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nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months
Ended Sept. 30,
-------------------
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 7,723) ($ 2,412)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 991 503
Provision for inventory obsolescence 995 -
Provision for uncollectible accounts receivable 561 -
Amortization of deferred loan costs 94 -
Changes in assets and liabilities net
of effects from acquisition:
(Increase) decrease in accounts receivable (754) 208
Decrease (increase) in inventories 85 (2,938)
Increase in prepaid expenses and other (46) (123)
Decrease in accounts payable, accrued
expenses and other liabilities (2,315) (1,400)
-------- --------
Net cash used by operating activities (8,112) (6,162)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition (379) -
Additions to property and equipment (434) (1,090)
-------- --------
Net cash used by investing activities (813) (1,090)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 31,427 11,283
Repayment of borrowings (26,109) (7,530)
Issuance of Convertible Preferred Stock, net 3,237 -
Decrease (increase) in restricted cash and cash
equivalents 503 (1,004)
Dividends paid (5) -
-------- --------
Net cash provided by financing activities 9,053 2,749
-------- --------
Net increase (decrease) in unrestricted cash and
cash equivalents during the period 128 (4,503)
Unrestricted cash and cash equivalents at the
beginning of the period 61 4,619
-------- --------
Unrestricted cash and cash equivalents at the
end of the period $ 189 $ 116
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 528 $ 64
======== ========
Income taxes $ 3 $ 239
======== ========
NON-CASH INVESTING ACTIVITIES:
Acquisition (Note 5):
Property and equipment $ 20 $ -
Intellectual assets 507 -
Warrants issued to seller (148) -
-------- --------
Cash paid $ (379) $ -
======== ========
6
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nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (concluded)
Nine Months
Ended Sept. 30,
-------------------
1998 1997
-------- --------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
NON-CASH FINANCING ACTIVITIES:
Dividends:
Preferred stock dividends $ 123 $ -
Embedded dividend attributable to beneficial
conversion privilege of Convertible
Preferred Stock, Series B 1,045 -
-------- --------
$ 1,168 $ -
======== ========
Conversion of borrowings into equity (Note 3):
Conversion of debenture into
Convertible Preferred Stock, Series A $ 1,000 $ -
Conversion of short-term borrowings into
Convertible Preferred Stock, Series C 1,500 -
-------- --------
$ 2,500 $ -
======== ========
Deferred loan costs (Note 3):
Deferred loan costs arising from issuance of
warrants under subordinated loans $ 417 $ -
======== ========
See accompanying notes to consolidated financial statements.
7
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nSTOR TECHNOLOGIES, INC.
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. and all wholly-owned subsidiaries (collectively,
the "Company"). Significant intercompany balances and transactions
have been eliminated in consolidation.
In the opinion of management, the unaudited consolidated financial
statements furnished herein include all adjustments, consisting
only of recurring adjustments necessary for a fair presentation of
the results of operations for the interim periods presented. These
interim results of operations are not necessarily indicative of
results for the entire year. The consolidated financial statements
contained herein should be read in conjunction with the
consolidated financial statements and related notes contained in
the Company's 1997 Annual Report on Form 10-K ("Form 10-K").
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required for complete financial statements.
Certain items in the consolidated financial statements as of
September 30, 1997 and December 31, 1997 have been reclassified to
conform with the current presentation.
Business
The Company is principally engaged as a manufacturer and supplier
of information storage solutions, including external RAID
(Redundant Array of Independent Disks) subsystems and data storage
enclosures, storage management hardware and software as well as
digital media products.
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.
8
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Revenue Recognition
Sales revenue is recognized upon shipment provided that there are
no significant post-sale obligations, except for normal warranty
claims, and the collectibility is reasonably assured. During the
periods presented in the accompanying Consolidated Statements of
Operations, there were no significant post-sales obligations except
for normal warranty obligations.
Warranty Costs
Warranty costs are provided on the basis of estimated net future
warranty obligations related to products sold.
Research and Development Costs
Research and development costs are expensed as incurred.
Loss Per Common Share
The effect of potentially dilutive common share equivalents is
anti-dilutive due to the net loss and therefore is not reflected on
the Statements of Operations.
(2) BALANCE SHEET COMPONENTS (in thousands)
Substantially all assets are pledged as collateral for
indebtedness. See Note 3 to Consolidated Financial Statements.
Sept.30, Dec.31,
1998 1997
------- -------
Accounts receivable
Trade receivables $ 4,167 $ 4,218
Less allowance for
doubtful accounts (256) (500)
------- -------
3,911 3,718
Other receivables 145 145
------- -------
$ 4,056 $ 3,863
======= =======
9
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Sept.30, Dec.31,
1998 1997
------- -------
Inventories
Raw materials $ 2,264 $ 3,299
Work-in-process 120 -
Finished goods 113 278
------- -------
$ 2,497 $ 3,577
======= =======
Inventories 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.
Property and Equipment
Computer equipment $ 1,165 $ 809
Computer software 944 907
Furniture, fixtures and
office equipment 287 286
Leasehold improvements 332 283
Other 243 232
------- -------
2,971 2,517
Less accumulated depreciation (1,100) (457)
------- -------
$ 1,871 $ 2,060
======= =======
Property and equipment are stated at cost. Depreciation is
provided under the straight-line method over the estimated useful
lives, principally three to five years.
Goodwill and Other Intangible Assets
Goodwill $ 6,038 $ 6,038
Intellectual assets 811 347
Other 43 -
------- -------
6,892 6,385
Less accumulated amortization (817) (470)
------- -------
$ 6,075 $ 5,915
======= =======
10
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Goodwill, representing the excess purchase price over the fair
value of assets acquired, is carried at cost and amortized on a
straight line basis over fifteen years, the estimated useful life.
Intellectual assets consisting of trademarks and proprietary
technology are carried at cost and are being amortized on a
straight-line basis over ten to fifteen years, the estimated useful
life.
(3) BORROWINGS
Current
The Company's short-term borrowings consisted of (in thousands):
Sept.30, Dec.31,
1998 1997
------- -------
Asset based revolving credit facility
(the "New Revolver") $ 1,982 $ -
Asset based revolving bank credit facility
(the "Revolver") - 3,245
Other 203 200
------- -------
Total current borrowings $ 2,185 $ 3,445
======= =======
On August 3, 1998, the Company obtained the New Revolver, an asset
based revolving credit facility consisting of borrowings based on
the lesser of $5 million or 80% of the Company's eligible accounts
receivable, as defined, less certain reserves. The New Revolver
bears interest, payable monthly, based on prime plus 2% (10 1/4% at
September 30, 1998), is guaranteed by nStor Technologies, Inc. and
its operating subsidiary and matures on August 3, 2000. The
Company pays a facility fee equal to 1% per annum on the total
facility of $5 million. Advances under the New Revolver are
collateralized by substantially all assets of the Company,
including $.5 million reflected as Restricted Cash at September 30,
1998. The loan agreement provides for certain financial covenants
including current ratio and net worth requirements, limitations on
operating losses and restrictions on the incurrence of additional
debt and capital expenditures.
Proceeds from the New Revolver were used to repay the Company's
previous Revolver, which matured on July 31, 1998, as extended.
The Revolver bore interest, payable monthly, based on LIBOR plus
3%, and was guaranteed by nStor Technologies, Inc. and its
operating subsidiary. Advances under the Revolver were
collateralized by substantially all assets of the Company,
including approximately $1 million reflected as Restricted Cash at
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December 31, 1997. The loan agreement provided for certain
restrictions on the payment of dividends, the incurrence of
additional indebtedness and capital expenditures, and required
minimum working capital, tangible net worth and other financial
covenants. The Company had not consistently been in compliance
with certain financial covenants which resulted in amendments to
the Revolver in December 1997 and February 1998. Among other
modifications, the amendments waived compliance with the financial
covenants and reduced the original maximum loan amount from $7
million to $3 million as of June 30, 1998, with gradual reductions
to $2.4 million thereafter until maturity.
Long-Term Debt
The Company's long-term debt consisted of (in thousands):
Sept.30, Dec.31,
1998 1997
------- -------
Subordinated loans $ 5,000 $ 950
Convertible notes 582 554
------- -------
Total long-term borrowings $ 5,582 $ 1,504
======= =======
Subordinated Loans
At December 31, 1997, the Company's long-term debt included
$950,000 due to H. Irwin Levy ("Mr. Levy"), Chairman of the Board
of Directors and a principal stockholder of the Company. During
the nine months ended September 30, 1998, Mr. Levy advanced an
additional net amount of $2,553,000 (consisting of $5,093,000
advanced, less $2,540,000 repaid) to the Company. During the
second quarter of 1998, Mr. Levy sold participation interests in
$750,000 of these loans to unrelated private investors. Effective
September 30, 1998, the company issued 8% Convertible Preferred
Stock, Series C (the "Series C Preferred Stock") with a stated
value of $1.5 million to Mr. Levy in satisfaction of $1.5 million
of Mr. Levy's loans, leaving an outstanding balance due to Mr. Levy
of $1,250,000 as of September 30, 1998 (the "Director Loan") (see
Note 6 to Consolidated Financial Statements for a description of
the Series C Preferred Stock). In March 1998, three private
investors loaned the Company an aggregate of $3 million (together
with the $1,250,000 Director Loan and the $750,000 of loans sold by
Mr. Levy, hereinafter referred to as the "Subordinated Loans").
The Subordinated Loans bear interest at 10% per annum, payable
monthly, mature on September 5, 2000, as extended, are subordinated
to the New Revolver and are collateralized by substantially all
assets of the Company.
On October 28, 1998, the Company received an additional $500,000
from Mr. Levy in exchange for Series C Preferred Stock with a
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stated value of $500,000.
In connection with Mr. Levy's 1997 loans, the Company issued
warrants to Mr. Levy to purchase 65,000 shares of the Company's
common stock at an exercise price of $2.35 per share, exercisable
on the dates of issuance, and expiring on October 1, 2000. The
warrants were valued at $47,000 on the date of issuance, which is
being amortized to interest expense on a pro-rata basis with
$18,000 recorded as interest expense for the nine months ended
September 30, 1998.
In connection with the Subordinated Loans, warrants were issued to
purchase an aggregate of 1,666,668 shares of the Company's common
stock (including 666,666 to Mr. Levy of which 250,000 warrants were
subsequently transferred to unrelated private investors in
connection with Mr. Levy's sale of participation interests) at an
exercise price of $1.50 per share, exercisable on the date of grant
and expiring on March 5, 2001. Effective September 22, 1998, the
maturity date for the Subordinated Loans was extended for one year
from September 5, 1999 to September 5, 2000. As consideration for
the extension, the Company replaced the previously issued warrants
with new warrants under identical terms but with exercise prices as
follows: (i) warrants to purchase 750,000 shares exercisable at
$1.00 per share and (ii) warrants to purchase 916,668 shares
exercisable at $1.25 per share. The value of the original and
replacement warrants on their respective dates of issuance
aggregated $417,000 and were recorded as deferred loan costs, of
which $41,000 and $94,000 has been amortized as interest expense
for the three and nine months ended September 30, 1998,
respectively.
Convertible Notes
The Convertible Notes have a face amount of $400,000, have been
discounted based on an effective interest rate of 12%, include
accrued interest of $212,000 and $206,000 at September 30, 1998 and
December 31, 1997, respectively, mature in 2000 and are convertible
into 160,000 shares of common stock of the Company (based on one
common share for each $2.50 of face amount).
Debenture
On July 7, 1998, the Company borrowed $1 million from a private
investor under an 8% Convertible Subordinated Debenture (the
"Debenture"), which bore interest at 8% per annum, was payable upon
maturity on September 25, 1998, as extended, and was convertible
into convertible preferred stock. In September 1998, the Debenture
was converted into 1,667 shares of the Company's 8% Convertible
Preferred Stock, Series A (the "Series A Preferred Stock") (see
Note 6 to Consolidated Financial Statements for a description of
the Series A Preferred Stock).
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(4) INCOME TAXES
As of December 31, 1997, the Company had accumulated net operating
loss carryforwards (the "NOL's") for regular federal income tax
purposes of approximately $8.4 million principally expiring in
2012, for which no financial statement benefit had been recognized.
In addition, the Company has research and development tax credit
carryforwards of approximately $637,000 which expire from 2002
through 2012 and in conjunction with the Alternative Minimum Tax
("AMT") rules, the Company has available AMT credit carryforwards
of approximately $238,000, at December 31, 1997, which may be used
indefinitely to reduce regular federal income taxes.
(5) ACQUISITION
Effective April 23, 1998, the Company acquired all 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 consisted of $379,000 in cash,
including acquisition costs, and warrants to purchase 400,000
shares of the Company's common stock at $1.38 per share exercisable
on May 1, 1998 and expiring on December 26, 2000, valued at
$148,000 as of the date of acquisition. In accordance with the
purchase agreement, the sellers of Borg (currently employees of the
Company) shall receive a royalty payment equal to 5% of the gross
sales, as defined, of a certain product for as long as the product
is sold. The Company is not obligated to continue development or
sale of the product if sales of such product are not sufficiently
profitable, as determined by the Company in its sole discretion.
The acquisition was accounted for under the purchase method of
accounting with assets acquired (principally intellectual assets)
recorded at estimated fair values and operating results of the
acquired business included in the Company's consolidated financial
statements effective April 23, 1998.
(6) 8% CONVERTIBLE PREFERRED STOCK
Series B
Effective April 14, 1998, the Company received $3.5 million in cash
(including $1 million from Mr. Levy), less $.3 million in issuance
costs, from a private placement of 8% Convertible Preferred Stock,
Series B (the "Series B Preferred Stock"). The Series B Preferred
Stock was convertible into common stock, on various dates through
April 2000, at a conversion price equal to the lesser of $1.44 per
share or 77% of the market price at the date of conversion. At
closing, the Company issued warrants to purchase 280,000 shares of
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the Company's common stock (including 80,000 to Mr. Levy),
exercisable at any time through April 2001 at an exercise price of
$1.50 per share.
In March 1997, the Securities and Exchange Commission Staff (the
"Staff") announced its position on accounting for preferred stock
which is convertible into common stock at a discount from the
market rate at the date of issuance. The Staff indicated that a
preferred stock dividend attributable to such a beneficial
conversion privilege should be recorded for the difference between
the conversion price and the quoted market price of common stock at
the date of issuance. Accordingly, in addition to recording an 8%
dividend on the Company's Series B Preferred Stock of $68,000 and
$128,000 for the three and nine months ended September 30, 1998,
respectively, the Company has recorded $323,000 and $1,045,000,
respectively, as an embedded dividend attributable to the
beneficial conversion privilege.
During the three months ended September 30, 1998, $200,000 of the
Series B Preferred Stock held by unrelated private investors was
converted into 394,949 shares of the Company's common stock.
On October 30, 1998, the Company redeemed $2.3 million of the
Company's Series B Preferred Stock held by unrelated private
investors for approximately $2.5 million in cash (including a 5%
premium of $115,000 and accrued dividends of $102,000) and warrants
to purchase 300,000 shares of the Company's common stock,
exercisable upon issuance at $1.00 per share and expiring in
October 2001. In conjunction with this redemption, effective
October 28, 1998, the Company issued Series C Preferred Stock with
a stated value of $1 million in exchange for the remaining $1
million of Series B Preferred Stock which was held by Mr. Levy.
See below for a description of the terms of the Series C Preferred
Stock.
As a result of these two transactions, all of the Company's
convertible preferred stock which was based on a variable
conversion price has been redeemed either for cash or with
preferred stock that is based on a fixed conversion price.
Series A
The Series A Preferred Stock with a stated value of $1 million as
of September 30, 1998 accrues dividends at 8% per annum, payable
quarterly, is convertible into shares of the Company's common stock
based on a fixed conversion price of $.60 per share, commencing
July 7, 1999, and has an automatic conversion feature in which each
share not converted as of July 7, 2000 shall automatically convert
into shares of the Company's common stock.
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Series C
The Series C Preferred Stock with a stated value of $1.5 million as
of September 30, 1998 accrues dividends at 8% per annum, payable
quarterly, is convertible into shares of the Company's common stock
based on a fixed conversion price of $1.00 per share, commencing
July 7, 1999, and has an automatic conversion feature in which each
share not converted as of July 7, 2000 shall automatically convert
into the Company's common stock.
Series D
During October 1998, the Company received $2.7 million in cash from
unrelated private investors in a private placement of its 8%
Convertible Preferred Stock, Series D (the "Series D Preferred
Stock"). Of this amount, $2.5 million was used in the redemption
of the Company's Series B Preferred Stock. The Series D Preferred
Stock accrues dividends at 8% per annum, payable quarterly, is
convertible into shares of the Company's common stock based on a
fixed conversion price of $1.00 per share commencing April 27,
1999, and has an automatic conversion feature in which any shares
not converted into the Company's common stock within three years
from the date of issuance shall automatically be so converted.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
With the exception of discussion regarding historical information,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward looking statements. Such
statements are based on current expectations subject to
uncertainties and other factors which may involve known and unknown
risks that could cause actual results of operations to differ
materially from those projected or implied. Further, certain
forward looking statements are based upon assumptions about future
events which may not prove to be accurate.
Risks and uncertainties inherent in forward looking statements
include, but are not limited to, the Company's future cash flows
and ability to obtain sufficient financing, timing and volume of
sales orders, level of gross margins and operating expenses, lack
of market acceptance of the Company's new product lines, price
competition, conditions in the technology industry and the economy
in general, as well as legal proceedings. The economic risk
associated with materials cost fluctuations and inventory
obsolescence is significant to the Company. The Company's ability
to manage its inventories through procurement and utilization of
component materials could have a significant impact on future
16
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results of operations or financial condition. Historical results
are not necessarily indicative of the operating results for any
future period.
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 Form
10-Q and in other reports filed by the Company with the Securities
and Exchange Commission. The following discussion should be read
in conjunction with the Consolidated Financial Statements and the
Notes thereto included elsewhere in this filing.
The Company is principally engaged as a manufacturer and supplier
of information storage solutions, including external RAID
subsystems and data storage enclosures, storage management hardware
and software as well as digital media products.
Effective June 30, 1998, the Company completed a workforce
reduction to align operating expenses with the current sales
expectations for the balance of the year and to eliminate
inefficient and redundant positions. All costs associated with the
expense reduction (approximately $64,000) were expensed during the
quarter ended June 30, 1998 primarily consisting of severance
costs.
In July 1998, the Company announced that it would focus on its core
storage technology business. As a result, the Company is executing
an orderly transition to phase out all non-storage related
businesses, including its memory division, and effective October 1,
1998, the Company sold to an unrelated party its Integrated Systems
Division ("ISD") which installed and supported enterprise resource
planning manufacturing software. The net sales price of $111,000
will be paid to the Company in monthly installments, as defined,
commencing October 15, 1998, will bear interest at 8% per annum,
and matures on October 15, 2000.
As a result of the foregoing operational changes, the Company
expects to replace lower gross margin sales from non-storage
related products with higher gross margin sales from its core RAID
products.
Three Months Ended September 30, 1998 vs. September 30, 1997
Sales
Net sales for the three months ended September 30, 1998 were $5.8
million as compared to $5.9 million for the three months ended
September 30, 1997, a decrease of $.1 million or 2%.
17
<PAGE>
During the three months ended September 30, 1998, the Company
continued to expand its sales distribution channels through the
addition of new distributors and manufacturers' sales
representatives.
Cost of Sales / Gross Margins
Gross margins decreased to 14% for the three months ended September
30, 1998 as compared to 28% for the quarter ended September 30,
1997. The Company's gross margins are dependent, in part, on
product mix which fluctuates from time to time. The decline in
gross margin for the 1998 quarter is primarily attributable to an
inventory valuation reserve for discontinued products in the amount
of $.6 million. Excluding the effect of this reserve, the
Company's gross margin for the third quarter of 1998 would have
been 25%.
Operating Expenses
Selling, General and Administrative
Selling, general and administrative expenses were $1.9 million and
$2 million for the three months ended September 30, 1998 and 1997,
respectively, a decrease of $.1 million or 5%. The overall
decrease is primarily the result of reduced levels of salaries and
travel costs associated with ISD which was phased out of operation
over the course of the third quarter of 1998 and subsequently sold
on October 1, 1998.
Selling and marketing costs primarily consist of salaries,
commissions and related benefits, expenses in connection with
tradeshows, conferences and seminars, facilities expenses and other
miscellaneous costs allocated to those personnel. General and
administrative costs primarily consist of general corporate
expenses, executive officer, finance and accounting salaries and
related benefits and facilities costs allocated to those personnel.
The Company does not expect selling, general and administrative
expenses to significantly increase in the near future, except to
the extent that sales commissions and other marketing costs may
increase due to an increase in sales revenue.
Research and Development
Research and development expenses were unchanged at $.7 million for
the three months ended September 30, 1998 and 1997.
Research and development costs are expensed as incurred and may
fluctuate considerably from time to time depending on a variety of
factors. These costs are substantially incurred in advance of
related revenues, or in certain situations, may not result in
generating revenues. Management anticipates an increase in these
18
<PAGE>
expenses for the remainder of fiscal 1998 primarily brought about
by the Borg acquisition in April 1998 (see Note 5 to Consolidated
Financial Statements), which will require certain additional
development and integration into the Company's existing product
line.
Depreciation and Amortization
Depreciation and amortization increased approximately $.2 million
for the three months ended September 30, 1998 over the
corresponding 1997 quarter due to the purchase of additional test
equipment and leasehold improvements, as well as the completion of
certain software development in early 1998.
Interest Expense
Interest expense for the three months ended September 30, 1998
increased $.2 million over the same period of the prior year as a
result of the increase in borrowings and the amortization of loan
costs arising from certain subordinated indebtedness (see Note 3 to
the Consolidated Financial Statements).
Preferred Stock Dividends
In March 1997, the Securities and Exchange Commission Staff (the
"Staff") announced its position on accounting for preferred stock
which is convertible into common stock at a discount from the
market rate at the date of issuance. The Staff indicated that a
preferred stock dividend attributable to such a beneficial
conversion privilege should be recorded for the difference between
the conversion price and the quoted market price of common stock at
the date of issuance. Accordingly, in addition to recording an 8%
dividend on the Company's Series B Convertible Preferred Stock of
$68,000 for the quarter ended September 30, 1998, the Company has
recorded $323,000 as an embedded dividend attributable to the
beneficial conversion privilege.
Future income from operations available to common stockholders will
continue to be reduced by dividends attributable to preferred
stock. Such dividends are expected to increase as a result of
additional preferred stock issued in September and October 1998.
However, the increase will be substantially offset by a reduction
in interest expense attributable to borrowings that were replaced
by 8% Convertible Preferred Stock (see Notes 3 and 6 to
Consolidated Financial Statements). The Company does not
anticipate recording additional embedded dividends attributable to
beneficial conversion privileges.
19
<PAGE>
Nine Months Ended September 30, 1998 vs. September 30, 1997
Sales
Net sales for the nine months ended September 30, 1998 were $15.2
million as compared to $20.5 million for the nine months ended
September 30, 1997, a decrease of $5.3 million or 26%. The
decrease in net sales is primarily attributable to the first
quarter of 1998 with net sales of $3.6 million as compared to $9
million in the first quarter of 1997, a reduction of $5.4 million.
This reduction in net sales was principally due to the following:
(i) delays in customer deliveries and in some cases, missed sales
orders caused by the Company's inability to meet customer
production schedules brought about by cash flow difficulties; and
(ii) lost sales opportunities while reorganizing and training the
Company's sales force.
During the nine months ended September 30, 1998 the Company has
continued to expand its sales distribution channels through the
addition of new distributors, value - added resellers and
manufacturers' sales representatives.
Cost of Sales / Gross Margins
Gross margins decreased to 16% for the nine months ended September
30, 1998, as compared to 31% for the nine months ended September
1997. The Company's gross margins are dependent, in part, on
product mix which fluctuates from time to time. This decline in
gross margin is primarily attributable to a decreased sales level
of products with overall higher margins, an increase in an
inventory valuation reserve for discontinued products and cash flow
difficulties limiting the Company's ability to purchase products in
the most cost efficient manner. Excluding additions to inventory
reserves, the Company's gross margin was 22% for the nine months
ended in September 1998.
Operating Expenses
Selling, General and Administrative
Selling, general and administrative expenses were $6.6 million and
$6.2 million for the nine months ended September 30, 1998 and 1997,
respectively, an increase of $.4 million or 7%. The provision for
uncollectible accounts receivable increased by $.3 million for the
1998 period as compared to the 1997 period primarily resulting from
the termination of a distributor agreement. The remaining increase
of $.1 million was principally due to severance costs associated
with workforce reductions and additional costs of sales personnel
and the related overhead.
20
<PAGE>
Research and Development
Research and development expenses were $1.9 million and $2.1
million for the nine months ended September 30, 1998 and 1997,
respectively, a decrease of $.2 million or 9%. This overall
decrease was primarily due to the reorganization and absorption of
previously acquired engineering activities into the existing
research and development staff, partially offset by the increased
engineering staffing and related overhead from the Borg acquisition
in April 1998.
Depreciation and Amortization
Depreciation and amortization increased approximately $.5 million
for the nine months ended September 30, 1998 over the corresponding
nine month period ended in 1997 due to the addition of test
equipment and leasehold improvements, as well as the completion of
certain software development in early 1998.
Interest Expense
Interest expense for the nine months ended September 30, 1998
increased $.6 million over the corresponding nine month period
ended in 1997 as a result of the increase in borrowings and the
amortization of loan costs arising from certain subordinated
indebtedness (see Note 3 to the Consolidated Financial Statements).
Preferred Stock Dividends
In March 1997, the Securities and Exchange Commission Staff (the
"Staff") announced its position on accounting for preferred stock
which is convertible into common stock at a discount from the
market rate at the date of issuance. The Staff indicated that a
preferred stock dividend attributable to such a beneficial
conversion privilege should be recorded for the difference between
the conversion price and the quoted market price of common stock at
the date of issuance. Accordingly, in addition to recording an 8%
dividend on the Company's Series B Convertible Preferred Stock of
$128,000 for the nine months ended September 30, 1998, the Company
has recorded $1,045,000 as an embedded dividend attributable to the
beneficial conversion privilege.
Future income from operations available to common stockholders will
continue to be reduced by dividends attributable to preferred
stock. Such dividends are expected to increase as a result of
additional preferred stock issued in September and October 1998.
However, the increase will be substantially offset by a reduction
in interest expense attributable to borrowings that were replaced
by 8% Convertible Preferred Stock (see Notes 3 and 6 to
Consolidated Financial Statements). The Company does not
21
<PAGE>
anticipate recording additional embedded dividends attributable to
beneficial conversion privileges.
Liquidity and Capital Resources
Consolidated Statements of Cash Flows
Operating Activities
Net cash used by operating activities amounted to $8.1 million and
$6.2 million for the nine months ended September 30, 1998 and 1997,
respectively. The most significant use of cash for the 1998 period
was the $6.1 million loss from operations (before depreciation,
amortization, provision for inventory obsolesence and provision for
uncollectible accounts receivable), the reduction of accounts
payable and other liabilities of $2.3 million and the increase in
accounts receivable of $.8 million. The most significant use of
cash for the corresponding nine month period in 1997 was an
increase in inventories of $2.9 million, a decrease in accounts
payable and other liabilities of $1.4 million and the loss from
operations of $1.9 (before depreciation and amortization).
Investing Activities
Net cash used by investing activities was approximately $.8 million
and $1.1 million for the nine months ended September 30, 1998 and
1997, respectively. Although there was a reduction of $.7 million
in additions to property and equipment during the 1998 period as
compared to the 1997 period, the Company invested approximately $.4
million through its Borg Acquisition (see Note 5 to Consolidated
Financial Statements) in 1998.
Financing Activities
Net cash provided by financing activities for the nine months ended
September 30, 1998 was $9 million and primarily consisted of net
borrowings of $6.6 million from private investors (including $2.5
million converted into Convertible Preferred Stock during the third
quarter), $3.2 in net proceeds from the issuance of Convertible
Preferred Stock, less net reductions of $1.2 million under the
asset based revolving credit facilities. The cash provided by
financing activities for the nine months ended September 30, 1997
amounted to $2.7 million and related to borrowings under the
Revolver. (See the following discussion and Notes 3 and 6 to
Consolidated Financial Statements).
22
<PAGE>
Asset Based Credit Facilities
In May 1997, the Company obtained an asset based revolving bank
credit facility (the "Revolver") under which the Company could
borrow up to $7.0 million. Subsequent thereto, the Company was not
consistently in compliance with certain financial covenants under
the Revolver resulting in amendments to the Revolver in December
1997 and February 1998, in which the bank waived compliance with
those covenants and the maximum borrowings were reduced to $3.0
million through June 30, 1998, with gradual reductions to $2.4
million thereafter until maturity on July 31, 1998. The Revolver
bore interest, payable monthly, at LIBOR plus 3%, was guaranteed by
nStor Technologies, Inc. and its operating subsidiary and was
collateralized by substantially all assets of the Company,
including approximately $1 million reflected as Restricted Cash at
December 31, 1997.
On August 3, 1998, the Company repaid the Revolver with a
replacement asset based revolving credit facility (the "New
Revolver") with borrowings based on the lesser of $5 million or 80%
of the Company's eligible accounts receivable, as defined, less
certain reserves. The New Revolver bears interest, payable
monthly, based on prime plus 2% (10 1/4% at September 30, 1998), is
guaranteed by nStor Technologies, Inc. and its operating subsidiary
and matures on August 3, 2000. The Company pays a facility fee
equal to 1% per annum on the total facility of $5 million.
Advances under the New Revolver are collateralized by substantially
all assets of the Company, including $.5 million reflected as
Restricted Cash at September 30, 1998. The loan agreement provides
for certain financial covenants including current ratio and net
worth requirements, limitations on operating losses and
restrictions on the incurrence of additional debt and capital
expenditures.
Financing Activities With Private Investors
In late 1997, the Company determined that amounts available under
the Revolver would not be sufficient to satisfy the Company's cash
requirements and, therefore, additional debt and/or equity
financing would be necessary. Subsequent thereto and through
October 31, 1998, the Company was able to obtain net cash proceeds
of approximately $11.7 million from private investors, consisting
of $6.7 million of 8% Convertible Preferred Stock (including $3.0
million which was initially in the form of debt and subsequently
converted to 8% Convertible Preferred Stock) and $5 million of 10%
Subordinated Loans, which mature on September 5, 2000. Of these
amounts, Mr. Levy, members of his family and a privately owned
corporation controlled by Mr. Levy hold $3 million of the 8%
Convertible Preferred Stock and $1,250,000 of the Subordinated
Loans. The 8% Convertible Preferred Stock is convertible into
shares of the Company's common stock principally based on a fixed
23
<PAGE>
conversion price of $1.00 per share, commencing April 27, 1999.
For a further discussion of the 10% Subordinated Loans and the 8%
Convertible Preferred Stock, see Notes 3 and 6 to Consolidated
Financial Statements.
Commencing in November 1998, a privately owned corporation
controlled by Mr. Levy agreed to loan up to an additional $600,000
to the Company under a subordinated unsecured revolving line of
credit bearing interest at 10% per annum, payable monthly.
Management believes that amounts expected to be available under the
New Revolver and the unsecured line of credit will be sufficient to
satisfy the Company's working capital needs for the foreseeable
future, as presently contemplated. There can be no assurance,
however, that the Company may not require additional capital beyond
its current forecasted needs nor that any such additional required
funds would be available on terms acceptable to the Company, if at
all, at such time or times required by the Company.
Effect of Inflation
Inflation has not had an impact on the Company's operations and the
Company does not expect that it will have a material impact in
1998.
Year 2000 Issue
As many computer systems, software programs and other equipment
with embedded chips or processors (collectively, "Information
Systems") use only two digits rather than four to define the
applicable year, they may be unable to process accurately certain
data, during or after the year 2000. As a result, business and
governmental entities are at risk for possible miscalculations or
systems failures causing disruptions in their business operations.
This is commonly known as the Year 2000 ("Y2K") issue. The Y2K
issue concerns not only Information Systems used solely within a
company but also concerns third parties, such as customers, vendors
and creditors, using Information Systems that may interact with or
affect a company's operations.
The Company's State of Readiness
The Company has implemented a Y2K readiness program with the
objective of having all of the Company's significant Information
Systems functioning properly with respect to Y2K before January 1,
2000. The first component of the Company's readiness program was
to identify the internal Information Systems of the Company that
are susceptible to system failures or processing errors as a result
of the Y2K issue. This effort is substantially complete and no
issues requiring remediation or replacement have been identified.
24
<PAGE>
As to the second component of the Y2K readiness program, the
Company intends to identify its significant customers, vendors and
creditors that are believed, at this time, to be critical to
business operations subsequent to January 1, 2000. The Company
expects to reasonably ascertain their respective stages of Y2K
readiness through the use of questionnaires, interviews, on-site
visits and other available means. The Company will take
appropriate action based on those responses, but there can be no
assurance that the Information Systems provided by or utilized by
other companies which affect the Company's operations will be
timely converted in such a way as to allow them to continue normal
business operations or furnish products, services or data to the
Company without disruption.
Risks
If needed remediations and conversions to the Information Systems
are not made on a timely basis by its materially-significant
customers or vendors, the Company could be affected by business
disruption, operational problems, financial loss, legal liability
to third parties and similar risks, any of which could have a
material adverse effect on the Company's operations, liquidity or
financial condition. Factors which could cause material
differences in results, many of which are outside the control of
the Company, include, but are not limited to, the accuracy of
representations by manufacturers of the Company's Information
Systems that their products are Y2K complaint, the ability of the
Company's customers and vendors to identify and resolve their own
Y2K issues and the Company's ability to respond to unforeseen Y2K
complications.
Y2K Costs
The total cost to the Company of these Y2K compliance activities
has not been and is not anticipated to be material to the Company's
business, results of operations or financial condition. The costs
and time necessary to complete the Y2K modification and testing
processes are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including
the continued availability of certain resources, third party
modification plans and other factors. However, there can be no
assurance that these estimates will be achieved and actual results
could differ from the estimates. The Company's Y2K readiness
program is an ongoing process and the estimates of costs and
completion dates for various components of the Y2K readiness
program described above are subject to change.
25
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In June 1996, a Complaint was filed in the Supreme Court of the
State of New York, County of Nassau, against the Company and its
then Chairman. The plaintiffs claim to have contractual and
proprietary interests in the prospect of a transaction to purchase
certain net assets acquired by the Company and seek compensatory
damages plus punitive damages.
In August 1996, a Complaint was filed in the same Court making
similar allegations against a subsidiary of the Company, R. Daniel
Smith, the subsidiary's then president and Intelligent
Manufacturing Systems, Inc., a company for which Mr. Smith was the
Chief Executive Officer and sole shareholder. In this action, the
plaintiffs seek compensatory damages plus punitive damages for
alleged breach of contract.
Both cases are currently in discovery. 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 plaintiffs' claims and,
accordingly, the Company believes that the claims are without
merit.
In June 1998, a Complaint was filed in the Supreme Court of the
State of New York by AIBC Investment Services Corp. ("the
Plaintiff"), which claims that the Company, its wholly-owned
subsidiary and Mr. Smith (the "Defendants") breached an agreement
wherein the Plaintiff was allegedly engaged as placement agent in
connection with raising funds for the Defendants. The Plaintiff
seeks damages in the amount of not less than $262,500 plus
interest, warrants to purchase the Company's common stock at a
price to be determined and punitive damages. The case is in the
initial stages of discovery and 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 2. Changes in Securities and Use of Proceeds
Effective April 14, 1998, the Company issued and sold in a private
placement to certain accredited investors a total of 3,500 shares
(including 1,000 shares to Mr. Levy) of 8% Convertible Preferred
Stock, Series A (the "Series A Preferred Stock") at a purchase
26
<PAGE>
price of $1,000 per share, resulting in gross proceeds to the
Company of $3.5 million. The shares of Series A Preferred Stock
were convertible into shares of the Company's common stock at the
lesser of $1.44 per share or 77% of the market value of the common
stock on the date of conversion. In connection with the sale of
the Series A Preferred Stock, the Company issued warrants to
purchase 280,000 shares of the Company's common stock (including
80,000 warrants to Mr. Levy) exercisable at any time through April
2001 at an exercise price of $1.50 per share.
On June 1, 1998, the Company created a new class of 8% Convertible
Preferred Stock, Series B (the "Series B Preferred Stock"), which
is identical to the Series A Preferred Stock with the single
exception that the Series B Preferred Stock could, under certain
limited circumstances, be redeemed by the Company for cash in the
amount of 130% of the purchase price of the Series B Preferred
Stock. The Series B Preferred Stock was convertible into the
Company's common stock, at any time through April 16, 2000, at a
conversion price equal to the lesser of $1.44 per share or 77% of
the market price for the common stock on the date of conversion.
On June 9, 1998, each holder of the Series A Preferred Stock
exchanged their shares of Series A Preferred Stock for an equal
number of shares of Series B Preferred Stock and, on June 12, 1998,
the Company filed a Certificate of Elimination with the Secretary
of State of Delaware to formally eliminate the Series A Preferred
Stock.
On October 30, 1998, the Company redeemed $2.3 million of the
Company's Series B Preferred Stock held by unrelated private
investors for approximately $2.5 million in cash (including a 5%
premium of $115,000 and accrued dividends of $102,000) and warrants
to purchase 300,000 shares of the Company's common stock,
exercisable upon issuance at $1.00 per share and expiring in
October 2001. In conjunction with this redemption, effective
October 28, 1998, the Company issued 1,000 shares of Series C
Convertible Preferred Stock with a stated value of $1,000 per share
in exchange for the remaining 1,000 shares of Series B Preferred
Stock held by Mr. Levy.
On July 7, 1998, the Company borrowed $1 million from a private,
accredited investor pursuant to an 8% Convertible Subordinated
Debenture (the "Debenture") which matured on September 25, 1998, as
extended. At maturity, the Debenture was converted into 1,667
shares of a newly created Series A Preferred Stock with a stated
value of $600 per share. The Series A Preferred Stock accrues
dividends at 8% per annum, payable quarterly, is convertible into
shares of the Company's common stock at a fixed conversion price of
$.60 per share commencing July 7, 1999, and contains an automatic
conversion feature in which each share not converted as of July 7,
2000 shall automatically be converted.
27
<PAGE>
Effective September 30, 1998, the Company issued 1,500 shares of 8%
Convertible Preferred Stock, Series C (the "Series C Preferred
Stock") with a stated value of $1,000 per share to Mr. Levy, in
satisfaction of $1.5 million owed to Mr. Levy. The Series C
Preferred Stock accrues dividends at 8% per annum, payable
quarterly, is convertible into the Company's common stock at a
fixed conversion price of $1.00 per share commencing July 7, 1999,
and contains an automatic conversion feature for all shares not
converted as of July 7, 2000. On October 28, 1998, the Company
received an additional $500,000 from Mr. Levy in exchange for 500
shares of Series C Preferred Stock with a stated value of $1,000
per share.
In October 1998, the Company created 8% Convertible Preferred
Stock, Series D (the "Series D Preferred Stock") which accrues
dividends at 8% per annum, is convertible into shares of the
Company's Common Stock based on a fixed conversion price of $1.00
per share commencing six months from the date of issue and has an
automatic conversion feature for all shares not converted within
three years from the date of issue. Effective October 30, 1998,
the Company issued and sold in a private placement to certain
accredited investors a total of 2,700 shares of Series D Preferred
Stock at a purchase price of $1,000 per share, resulting in gross
proceeds to the Company of $2.7 million. Approximately $2.5
million of the proceeds from issuance of the Series D Preferred
Stock was used to redeem $2.3 million of the Company's Series B
Preferred Stock.
The securities issued in connection with all classes of preferred
stock, including any warrants issued in connection therewith, were
all issued pursuant to an exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended.
The Company's asset based revolving credit facility provides that
the Company may not, without the prior written consent of its
lender, declare or pay cash dividends on any of its stock, other
than its preferred stock.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
28
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number
- -------
3.1 Restated Certificate of Incorporation
4.1 Certificate of Designation of Series A Convertible Preferred
Stock
4.2 Certificate of Designation of Series B Convertible Preferred
Stock
4.3 Certificate of Designation of Series C Convertible Preferred
Stock
4.4 Certificate of Designation of Series D Convertible Preferred
Stock
4.5 Form of Warrant dated September 22, 1998 issued in connection
with extending certain subordinated notes
4.6 Subscription Agreement between Registrant and Maurice Halperin
in connection with Series A Convertible Preferred Stock
4.7 Registration Rights Agreement between Registrant and Maurice
Halperin in connection with Series A Convertible Preferred
Stock
4.8 Form of Warrant dated October 28, 1998 issued in connection
with Redemption of Series B Convertible Preferred Stock,
between Registrant and (i) CPR (USA), Inc., (ii) LibertyView
Fund and (iii) LibertyView Plus Fund
4.9 Form of Subscription Agreement between Registrant and H. Irwin
Levy for loans made by H. Irwin Levy to Registrant which were
exchanged for Series C Convertible Preferred Stock
4.10 Subscription Agreement between Registrant and H. Irwin Levy
for the exchange of Series B Convertible Preferred Stock for
Series C Convertible Preferred Stock
4.11 Registration Rights Agreement between Registrant and H. Irwin
Levy for Series C Convertible Preferred Stock
4.12 Letter Agreement between Registrant and H. Irwin Levy
regarding Series C Convertible Preferred Stock
29
<PAGE>
4.13 Letter Agreement between Registrant and LibertyView Capital
Management, Inc. regarding the redemption of $2.3 million of
Series B Convertible Preferred Stock
4.14 Letter Agreement between Registrant and LibertyView Capital
Management, Inc. regarding registration rights for warrants
issued in connection with the redemption of $2.3 million of
Series B Convertible Preferred Stock
4.15 Form of Subscription Agreement for Series D Convertible
Preferred Stock
4.16 Form of Registration Rights Agreement for Series D Convertible
Preferred Stock
10.1 Form of Amended and Restated Promissory Note dated September
22, 1998 between Registrant and Bernard Marden, Herbert
Gimelstob, Fairway Partnership and H. Irwin Levy
10.2 Security Agreement between Registrant and H. Irwin Levy dated
July 31, 1998
10.3 Loan Agreement between Registrant and H. Irwin Levy dated July
31, 1998 for $1.5 million
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company was not required to file Form 8-K during the
quarter for which this report is filed.
SIGNATURE
Pursuant to the requirements 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.
(Registrant)
/s/ Larry J. Calise
November 13, 1998 ________________________________
Larry J. Calise, Principal
Financial and Accounting Officer
30
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Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF nSTOR TECHNOLOGIES, INC.
The undersigned hereby certifies that the following Restated
Certificate of Incorporation of nStor Technologies, Inc. (the
"Corporation") was duly adopted in accordance with Section 245 of
the Delaware General Corporation Law. The original Certificate of
Incorporation (previously filed under the name of Pacific Coast
Properties, Inc.) was filed with the Secretary of State of Delaware
on November 23, 1959 and a subsequent Restated Certificate of
Incorporation (previously filed under the name of Communications &
Cable Inc.), as amended, was filed in Delaware on July 21, 1987.
ARTICLE FIRST: The name of the Corporation is nSTOR
TECHNOLOGIES, INC.
ARTICLE SECOND: The address of the Corporation's registered
office in the State of Delaware is 15 E. North Street, City of
Dover, Delaware 19901, County of Kent. The name of its registered
agent at such address is United Corporate Services, Inc.
ARTICLE THIRD: 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.
ARTICLE FOURTH: (a) The total number of shares which the
Corporation is authorized to issue is forty-one million
(41,000,000). 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 forty million (40,000,000).
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
$2,000,000.
(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 Fourth, 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 the 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 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.
(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.
(e) Attached as an exhibit hereto is a certified copy of the
Certificate of Designation of Series B Convertible Preferred Stock
filed with the Secretary of State of Delaware on June 1, 1998,
which created a separate series of Preferred Stock and sets forth
the rights and preferences of such series.
ARTICLE FIFTH: The Corporation shall have perpetual
existence.
ARTICLE SIXTH: In furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is expressly
authorized to make, alter, amend or repeal the bylaws of the
Corporation, except to the extent that the bylaws or this
Certificate of Incorporation otherwise provide.
ARTICLE SEVENTH: The number of directors of the Corporation
shall be fixed and may be altered from time to time in the manner
provided in the bylaws of the Corporation, 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 bylaws.
ARTICLE EIGHTH: 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.
ARTICLE NINTH: Meetings of stockholders may be held within or
without the State of Delaware, as the bylaws 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 bylaws of the Corporation.
ARTICLE TENTH: 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 or its stockholders for
monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article Tenth, nor the
adoption of any provision of this Certificate of Incorporation
inconsistent with the Article Tenth, shall eliminate or reduce the
effect of this Article Tenth in respect of any matter occurring, or
any cause of action, suit or claim that, but for this Article
Tenth, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
ARTICLE ELEVENTH: The election of directors need not be by
written ballot unless a stockholder demands election by written
ballot at a meeting of stockholders before the voting begins.
ARTICLE TWELFTH: 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, I have hereunto set my hand this 9th day
of June, 1998.
nSTOR TECHNOLOGIES, INC.
/s/ Mark F. Levy
By:________________________________
Mark F. Levy, President
(See Exhibit 4.2 for the original exhibit filed with this document)
EXHIBIT 4.1
Certificate of Designation of Series A
Convertible Preferred Stock of
nStor Technologies, Inc.
It is certified that:
A. The name of the company is nStor Technologies, Inc., a
Delaware corporation (hereinafter the "Company").
B. The certificate of the incorporation of the Company, as
amended, authorizes the issuance of one million (1,000,000)
shares of shares of Preferred Stock, $.01 par value per share,
and expressly vests in the Board of Directors of the Company the
authority provided therein to issue all of said shares in one or
more series and by resolution or resolutions to establish the
designation and number and to fix the relative rights and
preferences of each series to be issued.
C. The Board of Directors of the Company, pursuant to the
authority expressly vested in it, has adopted the following
resolutions creating a class of Series A Convertible Preferred
Stock:
RESOLVED, that a portion of the one million (1,000,000)
authorized shares of Preferred Stock of the Company shall be
designated as a separate series possessing the rights and
preferences set forth below:
1. Designation and Amount. The shares of such series
shall have a par value of $.01 per share and shall be designated
as Series A Preferred Stock (the "Series A Preferred Stock") and
the number of shares constituting the Series A Preferred Stock
shall be Four Thousand (4,000). The Company may issue fractional
shares of Series A Preferred Stock. Each whole share of Series A
Preferred Stock shall have a stated value of Six Hundred Dollars
($600) (the "Stated Value").
2. Dividends. The holders of the outstanding shares of
Series A Preferred Stock shall be entitled to receive dividends
at an annual rate of eight percent (8%) of the Stated Value as
permitted by law. Such dividends shall be payable quarterly
beginning September 1, 1998 and with dividends accrued
from July 7, 1998. Such dividends shall be cumulative, whether
or not there are profits, surplus or other funds of the Company
legally available for the payment of dividends. If there shall
not have been a sum sufficient for the payment therefor set
apart, the deficiency shall first be paid before any dividend or
other distribution shall be paid or declared and set apart with
respect to any other class of the Company's capital stock, now or
hereafter outstanding. All accrued dividends shall be
immediately due and payable on the outstanding shares of Series A
Preferred Stock on the date such shares of Series A Preferred
Stock are converted into shares of common stock, par value $.05
per share, ("Common Stock") in accordance with Section 5 hereof,
which date shall be the "Conversion Date" Dividends may be paid
in cash or additional shares of Common Stock of the Company, as
may be determined, from time to time, in the sole discretion of
the Board of Directors.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary,
before any distribution may be made with respect to the Common
Stock or any other series of capital stock issued after the date
hereof, holders of each share of Series A Preferred Stock shall
be entitled to be paid out of the assets of the Company available
for distribution to holders of the Company's capital stock of all
classes, whether such assets are capital, surplus, or capital
earnings, such amount per share of Series A Preferred Stock as
would have been payable had each such share been converted into
Common Stock immediately prior to such event of liquidation,
dissolution or winding up pursuant to the provisions of Section 5
(collectively, the "Liquidation Amount").
(b) If the assets of the Company available for
distribution to its shareholders shall be insufficient to pay the
holders of shares of Series A Preferred Stock the full amount of
the Liquidation Amount to which they shall be entitled, the
holders of shares of Series A Preferred Stock shall share
ratably in any distribution of assets according to the amounts
which would be payable with respect to the shares of Series A
Preferred Stock held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in
full.
(c) After the payment of the Liquidation Amount shall
have been made in full to the holders of the Series A Preferred
Stock or funds necessary for such payment shall have been set
aside by the Company in trust for the account of holders of the
Series A Preferred Stock so as to be available for such payments,
the holders of the Series A Preferred Stock shall be entitled to
no further participation in the distribution of the assets of the
Company, and the remaining assets of the Company legally
available for distribution to its shareholders shall be
distributed among the holders of other classes of securities of
the Company in accordance with their respective terms.
4. Voting Power. Except as otherwise expressly provided
in Section 7 hereof, or as required by law, each holder of Series
A 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 A Preferred Stock could be converted, pursuant to the
provisions of Section 5 hereof, at the record date for the
determination of shareholders entitled to vote on such matter or,
if no such record date is established, at the date such vote is
taken or any written consent of shareholders is solicited.
Except as otherwise expressly provided herein or as required by
law, the holders of shares of Series A Preferred Stock and Common
Stock shall vote together as a single class on all matters. The
holders of the Common Stock shall not take any action by written
consent without the prior written consent of the holders of a
majority of the Series A Preferred Stock.
5. Conversion Rights for the Series A Preferred Stock.
The holders of Series A Preferred Stock shall have conversion
rights as follows ("Conversion Rights"):
(a) Right to Convert. Each holder of Series A
Preferred Stock shall be entitled (at the times and in the
amounts set forth below) to convert, in whole or in part, in
multiples of one hundred (100) shares, shares of Series A
Preferred Stock, at the option of the holder.
(b) Conversion Rate. From July 7, 1999, each share of
Series A Preferred Stock may be converted into One Thousand
(1,000) fully-paid and non-assessable shares of Common Stock.
(c) Automatic Conversion. Each share of Series A
Preferred Stock that shall not have been converted before 5:00
p.m. New York time on July 7, 2000 shall automatically convert
into Common Stock on such date as set forth in Section 5(b).
(d) Stock Reclassifications; Stock Splits,
Combinations and Dividends. If the Common Stock issuable upon the
conversion of the Series A Preferred Stock shall be changed into
the same or different number of shares of any class or classes of
stock, whether by reclassification, stock split, stock dividend,
or similar event, then and in each such event, the holder of each
share of Series A Preferred Stock shall have the right thereafter
to convert such share into the kind and amount of shares of stock
and other securities and property receivable upon such capital
reorganization, reclassification or other change which such
holder would have received had its shares of Series A Preferred
Stock been converted immediately prior to such capital
reorganization, reclassification or other change.
(e) Capital Reorganization, Merger or Sale of Assets.
If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for
in Section 5(d) above) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or
substantially all of the Company's properties and assets to any
other person, or any transaction or series of related
transactions in which more than fifty percent (50%) of the
outstanding voting securities of the Company (on an as converted
basis) is sold or assigned (any of which events is herein
referred to as a "Reorganization"), then as a part of such
Reorganization, provision shall be made so that the holders
of the Series A Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock, the
number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled
if such holder had converted its shares of Series A Preferred
Stock immediately prior to such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the
holders of the Series A Preferred Stock after the Reorganization,
to the end that the provisions of this Section 5 (including
adjustment of the number of shares issuable upon conversion of
the Series A Preferred Stock) shall be applicable after that
event in as nearly equivalent a manner as may be practicable.
(f) Issuance of Certain Common Stock Below Conversion
Price.
(i) In case the Company, after the date hereof,
shall issue or sell shares of Common Stock at a price of less
than $0.60 per share of Common Stock (other than upon exercise of
options to purchase common stock issued to employees of the
Company pursuant to an employee stock option or similar plan or
upon exercise or conversion of securities that are convertible or
exchangeable into Common Stock and that are outstanding as of
July 7, 1998), then in each case the number of shares of Common
Stock issuable upon the conversion of all Series A Preferred
Stock shall be increased in a manner determined by multiplying
the number of shares of Common Stock theretofore issuable upon
the conversion of all of the Series A Preferred Stock then
outstanding by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately prior to
the sale or issuance plus the number of additional shares of
Common Stock offered for sale and of which the denominator shall
be the number of shares of Common Stock outstanding immediately
prior to the sale or issuance plus the number of shares of Common
Stock which the aggregate consideration to be received by the
Company in connection with such sale or issuance would purchase
at $0.60 per share.
(ii) In case the Company shall issue or sell
shares of Common Stock in exchange for property other than cash
or its equivalent, then in determining the "price per share of
Common Stock" and the "consideration" receivable by or payable to
the Company for purposes of this Section 5(f), the Board of
Directors of the Company shall determine, in good faith, the fair
value of such property.
(iii) Any increase of the number of shares of
Common Stock issuable upon conversion of the Series A Preferred
Stock then outstanding made pursuant to this Section 5(f) shall
be allocated among such shares of Series A Preferred Stock on a
pro rata basis.
(g) Exercise of Conversion Rights.
(i) Holders of Series A Preferred Stock may
exercise their right to convert the Series A Preferred Stock by
telecopying an executed and completed Notice of Conversion to the
Company and delivering the original Notice of Conversion and the
certificate representing the Series A Preferred Stock by express
courier. Each business day on which a Notice of Conversion is
telecopied to and received by the Company along with a copy of
the originally executed Series A Preferred Stock certificates in
accordance with the provisions hereof shall be deemed a
"Conversion Date." For purposes hereof, the term "business day"
refers the hours between 9:00 a.m. and 5:00 p.m. on any day on
which banks are open for business in Palm Beach County, Florida.
Provided that the Company has received the original Notice of
Conversion and Series A Preferred Stock certificate being so
converted, the Company will transmit, or instruct its transfer
agent to transmit, the certificates representing shares of Common
Stock issuable upon conversion of any share of Series A Preferred
Stock (together with the certificates representing the Series A
Preferred Stock not so converted) to the holder thereof via
express courier, by electronic transfer or otherwise, three
business days after the receipt by the Company of the original
Series A Preferred Stock Certificate representing the shares
being converted. In addition to any other remedies which may be
available to the holders of shares of Series A Preferred Stock,
in the event that the Company fails to deliver, or has failed to
contact its transfer agent to deliver, such shares of Common
Stock within such three (3) business day period, the holder will
be entitled to revoke the relevant Notice of Conversion by
delivering a notice to such effect to the Company whereupon the
Company and the holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of
Conversion. The Notice of Conversion and Series A Preferred
Stock certificates representing the portion of the Series A
Preferred Stock converted shall be delivered to the following
address:
nSTOR TECHNOLOGIES, INC.
100 Century Blvd.
West Palm Beach, FL 33417
Fax: (561) 640-3160
(h) Lost or Stolen Certificates. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation
of any Series A Preferred Stock certificate(s), and (in the case
of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon the cancellation
of the Series A Preferred Stock certificate(s), if mutilated, the
Company shall execute and deliver new certificates for Series A
Preferred Stock of like tenure and date. However, the Company
shall not be obligated to reissue such lost or stolen
certificates for shares of Series A Preferred Stock if the holder
contemporaneously requests the Company to convert such Series A
Preferred Stock into Common Stock.
(i) Fractional Shares. The Company may, if it so
elects, issue fractional shares of Common Stock upon the
conversion of shares of Series A Preferred Stock. If the Company
does not elect to issue fractional shares, the Company shall pay
to the holder of the shares of Series A Preferred Stock which
were converted a cash adjustment in respect of such fractional
shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a
reasonable manner prescribed by the Board of Directors) as of the
close of business on the Conversion Date. The determination as
to whether any fractional shares are issuable shall be based upon
the total number of shares of Series A Preferred Stock being
converted at any one time by any holder thereof, not upon each
share of Series A Preferred Stock being converted.
(j) Partial Conversion. In the event some but not all
of the shares of Series A Preferred Stock represented by a
certificate or certificates surrendered by a holder are
converted, the Company shall execute and deliver to or to the
order of the holder, at the expense of the Company, a new
certificate representing the number of shares of Series A
Preferred Stock which were not converted.
(k) Reservation of Common Stock. The Company shall at
all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Preferred
Stock, such number of its shares of Common Stock as shall from
time to time be sufficient or as may be available to effect the
conversion of all outstanding shares of the Series A Preferred
Stock, and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding shares of the Series A
Preferred Stock, the Company shall use its best efforts to take
such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
6. No Reissuance of Series A Preferred Stock. Any share
or shares of Series A Preferred Stock acquired by the Company by
reason of redemption, purchase, conversion or otherwise shall be
cancelled, shall return to the status of authorized but unissued
preferred stock of no designated series, and shall not be
reissuable by the Company as Series A Preferred Stock.
7. Restrictions and Limitations.
(a) Corporate Securities Action. Except as expressly
provided herein or as required by law, so long as any shares of
Series A Preferred Stock remain outstanding, the Company shall
not, and shall not permit any subsidiary (which shall mean any
corporation, association or other business entity for which the
Company and/or any of its other subsidiaries directly or
indirectly owns at the time more than fifty percent (50%) of the
outstanding voting shares, or more than 50% of the combined
voting power of the outstanding voting shares, of such
corporation or trust), without the approval by vote or written
consent by the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock, voting as a
separate class, to take any action, or fail to take any action,
which would adversely affect the rights of the holders of Series
A Preferred Stock.
(b) Amendments to Charter. Without limiting the
generality of the preceding paragraph, the Company shall not
amend its articles of incorporation without the approval by the
holders of at least a majority of the then outstanding shares of
Series A Preferred Stock if such amendment would:
(i) change the relative seniority rights of the
holders of Series A Preferred Stock as to the payment of
dividends in relation to the holders of any other capital stock
of the Company, or create any other class or series of capital
stock entitled to seniority as to the payment of dividends in
relation to the holders of Series A Preferred Stock;
(ii) reduce the amount payable to the holders of
Series A Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company, or change
the relative seniority of the liquidation preferences of the
holders of Series A Preferred Stock to the rights upon
liquidation of the holders of other capital stock of the Company,
or change the dividend rights of the holders of Series A
Preferred Stock;
(iii) cancel or modify the conversion rights
of the holders of Series A Preferred Stock provided for in
Section 5 herein;
(iv) cancel or modify the rights of the
holders of the Series A Preferred Stock provided for in this
Section 7.
8. No Dilution or Impairment. The Company shall not, by
amendment of its articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms of the Series A Preferred Stock set forth
herein, but shall at all times in good faith assist in the
carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect
the rights of the holders of the Series A Preferred Stock against
dilution or other impairment. Without limiting the generality of
the foregoing, the Company (a) shall not increase the par value
of any shares of stock receivable on the conversion of the Series
A Preferred Stock above the amount payable therefor on such
conversion, (b) shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally
issue fully-paid and non-assessable shares of stock on the
conversion of all Series A Preferred Stock from time to time
outstanding, and (c) shall not consolidate with or merge into any
other person or permit any such person to consolidate with or
merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in
writing and will be bound by all of the terms of the Series A
Preferred Stock set forth herein.
9. Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the
holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company, any merger of the Company, or any transfer of all or
substantially all of the assets of the Company to any other
corporation, or any other entity or person, or
(c) any voluntary or involuntary dissolution,
liquidation or winding up of the Company. Then and in each such
event the Company shall mail or cause to be mailed to each holder
of Series A Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such
dividend, distribution or right and a description of such
dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
merger, dissolution, liquidation or winding up is expected to
become effective and (iii) the time, if any, that is to be fixed,
as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least ten (10)
business days prior to the date specified in such notice on which
such action is to be taken.
Signed on September 30 , 1998.
/s/ Mark Levy
_________________________________________
Mark Levy, Vice President
EXHIBIT 4.2
Certificate of Designation of Series B
Convertible Preferred Stock
of
nStor Technologies, Inc.
It is certified that:
A. The name of the company is nStor Technologies, Inc., a
Delaware corporation (hereinafter the "Company").
B. The certificate of the incorporation of the Company, as
amended, authorizes the issuance of one million (1,000,000)
shares of Preferred Stock, $.01 par value per share, and
expressly vests in the Board of Directors of the Company the
authority provided therein to issue all of said shares in one or
more series and by resolution or resolutions to establish the
designation and number and to fix the relative rights and
preferences of each series to be issued.
C. The Board of Directors of the Company, pursuant to the
authority expressly vested in it, has adopted the following
resolutions creating a class of Series B Convertible Preferred
Stock:
RESOLVED, that a portion of the one million (1,000,000)
authorized shares of Preferred Stock of the Company shall be
designated as a separate series possessing the rights and
preferences set forth below:
1. Designation and Amount. The shares of such series
shall have a par value of $.01 per share and shall be designated
as Series B Preferred Stock (the "Series B Preferred Stock") and
the number of shares constituting the Series B Preferred Stock
shall be Three Thousand Five Hundred (3,500). The Series B
Preferred Stock shall be issued in exchange for the shares of the
Company's Series A Preferred Stock outstanding on June 1, 1998,
on a one-for-one basis. As used herein, the term "Purchase
Price" shall mean One Thousand Dollars ($1,000) per share.
2. Dividends. The holders of the outstanding shares of
Series B Preferred Stock shall be entitled to receive, out of
funds legally available therefor, dividends at an annual rate of
eight percent (8%) of the Purchase Price. Such dividends shall
be deemed to accrue on the Series B Preferred Stock and be
cumulative, whether or not there are profits, surplus or other
funds of the Company legally available for the payment of
dividends. If there shall not have been a sum sufficient for the
payment therefor set apart, the deficiency shall first be paid
before any dividend or other distribution shall be paid or
declared and set apart with respect to any other class of the
Company's capital stock, now or hereafter outstanding. All
accrued dividends shall be immediately due and payable on the
outstanding shares of Series B Preferred Stock on the date such
shares of Series B Preferred Stock are converted into shares of
common stock par value $.05 per share ("Common Stock") in
accordance with Section 5 hereof, which date shall be the
"Conversion Date". Dividends may be paid in cash or additional
shares of Common Stock of the Company, as may be determined, from
time to time, in the sole discretion of the Board of Directors.
The Company shall not be required to pay any dividend on any
outstanding shares of the Series B Preferred Stock prior to the
Conversion Date for such shares.
3. Liquidation, Dissolution or Winding Up
(a) Treatment at Liquidation, Dissolution or Winding
Up. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, before any
distribution may be made with respect to the Common Stock or any
other series of capital stock, holders of each share of Series B
Preferred Stock shall be entitled to be paid out of the assets of
the Company available for distribution to holders of the
Company's capital stock of all classes, whether such assets are
capital, surplus, or capital earnings, such amount per share of
Series B Preferred Stock as would have been payable had each such
share been converted into Common Stock immediately prior to such
event of liquidation, dissolution or winding up pursuant to the
provisions of Section 5 (collectively, the "Liquidation Amount").
(b) If the assets of the Company available for
distribution to its shareholders shall be insufficient to pay the
holders of shares of Series B Preferred Stock the full amount of
the Liquidation Amount to which they shall be entitled, the
holders of shares of Series B Preferred Stock shall share ratably
in any distribution of assets according to the amounts which
would be payable with respect to the shares of Series B Preferred
Stock held by them upon such distribution if all amounts payable
on or with respect to said shares were paid in full.
(c) After the payment of the Liquidation Amount shall
have been made in full to the holders of the Series B Preferred
Stock or funds necessary for such payment shall have been set
aside by the Company in trust for the account of holders of the
Series B Preferred Stock so as to be available for such payments,
the holders of the Series B Preferred Stock shall be entitled to
no further participation in the distribution of the assets of the
Company, and the remaining assets of the Company legally
available for distribution to its shareholders shall be
distributed among the holders of other classes of securities of
the Company in accordance with their respective terms.
4. Voting Power. Except as otherwise expressly provided
in Section 8 hereof, or as required by law, each holder 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, pursuant to the
provisions of Section 5 hereof, at the record date for the
determination of shareholders entitled to vote on such matter or,
if no such record date is established, at the date such vote is
taken or any written consent of shareholders is solicited.
Except as otherwise expressly provided herein or as required by
law, the holders of shares of Series B Preferred Stock and Common
Stock shall vote together as a single class on all matters. The
holders of the Common Stock shall not take any action by written
consent without the prior written consent of the holders of a
majority of the Series B Preferred Stock.
5. Conversion Rights for the Series B Preferred Stock.
The holders of Series B Preferred Stock shall have conversion
rights as follows ("Conversion Rights"):
(a) Right to Convert. Each holder of Series B
Preferred Stock shall be entitled (at the times and in the
amounts set forth below) to convert, in whole or in part, in
multiples of one hundred (100) shares, shares of Series B
Preferred Stock, at the option of the holder, as follows:
(i) Provided a registration statement (the
"Registration Statement") covering the shares of Commmon Stock
issuable upon the conversion of such shares of Series B Preferred
Stock has been declared effective by the Securities and Exchange
Commission:
(A) up to one-third (1/3) of the shares of Series
B Preferred Stock initially issued to such holder at any time
after the effective date of the Registration Statement (the
"Registration Date") and any time thereafter;
(B) up to an additional one-third (1/3) of the
shares of Series B Preferred Stock initially issued to such
holder at any time beginning sixty (60) days following the
Registration Date, and at any time thereafter; and
(C) up to an additional one-third (1/3) of the
shares of Series B Preferred Stock initially issued to such
holder at any time beginning ninety (90) days following the
Registration Date, and any time thereafter.
(ii) In the event no Registration Statement has
been declared effective on or before July 14, 1998, one hundred
percent (100%) of the shares of Series B Preferred Stock
initially issued to such holder on July 14, 1998.
(b) Conversion Rate. Each share of Series B Preferred
Stock may be converted into the number of fully-paid and
non-assessable shares of Common Stock of the Company calculated
in accordance with the following formula ("Conversion Rate"):
Subject to the provisions of Section 6, the number of shares
issuable upon conversion of one (1) share of Series B Preferred
Stock shall equal:
Purchase Price
Conversion Price
where,
(i) the Purchase Price is defined in Section 1 hereof;
(ii) the Conversion Price shall equal the lesser of (x)
.77 times the average Closing Bid Price as that term is defined
below, of the Common Stock for the three (3) trading days
immediately preceding the Conversion Date, as defined below, or
(y) $1.44;
(iii) for purposes hereof the term "Closing Bid
Price" shall mean the Closing Bid Price for the Common Stock on
the American Stock Exchange, or if the Common Stock is no longer
traded on the American Stock Exchange, the Closing Bid Price on
the principle national securities exchange on which the Common
Stock is traded, or the Nasdaq National Market System, and, if
not available, the mean of the high and low prices on such
principle national securities exchange or the Nasdaq National
Market System.
(iv) In the event the Common Stock is involuntarily
delisted from the American Stock Exchange and continues to be so
delisted on the Conversion Date, 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 of the American
Stock Exchange, the Conversion Price shall be equal to .72 times
the average Closing Bid Price for the last three (3) trading days
prior to the termination of trading, or $1.44, whichever is less.
(v) Notwithstanding anything herein to the contrary,
no holder of Series B Preferred Stock who is an offficer,
director or key employee (an "Affiliate") of the Company may,
prior to the approval by the holders of a majority of the
outstanding Common Stock of the sale of Series B Preferred Stock
to such Affiliate, convert any shares of Series B Preferred Stock
if such conversion would result in the issuance to all Affiliates
in the aggregate of more than 5% of shares of the outstanding
Common Stock in any one year, or the issuance to all Affiliates
in the aggregate of more than 10% of shares of the outstanding
Common Stock in any five-year period.
(c) Automatic Conversion. Each share of Series B Preferred
Stock outstanding two (2) years from the Registration Date shall
automatically convert into Common Stock on such date at the
applicable Conversion Rate above and such date shall be deemed
the Conversion Date with respect to such shares.
(d) Stock Reclassifications; Stock Splits, Combinations and
Dividends. If the Common Stock issuable upon the conversion of
the Series B Preferred Stock shall be changed into the same or
different number of shares of any class or classes of stock,
whether by reclassification, stock split, stock dividend, or
similar event, then and in each such event, the holder of each
share of Series B Preferred Stock shall have the right thereafter
to convert such share into the kind and amount of shares of stock
and other securities and property receivable upon such capital
reorganization, reclassification or other change which such
holder would have received had its shares of Series B Preferred
Stock been converted immediately prior to such capital
reorganization, reclassification or other change.
(e) Capital Reorganization, Merger or Sale of Assets. If at
any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for
in Section 5(d) above) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or
substantially all of the Company's properties and assets to any
other person, or any transaction or series of related
transactions in which more than fifty percent (50%) of the
outstanding voting securities of the Company (on an as converted
basis) is sold or assigned (any of which events is herein
referred to as a "Reorganization"), then as a part of such
Reorganization, provision shall be made so that the holders of
the Series B Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series B Preferred Stock, the
number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled if
such holder had converted its shares of Series B Preferred Stock
immediately prior to such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the
holders of the Series B Preferred Stock after the Reorganization,
to the end that the provisions of this Section 5 (including
adjustment of the number of shares issuable upon conversion of
the Series B Preferred Stock) shall be applicable after that
event in as nearly equivalent a manner as may be practicable.
(f) Exercise of Conversion Rights.
(i) Exercise of Conversion Rights When the Conversion
Price is Greater than the Triggering Price. When the Conversion
Price is greater than the Triggering Price, as defined below,
holders of Series B Preferred Stock may exercise their right to
convert the Series B Preferred Stock by telecopying an executed
and completed Notice of Conversion to the Company and delivering
the original Notice of Conversion and the certificate
representing the Series B Preferred Stock by express courier.
(For purposes hereof, the "Triggering Price" shall be $0.77,
subject to adjustment as provided below.) Each business date on
which a Notice of Conversion is telecopied to and received by the
Company along with a copy of the originally executed Series B
Preferred Stock certificates in accordance with the provisions
hereof shall be deemed a "Conversion Date." Provided that the
Company has received the original Notice of Conversion and Series
B Preferred Stock certificate being so converted, the Company
will transmit, or instruct its transfer agent to transmit, the
certificates representing shares of Common Stock issuable upon
conversion of any share of Series B Preferred Stock (together
with the certificates representing the Series B Preferred Stock
not so converted) to the holder thereof via express courier, by
electronic transfer or otherwise three business days after the
receipt by the Company of the original Series B Preferred Stock
Certificate representing the shares being converted. In addition
to any other remedies which may be available to the holders of
shares of Series B Preferred Stock, in the event that the Company
fails to deliver, or has failed to contact its transfer agent to
deliver, such shares of Common Stock within such three (3)
business day period, the holder will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such
effect to the Company whereupon the Company and the holder shall
each be restored to their respective positions immediately prior
to delivery of such Notice of Conversion. The Notice of
Conversion and Series B Preferred Stock certificates representing
the portion of the Series B Preferred Stock converted shall be
delivered as follows:
To the Company:
nSTOR TECHNOLOGIES, INC.
100 Century Blvd.
West Palm Beach, FL 33417
Fax: (561) 640-3160
In the event that shares representing the Common Stock
issuable upon conversion of the Series B Preferred Stock (the
"Conversion Shares") are not delivered by the Company, within
three (3) business days of receipt by the Company of a valid
Notice of Conversion and the Series B Preferred Stock
certificates to be converted, the Company shall pay to the
holders thereof, in immediately available funds, upon demand, as
liquidated damages for such failure and not as a penalty, for
each $100,000 of Series B referred Stock sought to be converted,
$500 for each of the first ten (10) days and $1,000 per day
thereafter that the Conversion Shares are not delivered, which
liquidated damages shall run from the fourth business day after
the Conversion Date. Any and all payments required pursuant to
this paragraph shall be payable only in shares of Common Stock
and not in cash.
(ii) Exercise of Conversion Rights When the Conversion
Price is Less than or Equal to the Triggering Price. When the
Conversion Price is less than or equal to the Triggering Price,
holders of Series B Preferred Stock may exercise their right to
convert the Series B Preferred Stock by telecopying an executed
and completed Notice of Intent to Convert to the Company. Upon
receipt of such Notice of Intent to Convert, the Company shall
have one (1) business day to exercise the Right of Redemption as
set forth in Section 6 hereof. In the event that the Company
does not exercise its Right of Redemption as set forth in Section
6 within such one (1) business day period, the Notice of Intent
to Convert shall be deemed to be a Notice of Conversion delivered
to the Company on the date on which the aforesaid one (1)
business day period has expired; provided, however, that such
Notice of Conversion may be withdrawn by the holders within one
(1) additional business day thereafter. If the Notice of
Conversion is not so withdrawn, the Series B Preferred Stock
shall be converted in the manner set forth in Section 5(f)(i)
above.
(g) Lost or Stolen Certificates. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation
of any Series B Preferred Stock certificate(s), and (in the case
of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon the cancellation
of the Series B Preferred Stock certificate(s), if mutilated, the
Company shall execute and deliver new certificates for Series B
Preferred Stock of like tenure and date. However, the Company
shall not be obligated to reissue such lost or stolen
certificates for shares of Series B Preferred Stock if the holder
contemporaneously requests the Company to convert such Series B
Preferred Stock into Common Stock.
(h) Fractional Shares. The Company may, if it so
elects, issue fractional shares of Common Stock upon the
conversion of shares of Series B Preferred Stock. If the Company
does not elect to issue fractional shares, the Company shall pay
to the holder of the shares of Series B Preferred Stock which
were converted a cash adjustment in respect of such fractional
shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a
reasonable manner prescribed by the Board of Directors) as of the
close of business on the Conversion Date. The determination as
to whether any fractional shares are issuable shall be based upon
the total number of shares of Series B Preferred Stock being
converted at any one time by any holder thereof, not upon each
share of Series B Preferred Stock being converted.
(i) Partial Conversion. In the event some but not all of
the shares of Series B Preferred Stock represented by a
certificate or certificates surrendered by a holder are
converted, the Company shall execute and deliver to or to the
order of the holder, at the expense of the Company, a new
certificate representing the number of shares of Series B
Preferred Stock which were not converted.
(j) Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series B Preferred
Stock, such number of its shares of Common Stock as shall from
time to time be sufficient or as may be available to effect the
conversion of all outstanding shares of the Series B Preferred
Stock, and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding shares of the Series B
Preferred Stock, the Company shall use its best efforts to take
such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
6. Redemption at Option of the Company.
(a) Triggering Price and Redemption Price. Upon
receipt of a Notice of Intent to Convert, the Company may, at its
option, redeem all or a portion of the shares of Series B
Preferred Stock subject to such Notice of Intent to Convert at a
price per share equal to the greater of (i) 130% of the Purchase
Price (the "Redemption Price") or (ii) the closing bid price for
the Company's common stock on the date of the Company's receipt
of the Notice of Intent to Convert multiplied by the number of
shares of Common Stock that would be issuable upon conversion of
the shares of Series B Preferred subject to the Notice of Intent
to Convert. The Company's right to redeem pursuant to this
provision is subject to the payment of all accrued and
accumulated but unpaid dividends, whether or not declared,
without interest, to the Redemption Date (as defined below) on
the shares to be redeemed; and dividends on the shares to be
redeemed will cease to accrue on the Redemption Date.
(b) Notice of Redemption. Notice of any redemption
pursuant to this Section 6 shall be given by the Company by
facsimile, not more than one (1) business day after the receipt
by the Company of a Notice of Intent to Convert (the "Redemption
Date"), to each holder of record of the shares to be redeemed
(the "Redeemed Shareholder"), at such Redeemed Shareholder's
address as shown on the stock register of the Company. Each such
notice shall state: (a) the Redemption Date; (b) the number of
shares of Series B Preferred Stock to be redeemed and, if less
than all shares subject to such Notice of Intent to Convert are
to be redeemed, the number of such shares to be redeemed from the
Redeemed Shareholder; (c) the Redemption Price; (d) the place or
places where certificates for such shares are to be surrendered
for payment of the Redemption Price; (e) the then effective
Conversion Price (f) that the right of holders of Series B
Preferred Stock called for redemption to exercise their
conversion rights pursuant to Section 5 hereof shall cease and
terminate as to such shares at the close of business on the
Redemption Date (provided that there is no default
in payment of the Redemption Price); (g) that payment of the Re-
demption Price will be made upon presentation and surrender of
certificates representing the shares of Series B Preferred Stock
called for redemption; (h) that, in accordance with the second
sentence of the first paragraph of this Section 6, accumulated
but unpaid dividends to the Redemption Date on the shares to be
redeemed will be paid on the Redemption Date; and (i) that divi-
dends on the shares to be redeemed will cease to accrue on the
Redemption Date. If a notice is delivered to a Redeemed
Shareholder in the manner provided above within the time
prescribed, it is duly given with respect to such Redeemed
Shareholder. Notice having been mailed as aforesaid, from and
after the Redemption Date (unless default shall be made by the
Company in providing money for the payment of the Redemption
Price) dividends on the shares of Series B Preferred Stock so
called for redemption shall cease to accrue, and such shares
shall no longer be deemed to be outstanding, and all rights of
the holders thereof as shareholders of the Company by virtue of
the ownership of such shares (except the right to receive from
the Company the Redemption Price without interest) shall cease.
Upon surrender in accordance with such notice of the certificates
for any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Directors shall so require and the
notice shall so state), the Company shall redeem much shares at
the Redemption Price in cash within four (4) business days of
such surrender.
(c) Partial Redemption. If less than all the shares
represented by a surrendered certificate or certificates are to
be redeemed, the Company shall issue a new certificate
representing the unredeemed shares.
(d) Adjustment to Triggering Price.
(i) In case the Company shall pay or make a dividend or
other distribution on any class of capital stock of the Company
in Common Stock, the Triggering Price in effect at the close of
business on the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution shall be
reduced to a price determined by multiplying the Triggering Price
by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on
the date fixed for such determination and of which the
denominator shall be the sum of such number of shares and the
total number of shares constituting such dividend or other
distribution, such reduction to become effective at the opening
of business on the day following the date fixed for such
determination. In the event that such dividend or distribution
is not so paid or made, the Triggering Price shall be readjusted
to be the Triggering Price which would then be in effect if such
date fixed for the determination of shareholders entitled to
receive such dividend or other distribution had not been fixed.
(ii) In case outstanding shares of Common Stock shall
be subdivided into a greater number of shares of Common Stock,
the Triggering Price in effect at the close of business on the
date upon which such subdivision becomes effective shall be
proportionately reduced, and, conversely, in case outstanding
shares of Common Stock shall each be combined into a smaller
number of shares of Common Stock, the Triggering Price in effect
at the close of business on the date upon which such combination
becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective at
the opening of business on the day following the date upon which
such subdivision or combination becomes effective.
(iii) Notwithstanding any other provision of this
Section 6, no adjustment in the Triggering Price shall be
required unless such adjustment would require an increase or
decrease of at least 1% in Triggering Price; provided, however,
that any adjustments which by reason of this paragraph are not
required to be made shall be carried forward and taken into
account in determining whether any subsequent adjustment shall be
required. Once the cumulative effect of any such adjustments
that are carried forward would result in an increase or decrease
of at least 1% in the Triggering Price, then the Triggering Price
shall be changed to reflect all adjustments called for by this
Section 6 and not previously made.
(iv) Notwithstanding any other provision of this
Section 6, no adjustment to the Triggering Price shall reduce the
Triggering Price below the then par value per share of the Common
Stock, and any such purported adjustment shall instead reduce or
Triggering Price to such par value.
(e) Notice of Adjustment of Triggering Price. Whenever the
Triggering Price is adjusted as provided herein, the Company
shall compute the adjusted Triggering Price in accordance with
this Section 6 and shall prepare a certificate signed by the
Treasurer of the Company setting forth the adjusted Triggering
Price and showing in reasonable detail the facts upon which such
adjustment is based, and the corporation shall mail a copy of
such certificate as soon as practicable to the holders of record
of the shares of Series B Preferred Stock.
(f) Default. In the event that the Company does not
deliver the Redemption Price to the Redeemed Shareholder pursuant
to Section 6 within the time period set forth in Section 6(b)
hereof (a "Default"), the Redeemed Shareholder shall be entitled
to:
(i) cancel the Notice of Conversion by delivering a
notice of cancellation to the Company in the manner set forth in
Section 5(f)(i) hereof, in which case no shares of Series B
Preferred Stock which were the subject of the Notice of
Conversion shall be converted until the receipt by the Company of
a subsequent Notice of Conversion with respect thereto; or
(ii) convert the shares of Series B Preferred Stock at
a price equal to the lesser of (x) the Conversion Price or (y)
the average Closing Bid Price as that term is defined above, of
the Common Stock for the three (3) trading days immediately
preceding the date of Default.
7. No Reissuance of Series B Preferred Stock. Any share
or shares of Series B Preferred Stock acquired by the Company by
reason of redemption, purchase, conversion or otherwise shall be
cancelled, shall return to the status of authorized but unissued
preferred stock of no designated series, and shall not be
reissuable by the Company as Series B Perferred Stock.
8. Restrictions and Limitations.
(a) Corporate Securities Action. Except as expressly
provided herein or as required by law, so long as any shares of
Series B Preferred Stock remain outstanding, the Company shall
not, and shall not permit any subsidiary (which shall mean any
corporation, association or other business entity for which the
Company and/or any of its other subsidiaries directly or
indirectly owns at the time more than fifty percent (50%) of the
outstanding voting shares, or more than 50% of the combined
voting power of the outstanding voting shares, of such
corporation or trust), without the approval by vote or written
consent by the holders of at least a majority of the then
outstanding shares of Series B Preferred Stock, voting as a
separate class, to take any action, or fail to take any action,
which would adversely affect the rights of the holders of Series
B Preferred Stock.
(b) Amendments to Charter. Without limiting the
generality of the preceding paragraph, the Company shall not
amend its articles of incorporation without the approval by the
holders of at least a majority of the then outstanding shares of
Series B Preferred Stock if such amendment would:
(i) change the relative seniority rights of the
holders of Series B Preferred Stock as to the payment of
dividends in relation to the holders of any other capital stock
of the Company, or create any other class or series of capital
stock entitled to seniority as to the payment of dividends in
relation to the holders of Series B Preferred Stock;
(ii) reduce the amount payable to the holders of Series
B Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company, or change the relative
seniority of the liquidation preferences of the holders of Series
B Preferred Stock to the rights upon liquidation of the holders
of other capital stock of the Company, or change the dividend
rights of the holders of Series B Preferred Stock;
(iii) cancel or modify the conversion rights of the
holders of Series B Preferred Stock provided for in Section 5
herein;
(iv) cancel or modify the rights of the holders of the
Series B Preferred Stock provided for in this Section 8.
9. No Dilution or Impairment. The Company shall not, by
amendment of its articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms of the Series B Preferred Stock set forth
herein, but shall at all times in good faith assist in the
carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect
the rights of the holders of the Series B Preferred Stock against
dilution or other impairment. Without limiting the generality of
the foregoing, the Company (a) shall not increase the par value
of any shares of stock receivable on the conversion of the Series
B Preferred Stock above the amount payable therefor on such
conversion, (b) shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally
issue fully-paid and non-assessable shares of stock on the
conversion of all Series B Preferred Stock from time to time
outstanding, and (c) shall not consolidate with or merge into any
other person or permit any such person to consolidate with or
merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly
assume in writing and will be bound by all of the terms of the
Series B Preferred Stock set forth herein.
10. Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the
holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company, any merger of the Company, or any transfer of all or
substantially all of the assets of the Company to any other
corporation, or any other entity or person, or
(c) any voluntary or involuntary dissolution,
liquidation or winding up of the Company. Then and in each such
event the Company shall mail or cause to be mailed to each holder
of Series B Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such
dividend, distribution or right and a description of such
dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
merger, dissolution, liquidation or winding up is expected to
become effective and (iii) the time, if any, that is to be fixed,
as to when the holders of record of Common Stock (or other
securities) sh all be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least ten (10)
business days prior to the date specified in such notice on which
such action is to be taken.
Signed on September 30, 1998.
/s/ Mark Levy
__________________________________
Mark Levy, President
EXHIBIT 4.3
Certificate of Designation of Series C
Convertible Preferred Stock
of
nStor Technologies, Inc.
It is certified that:
A. The name of the company is nStor Technologies, Inc., a
Delaware corporation (hereinafter the "Company").
B. The certificate of the incorporation of the Company, as
amended, authorizes the issuance of one million (1,000,000)
shares of shares of Preferred Stock, $.01 par value per
share, and expressly vests in the Board of Directors of the
Company the authority provided therein to issue all of said
shares in one or more series and by resolution or resolutions to
establish the designation and number and to fix the relative
rights and preferences of each series to be issued.
C. The Board of Directors of the Company, pursuant to the
authority expressly vested in it, has adopted the following
resolutions creating a class of Series C Convertible
Preferred Stock:
RESOLVED, that a portion of the one million (1,000,000)
authorized shares of Preferred Stock of the Company shall be
designated as a separate series possessing the rights and
preferences set forth below:
1. Designation and Amount. The shares of such series
shall have a par value of $.01 per share and shall be designated
as Series C Preferred Stock (the "Series C Preferred Stock")
and the number of shares constituting the Series C Preferred
Stock shall be Four Thousand (4,000). The Company may issue
fractional shares of Series C Preferred Stock. Each whole
share of Series C Preferred Stock shall have a stated value of
One Thousand Dollars ($1000) (the "Stated Value").
2. Dividends. The holders of the outstanding shares of
Series C Preferred Stock shall be entitled to receive dividends
at an annual rate of eight percent (8%) of the Stated Value
as permitted by law. Such dividends shall be payable quarterly.
Such dividends shall be cumulative, whether or not there are
profits, surplus or other funds of the Company legally
available for the payment of dividends. If there shall not have
been a sum sufficient for the payment therefor set apart, the
deficiency shall first be paid before any dividend or other
distribution shall be paid or declared and set apart with respect
to any other class of the Company's capital stock, now or
hereafter outstanding. All accrued dividends shall be
immediately due and payable on the outstanding shares of Series C
Preferred Stock on the date such shares of Series C Preferred
Stock are converted into shares of common stock, par value
$.05 per share, ("Common Stock") in accordance with Section 5
hereof, which date shall be the "Conversion Date". Dividends may
be paid in cash or additional shares of Common Stock of the
Company, as may be determined, from time to time, in the sole
discretion of the Board of Directors.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary,
before any distribution may be made with respect to the
Common Stock or any other series of capital stock issued after
the date hereof, holders of each share of Series C Preferred
Stock shall be entitled to be paid out of the assets of the
Company available for distribution to holders of the Company's
capital stock of all classes, whether such assets are capital,
surplus, or capital earnings, such amount per share of Series C
Preferred Stock as would have been payable had each such share
been converted into Common Stock immediately prior to such event
of liquidation, dissolution or winding up pursuant to the
provisions of Section 5 (collectively, the "Liquidation Amount").
(b) If the assets of the Company available for
distribution to its shareholders shall be insufficient to pay the
holders of shares of Series C Preferred Stock the full amount of
the Liquidation Amount to which they shall be entitled, the
holders of shares of Series C Preferred Stock shall share ratably
in any distribution of assets according to the amounts which
would be payable with respect to the shares of Series C Preferred
Stock held by them upon such distribution if all amounts payable
on or with respect to said shares were paid in full.
(c) After the payment of the Liquidation Amount shall
have been made in full to the holders of the Series C Preferred
Stock or funds necessary for such payment shall have been set
aside by the Company in trust for the account of holders of the
Series C Preferred Stock so as to be available for such payments,
the holders of the Series C Preferred Stock shall be entitled to
no further participation in the distribution of the assets of the
Company, and the remaining assets of the Company legally
available for distribution to its shareholders shall be
distributed among the holders of other classes of securities of
the Company in accordance with their respective terms.
4. Voting Power. Except as otherwise expressly provided
in Section 7 hereof, or as required by law, each holder of Series
C 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 C Preferred Stock could be converted, pursuant to the
provisions of Section 5 hereof, at the record date for the
determination of shareholders entitled to vote on such matter or,
if no such record date is established, at the date such vote is
taken or any written consent of shareholders is solicited.
Except as otherwise expressly provided herein or as required by
law, the holders of shares of Series C Preferred Stock and Common
Stock shall vote together as a single class on all matters. The
holders of the Common Stock shall not take any action by written
consent without the prior written consent of the holders of a
majority of the Series C Preferred Stock.
5. Conversion Rights for the Series C Preferred Stock.
The holders of Series C Preferred Stock shall have conversion
rights as follows ("Conversion Rights"):
(a) Right to Convert. Each holder of Series C
Preferred Stock shall be entitled (at the times and in the
amounts set forth below) to convert, in whole or in part, in
multiples of one hundred (100) shares, shares of Series C
Preferred Stock, at the option of the holder.
(b) Conversion Rate. From July 7, 1999, each share of
Series C Preferred Stock may be converted into One Thousand
(1,000) fully-paid and non-assessable shares of Common Stock.
(c) Automatic Conversion. Each share of Series C
Preferred Stock that shall not have been converted before 5:00
p.m. New York time on July 7, 2000 shall automatically
convert into Common Stock on such date as set forth in Section
5(b).
(d) Stock Reclassifications; Stock Splits,
Combinations and Dividends. If the Common Stock issuable upon the
conversion of the Series C Preferred Stock shall be changed
into the same or different number of shares of any class or
classes of stock, whether by reclassification, stock split, stock
dividend, or similar event, then and in each such event, the
holder of each share of Series C Preferred Stock shall have the
right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable
upon such capital reorganization, reclassification or other
change which such holder would have received had its shares of
Series C Preferred Stock been converted immediately prior to such
capital reorganization, reclassification or other change.
(e) Capital Reorganization, Merger or Sale of Assets.
If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for
in Section 5(d) above) or a merger or consolidation of the
Company with or into another corporation, or the sale
of all or substantially all of the Company's properties and
assets to any other person, or any transaction or series of
related transactions in which more than fifty percent (50%) of
the outstanding voting securities of the Company (on an as
converted basis) is sold or assigned (any of which events is
herein referred to as a "Reorganization"), then as a part of such
Reorganization, provision shall be made so that the holders of
the Series C Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series C Preferred Stock, the
number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled
if such holder had converted its shares of Series C Preferred
Stock immediately prior to such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the
holders of the Series C Preferred Stock after the Reorganization,
to the end that the provisions of this Section 5 (including
adjustment of the number of shares issuable upon conversion of
the Series C Preferred Stock) shall be applicable after that
event in as nearly equivalent a manner as may be practicable.
(f) Issuance of Certain Common Stock Below Conversion
Price.
(i) In case the Company, after the date hereof,
shall issue or sell shares of Common Stock at a price of less
than $1.00 per share of Common Stock (other than upon
exercise of options to purchase common stock issued to employees
of the Company pursuant to an employee stock option or similar
plan or upon exercise or conversion of securities that are
convertible or exchangeable into Common Stock and that are
outstanding as of October 1, 1998), then in each case the number
of shares of Common Stock issuable upon the conversion of all
Series C Preferred Stock shall be increased in a manner
determined by multiplying the number of shares of Common Stock
theretofore issuable upon the conversion of all of the Series C
Preferred Stock then outstanding by a fraction, of which the
numerator shall be the number of shares of Common Stock
outstanding immediately prior to the sale or issuance plus the
number of additional shares of Common Stock offered for sale and
of which the denominator shall be the number of shares of Common
Stock outstanding immediately prior to the sale or issuance
plus the number of shares of Common Stock which the aggregate
consideration to be received by the Company in connection with
such sale or issuance would purchase at $1.00 per share.
(ii) In case the Company shall issue or sell
shares of Common Stock in exchange for property other than cash
or its equivalent, then in determining the "price per share of
Common Stock" and the "consideration" receivable by or payable to
the Company for purposes of this Section 5(f), the Board of
Directors of the Company shall determine, in good faith, the fair
value of such property.
(iii) Any increase of the number of shares of
Common Stock issuable upon conversion of the Series C Preferred
Stock then outstanding made pursuant to this Section 5(f) shall
be allocated among such shares of Series C Preferred Stock on a
pro rata basis.
(g) Exercise of Conversion Rights.
(i) Holders of Series C Preferred Stock may
exercise their right to convert the Series C Preferred Stock by
telecopying an executed and completed Notice of Conversion
to the Company and delivering the original Notice of Conversion
and the certificate representing the Series C Preferred Stock by
express courier. Each business day on which a Notice of
Conversion is telecopied to and received by the Company along
with a copy of the originally executed Series C Preferred Stock
certificates in accordance with the provisions hereof shall be
deemed a "Conversion Date." For purposes hereof, the term
"business day" refers the hours between 9:00 a.m. and 5:00 p.m.
on any day on which banks are open for business in Palm
Beach County, Florida. Provided that the Company has received
the original Notice of Conversion and Series C Preferred Stock
certificate being so converted, the Company will transmit, or
instruct its transfer agent to transmit, the certificates
representing shares of Common Stock issuable upon conversion of
any share of Series C Preferred Stock (together with the
certificates representing the Series C Preferred Stock not so
converted) to the holder thereof via express courier, by
electronic transfer or otherwise, three business days after the
receipt by the Company of the original Series C Preferred Stock
Certificate representing the shares being converted. In addition
to any other remedies which may be available to the holders of
shares of Series C Preferred Stock, in the event that the Company
fails to deliver, or has failed to contact its transfer agent to
deliver, such shares of Common Stock within such three (3)
business day period, the holder will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such
effect to the Company whereupon the Company and the holder shall
each be restored to their respective positions immediately prior
to delivery of such Notice of Conversion. The Notice of
Conversion and Series C Preferred Stock certificates representing
the portion of the Series C Preferred Stock converted shall be
delivered to the following address:
nSTOR TECHNOLOGIES, INC.
100 Century Blvd.
West Palm Beach, FL 33417
Fax: (561) 640-3160
(h) Lost or Stolen Certificates. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation
of any Series C Preferred Stock certificate(s), and (in
the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon the cancellation
of the Series C Preferred Stock certificate(s), if mutilated,
the Company shall execute and deliver new certificates for Series
C Preferred Stock of like tenure and date. However, the Company
shall not be obligated to reissue such lost or stolen
certificates for shares of Series C Preferred Stock if the holder
contemporaneously requests the Company to convert such Series C
Preferred Stock into Common Stock.
(i) Fractional Shares. The Company may, if it so
elects, issue fractional shares of Common Stock upon the
conversion of shares of Series C Preferred Stock. If the
Company does not elect to issue fractional shares, the Company
shall pay to the holder of the shares of Series C Preferred Stock
which were converted a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the
market price per share of the Common Stock (as determined in a
reasonable manner prescribed by the Board of Directors) as
of the close of business on the Conversion Date. The
determination as to whether any fractional shares are issuable
shall be based upon the total number of shares of Series C
Preferred Stock being converted at any one time by any holder
thereof, not upon each share of Series C Preferred Stock being
converted.
(j) Partial Conversion. In the event some but not all
of the shares of Series C Preferred Stock represented by a
certificate or certificates surrendered by a holder are
converted, the Company shall execute and deliver to or to the
order of the holder, at the expense of the Company, a new
certificate representing the number of shares of Series C
Preferred Stock which were not converted.
(k) Reservation of Common Stock. The Company shall at
all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series C Preferred
Stock, such number of its shares of Common Stock as shall from
time to time be sufficient or as may be available to effect the
conversion of all outstanding shares of the Series C Preferred
Stock, and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding shares of the Series C
Preferred Stock, the Company shall use its best efforts to take
such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
6. No Reissuance of Series C Preferred Stock. Any share
or shares of Series C Preferred Stock acquired by the Company by
reason of redemption, purchase, conversion or otherwise shall be
cancelled, shall return to the status of authorized but unissued
preferred stock of no designated series, and shall not be
reissuable by the Company as Series C Preferred Stock.
7. Restrictions and Limitations.
(a) Corporate Securities Action. Except as expressly
provided herein or as required by law, so long as any shares of
Series C Preferred Stock remain outstanding, the Company shall
not, and shall not permit any subsidiary (which shall mean any
corporation, association or other business entity for which the
Company and/or any of its other subsidiaries directly or
indirectly owns at the time more than fifty percent (50%) of the
outstanding voting shares, or more than 50% of the combined
voting power of the outstanding voting shares, of such
corporation or trust), without the approval by vote or written
consent by the holders of at least a majority of the then
outstanding shares of Series C Preferred Stock, voting as a
separate class, to take any action, or fail to take any action,
which would adversely affect the rights of the holders of Series
C Preferred Stock.
(b) Amendments to Charter. Without limiting the
generality of the preceding paragraph, the Company shall not
amend its articles of incorporation without the approval by
the holders of at least a majority of the then outstanding shares
of Series C Preferred Stock if such amendment would:
(i) change the relative seniority rights of the
holders of Series C Preferred Stock as to the payment of
dividends in relation to the holders of any other capital
stock of the Company, or create any other class or series of
capital stock entitled to seniority as to the payment of
dividends in relation to the holders of Series C Preferred Stock;
(ii) reduce the amount payable to the holders of
Series C Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company,
or change the relative seniority of the liquidation preferences
of the holders of Series C Preferred Stock to the rights upon
liquidation of the holders of other capital stock of the
Company, or change the dividend rights of the holders of Series C
Preferred Stock;
(iii) cancel or modify the conversion rights
of the holders of Series C Preferred Stock provided for in
Section 5 herein;
(iv) cancel or modify the rights of the
holders of the Series C Preferred Stock provided for in this
Section 7.
8. No Dilution or Impairment. The Company shall not, by
amendment of its articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms of the Series C Preferred Stock set forth
herein, but shall at all times in good faith assist in the
carrying out of all such terms and in the taking
of all such actions as may be necessary or appropriate in order
to protect the rights of the holders of the Series C Preferred
Stock against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) shall not
increase the par value of any shares of stock receivable on the
conversion of the Series C Preferred Stock above the amount
payable therefor on such conversion, (b) shall take all such
action as may be necessary or appropriate in order that the
Company may validly and legally issue fully-paid and
non-assessable shares of stock on the conversion of all Series C
Preferred Stock from time to time outstanding, and (c)
shall not consolidate with or merge into any other person or
permit any such person to consolidate with or merge into the
Company (if the Company is not the surviving person), unless
such other person shall expressly assume in writing and will be
bound by all of the terms of the Series C Preferred Stock set
forth herein.
9. Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the
holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company, any merger of the Company, or any transfer of all or
substantially all of the assets of the Company to any other
corporation, or any other entity or person, or
(c) any voluntary or involuntary dissolution,
liquidation or winding up of the Company. Then and in each such
event the Company shall mail or cause to be mailed to each
holder of Series C Preferred Stock a notice specifying (i) the
date on which any such record is to be taken for the purpose of
such dividend, distribution or right and a description of such
dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
merger, dissolution, liquidation or winding up is expected to
become effective and (iii) the time, if any, that is to be fixed,
as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least ten (10)
business days prior to the date specified in such notice
on which such action is to be taken.
Signed on September 30, 1998.
/s/ Mark Levy
___________________________________
Mark Levy, Vice President
EXHIBIT 4.4
Certificate of Designation of Series D
Convertible Preferred Stock
of
nStor Technologies, Inc.
It is certified that:
A. The name of the company is nStor Technologies, Inc., a
Delaware corporation (hereinafter the "Company").
B. The certificate of the incorporation of the Company, as
amended, authorizes the issuance of one million (1,000,000)
shares of shares of Preferred Stock, $.01 par value per
share, and expressly vests in the Board of Directors of the
Company the authority provided therein to issue all of said
shares in one or more series and by resolution or resolutions to
establish the designation and number and to fix the relative
rights and preferences of each series to be issued.
C. The Board of Directors of the Company, pursuant to the
authority expressly vested in it, has adopted the following
resolutions creating a class of Series D Convertible
Preferred Stock:
RESOLVED, that a portion of the one million (1,000,000)
authorized shares of Preferred Stock of the Company shall be
designated as a separate series possessing the rights and
preferences set forth below:
1. Designation and Amount. The shares of such series
shall have a par value of $.01 per share and shall be designated
as Series D Preferred Stock (the "Series D Preferred Stock")
and the number of shares constituting the Series D Preferred
Stock shall be Six Thousand (6,000). The Company may issue
fractional shares of Series D Preferred Stock. Each whole
share of Series D Preferred Stock shall have a stated value of
One Thousand Dollars ($1000) (the "Stated Value").
2. Dividends. The holders of the outstanding shares of
Series D Preferred Stock shall be entitled to receive dividends
at an annual rate of eight percent (8%) of the Stated Value
as permitted by law. Such dividends shall be payable quarterly.
Such dividends shall be cumulative, whether or not there are
profits, surplus or other funds of the Company legally
available for the payment of dividends. If there shall not have
been a sum sufficient for the payment therefor set apart, the
deficiency shall first be paid before any dividend or other
distribution shall be paid or declared and set apart with respect
to any other class of the Company's capital stock, now or
hereafter outstanding. All accrued dividends shall be
immediately due and payable on the outstanding shares of Series D
Preferred Stock on the date such shares of Series D Preferred
Stock are converted into shares of common stock, par value
$.05 per share, ("Common Stock") in accordance with Section 5
hereof, which date shall be the "Conversion Date". Dividends may
be paid in cash or additional shares of Common Stock of the
Company, as may be determined, from time to time, in the
sole discretion of the Board of Directors.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary,
before any distribution may be made with respect to the
Common Stock or any other series of capital stock issued after
the date hereof, holders of each share of Series D Preferred
Stock shall be entitled to be paid out of the assets of the
Company available for distribution to holders of the Company's
capital stock of all classes, whether such assets are capital,
surplus, or capital earnings, such amount per share of Series D
Preferred Stock as would have been payable had each such share
been converted into Common Stock immediately prior to such event
of liquidation, dissolution or winding up pursuant to the
provisions of Section 5 (collectively, the "Liquidation Amount").
(b) If the assets of the Company available for
distribution to its shareholders shall be insufficient to pay the
holders of shares of Series D Preferred Stock the full amount of
the Liquidation Amount to which they shall be entitled, the
holders of shares of Series D Preferred Stock shall share ratably
in any distribution of assets according to the amounts which
would be payable with respect to the shares of Series D Preferred
Stock held by them upon such distribution if all amounts payable
on or with respect to said shares were paid in full.
(c) After the payment of the Liquidation Amount shall
have been made in full to the holders of the Series D Preferred
Stock or funds necessary for such payment shall have been set
aside by the Company in trust for the account of holders
of the Series D Preferred Stock so as to be available for such
payments, the holders of the Series D Preferred Stock shall
be entitled to no further participation in the distribution of
the assets of the Company, and the remaining assets of the
Company legally available for distribution to its shareholders
shall be distributed among the holders of other classes of
securities of the Company in accordance with their respective
terms.
4. Voting Power. Except as otherwise expressly provided
in Section 7 hereof, or as required by law, each holder of Series
D 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 D Preferred Stock could be converted, pursuant to the
provisions of Section 5 hereof, at the record date for the
determination of shareholders entitled to vote on such matter or,
if no such record date is established, at the date such vote is
taken or any written consent of shareholders is solicited.
Except as otherwise expressly provided herein or as required by
law, the holders of shares of Series D Preferred Stock and Common
Stock shall vote together as a single class on all matters. The
holders of the Common Stock shall not take any action by written
consent without the prior written consent of the holders of a
majority of the Series D Preferred Stock.
5. Conversion Rights for the Series D Preferred Stock.
The holders of Series D Preferred Stock shall have conversion
rights as follows ("Conversion Rights"):
(a) Right to Convert. Each holder of Series D
Preferred Stock shall be entitled (at the times and in the
amounts set forth below) to convert, in whole or in part, in
multiples of one hundred (100) shares, shares of Series D
Preferred Stock, at the option of the holder.
(b) Conversion Rate. From and after April 27, 1999,
each share of Series D Preferred Stock may be converted into One
Thousand (1,000) fully-paid and non-assessable shares of Common
Stock.
(c) Automatic Conversion. Each share of Series D
Preferred Stock that shall not have been converted before 5:00
p.m. New York time on October 28, 2001 shall automatically
convert into Common Stock on such date as set forth in Section
5(b).
(d) Stock Reclassifications; Stock Splits,
Combinations and Dividends. If the Common Stock issuable upon the
conversion of the Series D Preferred Stock shall be changed
into the same or different number of shares of any class or
classes of stock, whether by reclassification, stock split, stock
dividend, or similar event, then and in each such event, the
holder of each share of Series D Preferred Stock shall have the
right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable
upon such capital reorganization, reclassification or other
change which such holder would have received had its shares of
Series D Preferred Stock been converted immediately prior to such
capital reorganization, reclassification or other change.
(e) Capital Reorganization, Merger or Sale of Assets.
If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for
in Section 5(d) above) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or
substantially all of the Company's properties and assets to any
other person, or any transaction or series of related
transactions in which more than fifty percent (50%) of the
outstanding voting securities of the Company (on an as converted
basis) is sold or assigned (any of which events is herein
referred to as a "Reorganization"), then as a part of such
Reorganization, provision shall be made so that the holders of
the Series D Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series D Preferred Stock, the
number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled
if such holder had converted its shares of Series D Preferred
Stock immediately prior to such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the
holders of the Series D Preferred Stock after the Reorganization,
to the end that the provisions of this Section 5 (including
adjustment of the number of shares issuable upon conversion of
the Series D Preferred Stock) shall be applicable after that
event in as nearly equivalent a manner as may be practicable.
(f) Issuance of Certain Common Stock Below Conversion
Price.
(i) In case the Company, after the date hereof,
shall issue or sell shares of Common Stock at a price of less
than $1.00 per share of Common Stock (other than upon
exercise of options to purchase common stock issued to employees
of the Company pursuant to an employee stock option or similar
plan or upon exercise or conversion of securities that are
convertible or exchangeable into Common Stock and that are
outstanding as of October 1, 1998), then in each case the number
of shares of Common Stock issuable upon the conversion of all
Series D Preferred Stock shall be increased in a manner
determined by multiplying the number of shares of Common Stock
theretofore issuable upon the conversion of all of the Series D
Preferred Stock then outstanding by a fraction, of which the
numerator shall be the number of shares of Common Stock
outstanding immediately prior to the sale or issuance plus the
number of additional shares of Common Stock offered for sale and
of which the denominator shall be the number of shares of Common
Stock outstanding immediately prior to the sale or issuance
plus the number of shares of Common Stock which the aggregate
consideration to be received by the Company in connection with
such sale or issuance would purchase at $1.00 per share.
(ii) In case the Company shall issue or sell
shares of Common Stock in exchange for property other than cash
or its equivalent, then in determining the "price per
share of Common Stock" and the "consideration" receivable by or
payable to the Company for purposes of this Section 5(f), the
Board of Directors of the Company shall determine, in good
faith, the fair value of such property.
(iii) Any increase of the number of shares of
Common Stock issuable upon conversion of the Series D Preferred
Stock then outstanding made pursuant to this Section
5(f) shall be allocated among such shares of Series D Preferred
Stock on a pro rata basis.
(g) Exercise of Conversion Rights.
(i) Holders of Series D Preferred Stock may
exercise their right to convert the Series D Preferred Stock by
telecopying an executed and completed Notice of Conversion
to the Company and delivering the original Notice of Conversion
and the certificate representing the Series D Preferred Stock by
express courier. Each business day on which a Notice of
Conversion is telecopied to and received by the Company along
with a copy of the originally executed Series D Preferred Stock
certificates in accordance with the provisions hereof shall be
deemed a "Conversion Date." For purposes hereof, the term
"business day" refers the hours between 9:00 a.m. and 5:00 p.m.
on any day on which banks are open for business in Palm
Beach County, Florida. Provided that the Company has received
the original Notice of Conversion and Series D Preferred Stock
certificate being so converted, the Company will transmit, or
instruct its transfer agent to transmit, the certificates
representing shares of Common Stock issuable upon conversion of
any share of Series D Preferred Stock (together with the
certificates representing the Series D Preferred Stock not so
converted) to the holder thereof via express courier, by
electronic transfer or otherwise, three business days after the
receipt by the Company of the original Series D Preferred Stock
Certificate representing the shares being converted. In addition
to any other remedies which may be available to the holders of
shares of Series D Preferred Stock, in the event that the Company
fails to deliver, or has failed to contact its transfer agent to
deliver, such shares of Common Stock within such three (3)
business day period, the holder will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such
effect to the Company whereupon the Company and the holder shall
each be restored to their respective positions immediately prior
to delivery of such Notice of Conversion. The Notice of
Conversion and Series D Preferred Stock certificates representing
the portion of the Series D Preferred Stock converted shall be
delivered to the following address:
nSTOR TECHNOLOGIES, INC.
100 Century Blvd.
West Palm Beach, FL 33417
Fax: (561) 640-3160
(h) Lost or Stolen Certificates. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation
of any Series D Preferred Stock certificate(s), and (in the case
of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon the cancellation
of the Series D Preferred Stock certificate(s), if mutilated,
the Company shall execute and deliver new certificates for Series
D Preferred Stock of like tenure and date. However, the Company
shall not be obligated to reissue such lost or stolen
certificates for shares of Series D Preferred Stock if the holder
contemporaneously requests the Company to convert such Series D
Preferred Stock into Common Stock.
(i) Fractional Shares. The Company may, if it so
elects, issue fractional shares of Common Stock upon the
conversion of shares of Series D Preferred Stock. If the
Company does not elect to issue fractional shares, the Company
shall pay to the holder of the shares of Series D Preferred Stock
which were converted a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the
market price per share of the Common Stock (as determined in a
reasonable manner prescribed by the Board of Directors) as
of the close of business on the Conversion Date. The
determination as to whether any fractional shares are issuable
shall be based upon the total number of shares of Series D
Preferred Stock being converted at any one time by any holder
thereof, not upon each share of Series D Preferred Stock being
converted.
(j) Partial Conversion. In the event some but not all
of the shares of Series D Preferred Stock represented by a
certificate or certificates surrendered by a holder are
converted, the Company shall execute and deliver to or to the
order of the holder, at the expense of the Company, a new
certificate representing the number of shares of Series D
Preferred Stock which were not converted.
(k) Reservation of Common Stock. The Company shall at
all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series D
Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient or as may be available
to effect the conversion of all outstanding shares of the Series
D Preferred Stock, and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all the then outstanding shares of the
Series D Preferred Stock, the Company shall use its best efforts
to take such corporate action as may be necessary to increase
its authorized but unissued shares of Common Stock to such number
of shares as shall be sufficient for such purpose.
6. No Reissuance of Series D Preferred Stock. Any share
or shares of Series D Preferred Stock acquired by the Company by
reason of redemption, purchase, conversion or otherwise shall be
cancelled, shall return to the status of authorized but unissued
preferred stock of no designated series, and shall not be
reissuable by the Company as Series D Preferred Stock.
7. Restrictions and Limitations.
(a) Corporate Securities Action. Except as expressly
provided herein or as required by law, so long as any shares of
Series D Preferred Stock remain outstanding, the Company shall
not, and shall not permit any subsidiary (which shall mean any
corporation, association or other business entity for which the
Company and/or any of its other subsidiaries directly or
indirectly owns at the time more than fifty percent (50%) of the
outstanding voting shares, or more than 50% of the combined
voting power of the outstanding voting shares, of such
corporation or trust), without the approval by vote or
written consent by the holders of at least a majority of the then
outstanding shares of Series D Preferred Stock, voting as a
separate class, to take any action, or fail to take any action,
which would adversely affect the rights of the holders of Series
D Preferred Stock.
(b) Amendments to Charter. Without limiting the
generality of the preceding paragraph, the Company shall not
amend its articles of incorporation without the approval by
the holders of at least a majority of the then outstanding shares
of Series D Preferred Stock if such amendment would:
(i) change the relative seniority rights of the
holders of Series D Preferred Stock as to the payment of
dividends in relation to the holders of any other capital
stock of the Company, or create any other class or series of
capital stock entitled to seniority as to the payment of
dividends in relation to the holders of Series D Preferred Stock;
(ii) reduce the amount payable to the holders of
Series D Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company,
or change the relative seniority of the liquidation preferences
of the holders of Series D Preferred Stock to the rights upon
liquidation of the holders of other capital stock of the
Company, or change the dividend rights of the holders of Series D
Preferred Stock;
(iii) cancel or modify the conversion rights
of the holders of Series D Preferred Stock provided for in
Section 5 herein;
(iv) cancel or modify the rights of the
holders of the Series D Preferred Stock provided for in this
Section 7.
8. No Dilution or Impairment. The Company shall not, by
amendment of its articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms of the Series D Preferred Stock set forth
herein, but shall at all times in good faith assist in the
carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect
the rights of the holders of the Series D Preferred Stock against
dilution or other impairment. Without limiting the generality of
the foregoing, the Company (a) shall not increase the par value
of any shares of stock receivable on the conversion of the Series
D Preferred Stock above the amount payable therefor on such
conversion, (b) shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally
issue fully-paid and non-assessable shares of stock on the
conversion of all Series D Preferred Stock from time to time
outstanding, and (c) shall not consolidate with or merge into any
other person or permit any such person to consolidate with or
merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in
writing and will be bound by all of the terms of the Series D
Preferred Stock set forth herein.
9. Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the
holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company, any merger of the Company, or any transfer of all or
substantially all of the assets of the Company to any other
corporation, or any other entity or person, or
(c) any voluntary or involuntary dissolution,
liquidation or winding up of the Company. Then and in each such
event the Company shall mail or cause to be mailed to each
holder of Series D Preferred Stock a notice specifying (i) the
date on which any such record is to be taken for the purpose of
such dividend, distribution or right and a description of such
dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
merger, dissolution, liquidation or winding up is expected to
become effective and (iii) the time, if any, that is to be fixed,
as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification,
recapitalization, transfer, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least ten (10)
business days prior to the date specified in such notice
on which such action is to be taken.
Signed on October 28, 1998.
/s/ Mark Levy
_________________________
Mark Levy, Vice President
EXHIBIT 4.5
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, ASSIGNED,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT
TO THE ACT OR AN OPINION OF LEGAL COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY, IS OBTAINED STATING THAT AN
EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE. THIS
WARRANT MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT UNDER THE
LIMITED CIRCUMSTANCES DESCRIBED HEREIN.
DATED: September 22, 1998 NO. __
FORM OF WARRANT
nSTOR TECHNOLOGIES, INC.
Warrant to Purchase 333,334 Shares
of Common Stock, par value $.05 per share
VOID AFTER 5:00 P.M., EASTERN STANDARD TIME
ON MARCH 5, 2001
The Company (as hereafter defined) has issued to Holder (as
hereafter defined) that certain Amended and Restated Promissory
Note dated September 22 , 1998, in the principal amount of
$____________ (the "Amended Note"), which extended the due
date of that certain Promissory Note dated March 5, 1998 in the
original principal amount of $____________. In consideration of
Holder's consent to the issuance of the Amended Note and the
Holder's surrender of that certain warrant to purchase
shares of the Company's common stock, dated March 5, 1998,
Company desires to issue this Warrant (as hereafter defined) in
accordance with the terms and conditions set forth herein.
This certifies that, for value received, _________________
or registered assigns (collectively with ______, the
"Holder"), is entitled to purchase from nStor Technologies, Inc.,
a Delaware corporation (the "Company"), _________________________
________ (_______) fully paid and nonassessable shares (the
"Shares") of the Common Stock, par value $.05 per share, of the
Company ("Common Stock") at a price of $____ per Share (the
"Exercise Price") at any time from and after March 5,
1998 to and including 5:00 p.m. Eastern Standard Time on March 5,
2001 (the "Exercise Period"), subject to the terms, conditions
and adjustments set forth in this Warrant (the "Warrant").
1. Exercise of Warrants. This Warrant may be exercised in
whole or in part by the Holder during the Exercise Period upon
presentation and surrender hereof, with the attached Purchase
Form duly executed, at the office of the Company located at 100
Century Boulevard, West Palm Beach, FL 33417, accompanied by
full payment of the Exercise Price multiplied by the number of
Shares of the Company being purchased (the "Purchase Price"),
whereupon the Company shall cause the appropriate number
of Shares to be issued and shall deliver to the Holder, as
promptly as practicable, a certificate representing the Shares
being purchased. This Warrant may be exercised for not less than
1,000 Shares and in additional increments of 1,000 Shares at any
time and from time to time during the Exercise Period. Upon each
partial exercise hereof, a new Warrant evidencing the remainder
of the Shares will be issued to the Holder, at the Company's
expense, as soon as reasonably practicable, at the same
Exercise Price, for the same Exercise Period, and otherwise of
like tenor as the Warrant partially exercised. The Purchase
Price shall be payable by delivery of a certified or bank
cashier's check payable to the Company, or by wire transfer of
immediately available funds to an account designated in writing
by the Company, in the amount of the Purchase Price. The Holder
shall be deemed for all purposes to have become the holder of
record of Shares so purchased upon exercise of this
Warrant as of the close of business on the date as of which this
Warrant, together with a duly executed Purchase Form, was
delivered to the Company and payment of the Purchase Price was
made, regardless of the date of delivery of any certificate
representing the Shares so purchased, except that if the Company
were subject to any legal requirements prohibiting it from
issuing shares of Common Stock on such date, the Holder shall be
deemed to have become the record holder of such Shares on the
next succeeding date as of which the Company ceased to be so
prohibited.
2. Exchange; Restrictions on Transfer or Assignment. This
Warrant is exchangeable, without expense, at the option of the
Holder, upon surrender hereof to the Company for other Warrants
of like tenor of different denominations entitling the
Holder to purchase in the aggregate the same number of Shares
purchasable hereunder. This Warrant and the Holder's rights
hereunder may not be transferred, assigned or subjected to a
pledge or security interest, except that the Holder may
transfer this Warrant in whole or in part (in minimum increments
of 1,000 Shares) to a corporation controlled by or under common
control with the Holder, by surrender of this Warrant to the
Company at its principal office with the assignment form attached
hereto duly completed and executed (with signature guaranteed),
whereupon the Company, if it determines that the proposed
assignment is permitted pursuant to the provisions hereof, shall
register the assignment of this Warrant in accordance with the
information contained in the assignment instrument and shall,
without charge, execute and deliver a new Warrant or Warrants in
the name of the assignee or assignees named in such assignment
instrument (and, if applicable, a new Warrant in the name
of the Holder evidencing any remaining portion of the Warrant not
theretofore exercised, transferred or assigned) and this Warrant
shall promptly be cancelled. Conditions to the transfer of this
Warrant or any portion thereof shall be that (x) Holder deliver
to the Company an opinion of counsel, reasonably satisfactory in
form and substance to the Company's counsel, to the effect that
the proposed transfer will not be in violation of the Securities
Act of 1933, as amended (the "Act") or of any applicable state
law and that (y) the proposed transferee deliver to the Company
his or its written agreement to accept and be bound by all of the
terms and conditions of this Warrant. The term "Warrant" as used
herein includes any Warrants into which this Warrant may be
divided or exchanged.
3. Rights and Obligations of Warrant Holders. This Warrant
does not confer upon the Holder any rights as a shareholder of
the Company, either at law or in equity. The rights of the
Holder are limited to those expressed herein and the Holder, by
acceptance hereof, consents to and agrees to be bound by and to
comply with all the provisions of this Warrant. Each Holder, by
acceptance of this Warrant, agrees that the Company and its
transfer agent, if any, may, prior to any presentation of this
Warrant for registration of transfer, deem and treat the person
in whose name this Warrant is registered as the absolute, true
and lawful owner of this Warrant for all purposes whatsoever and
neither the Company nor any transfer agent shall be affected by
any notice to the contrary.
4. Covenants and Warranties of the Company Stock. The Company
covenants and agrees that (i) all Shares which may be issued and
delivered upon exercise of this Warrant and payment of the
Purchase Price will, upon delivery, be duly authorized,
validly issued, fully-paid and nonassessable shares of Common
Stock; and (ii) the Company shall at all times during the
Exercise Period reserve and keep available a number of authorized
but unissued shares of Common Stock sufficient to permit the
exercise in full of this Warrant. The Company will take all such
actions as may be necessary to assure that all shares of Common
Stock may be so issued without violation by the Company of any
applicable law or government regulation or any requirement of any
securities exchange upon which shares of Common Stock may be
listed (except for official notice of issuance, which the Company
will transmit promptly upon issuance of such shares).
The Company represents and warrants that: (i) the Company is a
corporation duly organized, validly existing and in good standing
under the laws of the state of Delaware; (ii) the Company has all
requisite corporate power and authority to issue this Warrant and
to consummate the transactions contemplated hereby, and such
issuance and consummation will not conflict with, result in a
material breach of, constitute a material default under or
material violation of any provision of the Company's Articles of
Incorporation or Bylaws, and to the best knowledge of the
Company, any law or regulation of any governmental authority or
any provision of any agreement, judgment or decree affecting the
Company; and (iii) all corporate action required to be taken by
the Company in connection with the execution and delivery
of this Warrant and the performance of the Company's obligations
hereunder has been taken.
5. Disposition of Warrants or Shares. The Holder acknowledges
that this Warrant and the Shares issuable upon exercise thereof
have not been registered under the Act or applicable state law.
The Holder agrees, by acceptance of this Warrant, (i) that no
sale, transfer or distribution of this Warrant or the Shares
shall be made except in compliance with the Act and the rules and
regulations promulgated thereunder, including any applicable
prospectus delivery requirements and the restrictions on
transfer set forth herein, and (ii) that if distribution of this
Warrant or any Shares is proposed to be made by it otherwise than
by delivery of a prospectus meeting the requirements of Section
10 of the Act, such action shall be taken only after
submission to the Company of an opinion of counsel, reasonably
satisfactory in form and substance to the Company's counsel, to
the effect that the proposed distribution will not be in
violation of the Act or of applicable state law.
6. Adjustment. The number of Shares purchasable upon the
exercise of this Warrant and the Exercise Price per Share are
subject to adjustment from time to time as provided in this
Section 6.
(a) Subdivision or Combination of Shares. If the Company
shall at any time subdivide its outstanding shares of Common
Stock into a greater number of shares (including a stock split
effected as a stock dividend) or combine its outstanding shares
of Common Stock into a lesser number of shares, the number of
Shares issuable upon exercise of this Warrant shall be adjusted
to such number as is obtained by multiplying the number of shares
issuable upon exercise of this Warrant immediately prior to such
subdivision or combination by a fraction, the numerator of which
is the aggregate number of shares of Common Stock outstanding
immediately after giving effect to such subdivision or
combination and the denominator of which is the aggregate
number of shares of Common Stock outstanding immediately prior to
such subdivision or combination, and the Exercise Price per Share
shall be correspondingly adjusted to such amount as shall, when
multiplied by the number of Shares issuable upon full
exercise of this Warrant (as increased or decreased to reflect
such subdivision or combination of outstanding shares of Common
Stock, as the case may be), equal the product of the Exercise
Price per Share in effect immediately prior to such subdivision
or combination multiplied by the number of Shares issuable upon
exercise of this Warrant immediately prior to such subdivision or
combination.
(b) Effect of Sale, Merger or Consolidation. If any
capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with
another corporation, or sale of all or substantially
all of the Company's assets to another corporation shall be
effected after the date hereof in such a way that holders of
Common Stock shall be entitled to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as
a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision
shall be made whereby the Holder shall thereafter have
the right to purchase and receive, upon the basis and the terms
and conditions specified in this Warrant and in lieu of the
Shares immediately theretofore purchasable and receivable upon
the exercise of this Warrant, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of Common Stock equal to the
number of shares of Common Stock immediately theretofore
purchasable and receivable upon the exercise of this
Warrant, and in any such case appropriate provision shall be made
with respect to the rights and interests of the Holder to the end
that the provisions of this Warrant (including, without
limitation, provisions for adjustments of the Exercise Price and
of the number of Shares issuable upon the exercise of this
Warrant) shall thereafter be applicable, as nearly as may be
possible, in relation to any shares of stock, securities or
assets thereafter deliverable upon the exercise of this Warrant.
The Company shall not effect any such consolidation, merger or
sale unless prior to or simultaneously with the consummation
thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume, by written
instrument executed and delivered to the Holder at its last
address appearing on the books of the Company, the obligation to
deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing sentence, the Holder may be
entitled to purchase.
(c) Notice to Holder of Adjustment. Whenever the number of
Shares purchasable upon exercise of this Warrant or the Exercise
Price per Share is adjusted as herein provided, the Company shall
cause to be mailed to the Holder, in accordance with the
provisions of Section 10 hereof, notice setting forth the
adjusted number of Shares purchasable upon the exercise of the
Warrant and the adjusted Exercise Price and showing in reasonable
detail the computation of the adjustment and the facts upon which
such adjustment is based.
(d) Notices to Holder of Certain Events. If at any time
after the date hereof:
(i) the Company shall declare any dividend or
other distribution upon or with respect to the Common Stock
payable otherwise than in cash out of the consolidated net income
of the Company and any subsidiaries thereof, including any
dividend payable in shares of Common Stock or other securities
of the Company; or
(ii) the Company shall offer for subscription to
the holders of its Common Stock any additional shares of stock of
any class or any other securities convertible into stock or any
rights to subscribe thereto; or
(iii) there shall be any capital reorganization
or reclassification of the capital stock of the Company (other
than a change in par value, or from par value to no par value, or
from no par value to par value or as result of the subdivision or
combination of shares), or any conversion of the Shares into
securities of another corporation, or a sale of all or
substantially all of the assets of the Company, or a
consolidation or merger of the Company with another corporation
(other than a merger with a subsidiary in which the Company is
the continuing corporation and which does not result in any
reclassification or change of the Shares issuable upon exercise
of the Warrants); or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company; then, in
any one or more of said cases, the Company shall cause to be
mailed to the Holder, not less than ten (10) days before any
record date or other date set for the definitive action, written
notice of the date upon which the books of the Company
shall close or a record shall be taken for purposes of such
dividend, distribution or subscription rights or upon which such
reorganization, reclassification, conversion, sale,
consolidation, merger, dissolution, liquidation or winding
up shall take place, as the case may be. Such notice shall also
set forth facts as shall indicate the effect of such action (to
the extent such effect may be known at the date of such notice)
on the number of Shares and the kind and amount of the shares of
stock and other securities and property deliverable upon exercise
of the Warrants. Such notice shall also specify the date as of
which the holder of record of the shares of Common Stock
shall participate in said dividend, distribution or subscription
rights or shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such
reorganization, reclassification, conversion, sale,
consolidation, merger, dissolution, liquidation or winding up, as
the case may be (on which date in the event of voluntary or
involuntary dissolution, liquidation or winding up of the
Company, the right to exercise the Warrants shall terminate).
(e) Fractional Shares. The Company shall not be required
to issue any fraction of a Share upon the exercise of this
Warrant. The number of full Shares which shall be issuable upon
the full or partial exercise of this Warrant shall be computed on
the basis of the aggregate number of Shares as to which this
Warrant is being exercised. In lieu of any fractional interest
in a Share otherwise deliverable upon the exercise of this
Warrant, the Company shall pay a cash adjustment (which may
be effected as a reduction of the amount to be paid by the Holder
upon such exercise) in respect of such fraction of a Share in an
amount equal to the same fraction multiplied by the closing sales
price of the Common Stock on the principal securities exchange on
which the Common Stock is traded, or if the Common Stock is not
so listed for trading, the closing bid price of the Common Stock,
in each case on the date of the notice of exercise required
pursuant to Section 1 above, or the next succeeding trading date,
if the date of such notice is not a trading date, or if the
Common Stock is not traded on such dates, the next succeeding
trading date on which the Common Stock is traded.
(f) No Other Adjustments. No adjustment to the number of
Shares subject to this Warrant or the Exercise Price per Share
shall be made pursuant to this Section 6 except as expressly
provided herein.
7. Piggy-Back Registration.
(a) In the event the Company shall, at any time prior to
the expiration of this Warrant, file a registration statement
with the Securities and Exchange Commission (the "SEC") to
register shares of Common Stock, the Company shall furnish the
Holders with at least thirty (30) days prior written notice
thereof and such Holders shall have the option to include the
Shares to be issued to the Holders upon the exercise of this
Warrant in such registration statement. The Holders shall
exercise the "piggy-back registration rights" granted pursuant to
this Section 7 by giving written notice to the Company within
twenty (20) days of the receipt of the aforementioned
written notice from the Company.
(b) Notwithstanding any other provision of this Warrant,
the Company's obligations under this Section 7 shall be subject
to and limited by the following terms and conditions:
(i) The obligations of the Company set forth under this
Section 7 shall not arise upon the filing of a registration
statement relating solely to shares of Common Stock issued
pursuant to employee stock option or other benefit plans, a
merger of other business combination or a registration statement
which does not include substantially the same information as Form
S-1, Form S-2 or Form S-3, or any successor forms thereto.
(ii) If the Company files a registration statement in
connection with a proposed underwritten primary or secondary
public offering of Common Stock, the Company shall use its best
efforts to cause the managing underwriter of the proposed
offering to grant any request by the Holder that Shares purchased
by the Holder upon the exercise of this Warrant be included in
the proposed public offering on terms and conditions which are
customary under industry practice. Notwithstanding any other
provision of this Agreement, if the managing underwriter of a
proposed primary or secondary public offering of the Common Stock
gives written notice to the Company that, in the reasonable
opinion of such managing underwriter, marketing factors
require a limitation of the total number of shares of Common
Stock to be underwritten, then the number of Shares purchased by
the Holder upon the exercise of this Warrant which the Company
shall be obligated to include in the registration statement shall
be reduced in accordance with the limitations imposed by the
managing underwriter. Any such limitation imposed by the
managing underwriter shall be imposed pro rata among all holders
of Common Stock exercising rights granted pursuant to this
Section 7 or otherwise, in accordance with the amount of Common
Stock which each such person requested to be included in the
registration statement.
(c) The Company will pay all Registration Expenses (as
hereinafter defined) of all registrations under this Warrant;
provided, however, that if a registration is withdrawn at the
request of the Holders requesting such registration (other than
as a result of information concerning the business or financial
condition of the Company which is made known to the Holders after
the date on which such registration was requested), each of the
Holders shall pay the Registration Expenses of such registration
pro rata in accordance with the number of its Shares included in
such registration. For purposes of this Section 7, the term
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with this Section 7, including, without
limitation, all registration and filing fees, exchange listing
fees, printing expenses, fees and disbursements of counsel for
the Company, state Blue Sky fees and expenses, transfer agent
fees, cost of engraving of stock certificates, costs
for mailing and tombstone advertising, cost of preparing the
registration statement, related exhibits, amendments and
supplements thereto, underwriting documents, selected dealer
agreements, preliminary and final prospectuses, and the expense
of any special audits incident to or required by any such
registration, but excluding underwriting discounts and selling
commissions attributable to the Shares and the fees and expenses
of the Holder's own counsel and accountants, which shall be borne
by such holders.
8. Indemnification and Notification.
(a) The Company will indemnify and hold harmless the
Holders, and each person, if any, who controls such Holders
within the meaning of Section 15 of the Act, from and against any
and all losses, claims, damages, expenses and liabilities
caused by any untrue statement of a material fact contained in
any registration statement or contained in a prospectus furnished
thereunder or caused by any omission to state a material fact
therein necessary to make the statement therein not
misleading provided, however, that the foregoing indemnification
and agreement to hold harmless shall not apply insofar as such
losses, claims, damages, expenses and liabilities are caused by
any such untrue statement or omissions based upon information
furnished in writing to the Company by any such Holder expressly
for use in any registration statement or prospectus.
(b) The Holders will indemnify the Company, and each person
who controls the Company within the meaning of Section 15 of the
Act, from and against any and all losses, claims, damages,
expenses and liabilities caused by an untrue statement of
a material fact contained in any registration statement or
contained in a prospectus furnished thereunder or caused by an
omission to state a material fact therein necessary to make the
statement therein not misleading insofar as such losses, claims,
damages, expenses and liabilities caused by such untrue statement
or omission based upon information furnished in writing to the
Company by any such Holder expressly for use in any registration
statement or prospectus.
(c) Promptly after the receipt by any indemnified party of
notice of the commencement of any action, said indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the
indemnifying party in writing of the commencement thereof; but
the omission to so notify the indemnifying party will not relieve
it from any liabilities which it may have to them otherwise than
under this Section 8, except if such delay prejudices the
indemnifying party. In case any such action is brought against
any party who may seek indemnification hereunder and the
indemnifying party is notified of the commencement thereof as
provided herein, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, to assume
the defense thereof, with counsel satisfactory to the indemnified
party, and after notice from the indemnifying party to such
indemnified party of the indemnifying party's election so to
assume the defense thereof, the indemnifying party will not be
liable under this Section 8 for any legal or other expense
subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of
investigation. The indemnifying party will not be liable for any
settlement effected without its written consent.
9. Survival. The various rights and obligations of the Holder
and of the Company as set forth in Sections 4, 5, 6, 7 and 8
hereof shall survive the exercise of this Warrant and the
surrender of this instrument upon such exercise.
10. Notice. All notices required by this Warrant to be given or
made by the Company shall be given or made by first class mail,
postage prepaid, addressed to the registered holder hereof at the
address of such holder as shown on the books of the Company.
11. Loss or Destruction. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any loss, theft or
destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company and its counsel,
or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like
tenor.
12. Miscellaneous.
(a) Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated except by a written
instrument executed by the Company and the Holder.
(b) This Warrant shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of
Florida, without regard to principles of conflicts of laws
thereof.
(c) Each provision of this Warrant shall be interpreted in
such a manner as to be effective, valid and enforceable under
applicable law, but if any provision of this Warrant is held to
be invalid, illegal or unenforceable under any applicable law or
rule in any jurisdiction, such provision will be ineffective only
to the extent of such invalidity, illegality or unenforceability
in such jurisdiction, without invalidating the remainder of this
Warrant in such jurisdiction or any provision hereof in any other
jurisdiction.
(d) No course of dealing or delay or failure to exercise
any right hereunder on the part of the Holder shall operate as a
waiver of such right or otherwise prejudice the Holder's rights,
power or remedies.
(e) The Company shall pay all expenses incurred by it in
connection with, and all documentary stamp and other taxes (other
than stock transfer taxes) and other governmental charges that
may be imposed in respect of, the issue, sale and delivery
of this Warrant and the Shares issuable upon the exercise hereof.
(f) This Warrant and the rights evidenced hereby shall
inure to the benefit of and be binding upon the successors and
assigns of the Company and the successors and permitted assigns
of the Holder.
IN WITNESS WHEREOF the Company has caused this Warrant to be
executed by its duly authorized officer as of the ____th day of
September, 1998.
ATTEST: nSTOR TECHNOLOGIES, INC.
By:__________________ By:____________________
Name:________________ Name:__________________
Title:_______________ Title:_________________
ASSIGNMENT
To be executed by the registered holder to effect a
permitted transfer of the within Warrant. Capitalized terms have
the same meanings ascribed to them in the within Warrant.
FOR VALUE RECEIVED ("Assignor")
hereby sells, assigns and transfers unto
_________________________________________ ("Assignee")
(Name)
_________________________________________
(Address)
_________________________________________
the right to purchase __________ shares of Common Stock of nStor
Technologies, Inc. evidenced by the within Warrant, together with
all right, title and interest therein, and does irrevocably
constitute and appoint _____________________________ attorney to
transfer the said right on the books of said corporation with
full power of substitution in the premises.
In satisfaction of a condition to the effectiveness of this
assignment, Assignor hereby certifies that Assignee is a
corporation controlled by or under common control with Assignor.
Date: Assignor:
By_________________________
Its_________________________
Signature:___________________________
<PAGE>
PURCHASE FORM
To be executed upon exercise of the within Warrant.
Capitalized terms have the same meanings ascribed to them in the
within Warrant.
TO: nStor Technologies, Inc.
The undersigned hereby exercises the right to purchase
_____________ Shares of Common Stock evidenced by the within
Warrant, according to the terms and conditions thereof, and
hereby makes payment of the Purchase Price. The undersigned
requests that certificates for the Shares shall be issued in the
name set forth below:
Dated:________________ Name:_____________________
__________________________
(Address)
__________________________
__________________________
Social Security No.
or other identifying number
EXHIBIT 4.6
SUBSCRIPTION AGREEMENT
nStor Technologies, Inc., a Delaware corporation (the
"Company"), and Maurice Halperin (the "Investor"), hereby agree
as follows:
1. Sale and Purchase of Shares.
(a) Subject to the prior approval of the Company's
Board of Directors, the Company agrees to issue to the Investor,
and the Investor agrees to purchase from the Company, on the
terms and conditions set forth in this Subscription Agreement
(the "Agreement"). 1,666.67 shares (the "Shares") of the
Company's Series A Preferred Stock (the "Preferred Stock") having
the designations set forth in the Certificate of Designations
attached hereto and made a part hereof.
(b) The Company shall issue the Shares in
consideration of, and against payment by, the Investor One
Million dollars ($1,000,000) in the form of the 8% Convertible
Subordinated Debenture dated July 7, 1998 which is being
surrendered to the Company on the date hereof.
($1,000,000) and naming the Investor as the payee.
(c) The closing shall take place at such time and
place as shall be mutually agreed.
2. Certain Representations of the Investor.
The Investor hereby represents and warrants to the
Company, its officers and directors, the following:
(a) The Investor is an individual resident of Palm
Beach County, in the state of Florida.
(b) The Investor has read carefully and understands
this Agreement and has consulted his own attorney or accountant
with respect to the investment contemplated hereby and its
suitability for the Investor.
(c) The Company has made available to the Investor, or
his designated representatives, during the course of this
transaction and prior to the purchase of any of the securities
referred to herein, the opportunity to ask questions of and
receive answers from the officers and directors of the Company
concerning the terms and conditions of the offering or
otherwise relating to the financial data and business of the
Company, to the extent that the Company or its officers and
directors possess such information or can acquire it without
unreasonable effort or expense. The Company has also made
available to the Investor for inspection, documents, records,
books and other written information about the Company, its
business and this investment at the office of the Company at 100
Century Blvd., West Palm Beach, FL 33417.
(d) The Investor understands and represents that: (i)
the Investor must bear the economic risk of this investment for
an indefinite period of time because the 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) the
Investor is purchasing the Shares for investment for his own
account and not for the account 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) the Investor agrees
not to resell or otherwise dispose of all or any part of the
Shares, except as permitted by law, including, without
limitation, any and all applicable provisions of this Agreement
and any regulations under the 1933 Act.
(e) The Investor 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 Shares. The
Investor represents, warrants and covenants that he is an
"Accredited Investor" within the meaning of Rule 501 of the 1933
Act. In particular, the Investor qualifies as such pursuant to
Subsections (a)(5) and (6) of Rule 501, which provides that an
Accredited Investor shall include:
any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of his
purchase exceeds $1,000,000;
and any natural person who had an individual income in
excess of $200,000 in each of the two most recent years
or joint income with that person's spouse in excess of
$300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the
current year."
(f) The Investor is aware that an investment in the
Shares is highly speculative and subject to substantial risks.
The Investor 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 Shares, which may make the
liquidation of this investment impossible for an indefinite
period of time. The financial condition of the Investor is such
that he is under no present or contemplated future need to
dispose of any of the Shares to satisfy any existing or
contemplated undertaking, need or indebtedness.
(g) All of the information that either Investor has
set forth or represented in this Agreement, with respect to his
financial position and business and investment experience
is correct and complete as of the date of this Agreement and, if
there should be any material change in such information prior to
the purchase of Shares, the Investor will immediately furnish
the revised or corrected information to the Company.
(h) The Investor agrees that he shall be bound by all
of the terms, conditions, duties and obligations of this
Agreement insofar as such matters affect the Company and/or the
Investor.
3. Restricted Stock and Legend.
(a) The Investor acknowledges that the Shares offered
hereunder are being offered pursuant to a private placement
exemption under the 1933 Act, and that the Shares are
deemed "restricted securities" as defined in the 1933 Act. Until
the securities offered hereunder become registered with the
Securities and Exchange Commission, each certificate
representing a share of Common Stock 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 SHARE(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.
(b) Prior to any transfer or attempted transfer of any
of the Shares issued hereunder, or any interest therein, the
Investor shall give the Company written notice of his
intention to make such transfer, describing the manner of the
intended transfer and the proposed transferee. Promptly after
receiving such written notice, the Company shall present copies
thereof to counsel for the Company and to any special counsel
designated by such Investor or by such holder. If in the opinion
of each of such counsel the proposed transfer may be effected
without registration of the Shares under the applicable federal
or state securities laws, as promptly as practicable, the Company
shall notify the Investor of such opinions, whereupon the
Shares proposed to be transferred shall be transferred in
accordance with the terms of said notice. The Company shall not
be required to effect any such transfer prior to the receipt of
such favorable opinion(s); provided, however, the Company may
waive the requirement that Investor obtain an opinion of counsel,
in its sole and absolute discretion. As a condition to such
favorable opinion, counsel for the Company may require an
investment letter to be executed by the proposed transferee.
4. No Assignment.
This Agreement is neither transferable nor assignable
by the Investor without the prior written consent of the Company.
5. General.
(a) This Agreement shall be binding upon the Investor
and the Company and their respective representatives, successors,
and permitted assigns;
(b) This Agreement shall be be governed, construed and
enforced in accordance with the internal laws of the State of
Florida
(c) all covenants, agreements, representations and
warranties made herein or otherwise made in writing by any party
pursuant hereto shall survive the execution and delivery
of this Agreement and the consummation of the transactions
contemplated hereby.
(d) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(e) Notices required or permitted to be given
hereunder shall be in writing and shall be deemed to be
sufficiently given when personally delivered or when sent by
registered mail, return receipt requested, addressed (i) if to
the Company, at nStor Technologies, Inc., 100 Century Blvd., West
Palm Beach, FL 33417, attn: Mark Levy, and (ii) if to the
Investor, at the address set forth under its name below, or at
such other address as each such party furnishes by notice given
in accordance with this Section 6(e), and shall be effective,
when personally delivered, upon receipt, and when so sent by
certified mail, four business days after deposit with the United
States Postal Service.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the 29th day of September, 1998.
nStor Technologies, Inc. Investor
a Delaware corporation
/s/ Mark Levy /s/ Maurice Halperin
By:___________________________ _____________________
Mark Levy Maurice Halperin
Its: President
17890 Deanville Lane
Boca Raton, FL 33496
_____________________
Address
Exhibit 4.7
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of
September 29, 1998 (this "Agreement"), is made by and among
nStor Technologies, Inc., a Delaware corporation (the "Company"),
and the person named on the signature page hereto (the
"Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, of
even date herewith between the Investor and the Company (the
"Subscription Agreement"), the Company has agreed, upon the terms
and subject to the conditions of the Subscription Agreement, to
issue and sell to the Investor shares (the "Shares") of Series A
Preferred Stock (the "Preferred Stock");
WHEREAS, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended,
and the rules and regulations thereunder, or any similar
successor statute (collectively, the "Securities Act"), and
applicable state securities laws with respect to the Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Investor hereby
agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms
shall have the following meanings:
(i) "register," "registered" and "registration"
refer to a registration effected by preparing and filing a
Registration Statement or Statements on Form S-3 or another
form acceptable to Investor in compliance with the Securities Act
and pursuant to Rule 415 under the Securities Act or any
successor rule providing for offering securities on a continuous
basis ("Rule 415") and the declaration or ordering of
effectiveness of such Registration Statement by the United States
Securities and Exchange Commission ("SEC").
(ii) "Registration Statement" means a
registration statement under the Securities Act.
(iii) "Common Stock" shall mean the common stock
of the Company, par value $.05 per share.
(b) Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in
the Subscription Agreement.
2. Registration.
(a) The Company shall prepare and file with the SEC
within 45 days of the dated hereof a registration statement on
Form S-3 covering at least 1,666,667 shares of Common Stock that
are issuable upon conversion of Preferred Stock.
(b) The Company represents and warrants that it meets
the requirements for the use of Form S-3 for registration of the
sale by the Investor of the Registerable Securities and
the Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such
eligibility for the use of Form S-3.
(c) Notwithstanding the registration of the resale of
Common Stock in accordance with Section 2(a), if at any time of
offer and sale of such Common Stock such securities can be sold
pursuant to Rule 144 promulgated under the Securities Act ("Rule
144") in the manner, amount and on such terms as the Investor
wishes to offer and sell such securities, the Investor may
endeavor to offer and sell such securities pursuant to Rule 144.
3. Obligations of the Company. In connection with the
registration of the Common Stock, the Company shall:
(a) Prepare and file with the SEC promptly (but in no
event later than the applicable time periods set forth in Section
2(a)) a Registration Statement or Statements with respect to the
Common stock and thereafter use its best efforts to cause the
Registration Statement to become effective as soon as possible
after such filing, and keep the Registration Statement, if the
Registration Statement utilizes to Rule 415, effective at all
times until such date as is two years, after the date such
Registration Statement is first ordered effective by the SEC.
In any case, the Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) filed
by the Company shall not contain any untrue statement of
a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not
misleading;
(b) Prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with
the Registration Statement as may be necessary to keep the
Registration Statement effective for the time periods set forth
in Section 3(a);
(c) Furnish to the Investor (i) promptly after the
same is prepared and publicly distributed, filed with the SEC or
received by the Company, one copy of the Registration
Statement and any amendment thereto, each preliminary prospectus
and prospectus and each amendment or supplement thereto and (ii)
such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such
other documents as the Investor may reasonably request in order
to facilitate the disposition of the Common Stock owned by the
Investor;
(d) Use reasonable efforts to (i) register and qualify
the Common Stock covered by the Registration Statement under such
other securities or blue sky laws of such jurisdictions as the
may reasonably request, (ii) prepare and file in those
jurisdictions such amendments (including post-effective
amendments) and supplements, (iii) take such other actions
as may be necessary to maintain such registrations and
qualifications in effect at all times that the Registration
Statement is required to be effective under Section 3(a) hereof
and (iv) take all other actions reasonably necessary or advisable
to qualify the Common Stock for sale in such jurisdictions;
provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (I) qualify to
do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (II) subject
itself to general taxation in any such jurisdiction, (III) file a
general consent to service of process in any such jurisdiction,
(IV) provide any undertakings that cause more than nominal
expense or burden to the Company or (V) make any change in its
charter or bylaws, which in each case the Board of Directors of
the Company determines to be contrary to the best interests of
the Company and its stockholders;
(e) As promptly as practicable after becoming aware of
such event, notify the Investor of the happening of any event of
which the Company has knowledge, as a result of which the
prospectus included in the Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits
to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and use
its best efforts promptly to prepare a supplement or amendment
to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or
amendment to the Investor as the Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of
such event, notify the of the issuance by the SEC of any stop
order or other suspension of effectiveness of the Registration
Statement at the earliest possible time;
(g) Permit a single firm of counsel designated as
selling stockholders' counsel by the Investor to review the
Registration Statement and all amendments and supplements thereto
a reasonable period of time prior to their filing with the SEC,
and shall not file any document in a form to which such counsel
reasonably objects;
(h) Make available for inspection by the Investor, any
underwriter participating in any disposition pursuant to the
Registration Statement and any attorney, accountant or other
agent retained by the Investor or underwriter (collectively, the
"Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably necessary
to enable each Inspector to exercise its due diligence
responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided,
however, that each Inspector shall hold in confidence (making
such confidential information known only to officers, agents or
employees thereof who have a need to know), shall not use any
information so obtained for any purpose other than preparation
or review of the registration statement, and shall not make any
disclosure (except to an Investor or underwriter) of any Record
or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are
so notified, unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any
Registration Statement, (ii) the release of such Records is
requested pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (iii) the
information in such Records has been made generally available to
the public other than by disclosure in violation of this or any
other agreement. The Company shall not be required to disclose
any confidential information in such Records to any Inspector or
Investor until and unless the Investor or Inspector shall have
entered into confidentiality agreements (in a form as is
customary in similar circumstances) with the Company with respect
thereto, substantially in the form of this Section 3(h). The
Investor agrees that he shall, upon learning that disclosure of
such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice
to the Company and allow the Company, at the Company's expense,
to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.
The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the
Company pursuant to Section 4(a) hereof unless (i) disclosure of
such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is
ordered pursuant to a subpoena or other order from a court or
governmental body of competent jurisdiction or (iv) such
information has been made generally available to the public other
than by disclosure in violation of this or any other agreement.
The Company agrees that it shall, upon learning that disclosure
of such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through
other means, give prompt notice to the Investor, to undertake, at
Investor's expense, appropriate action to prevent disclosure of,
or to obtain a protective order for, such information;
(i) Use its best efforts either to (i) cause all the
Common Stock covered by the Registration Statement to be listed
on the American Stock Exchange or other national securities
exchange and on each additional national securities exchange on
which similar securities issued by the Company are then listed,
if any, if the listing of such Common Stock is then permitted
under the rules of such exchange or (ii) secure designation of
all the Common Stock covered by the Registration Statement as a
National Association of Securities Dealers Automated Quotations
System ("Nasdaq") "national market system security" within the
meaning of Rule 11Aa2-1 of the SEC under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the quotation
of the Common Stock on the Nasdaq National Market System; or, if,
despite the Company's best efforts to satisfy the preceding
clause (i) or (ii), the Company is unsuccessful in satisfying
the preceding clause (i) or (ii), to arrange for at least two
market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such
Common Stock;
(j) Provide a transfer agent and registrar, which may
be a single entity, for the Common Stock not later than the
effective date of the Registration Statement;
(k) Cooperate with the Investor to facilitate the
timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Common Stock to be sold
pursuant to the denominations or amounts as the case may be, and
registered in such names as the Investor may reasonably request;
and
(l) take all other reasonable actions necessary to
expedite and facilitate disposition by the Investor of the Common
Stock pursuant to the Registration Statement.
4. Obligations of the Investor. In connection with the
registration of the Common Stock, the Investor shall have the
following obligations:
(a) It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant
to this Agreement with respect to the Investor that the Investor
shall furnish to the Company such information regarding itself
and the intended method of disposition of the Common Stock held
by it as shall be reasonably required to effect the registration
of the Common Stock and shall execute such documents in
connection with such registration as the Company may reasonably
request. At least fifteen (15) days prior to the first
anticipated filing date of the Registration Statement, the
Company shall notify the Investor of the information the Company
requires from the Investor (the "Requested Information"). For
each day that the Requested Information is not received beginning
five business days from the date of its request, the Company
shall have the right to extend the period for filing set forth
Section 2(a) hereof by one day.
(b) The Investor agrees to cooperate with the Company
as reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder.
(c) The Investor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind
described in Section 3(e) or 3(f), the Investor will immediately
discontinue disposition of Common Stock pursuant to the
Registration Statement until such Investor's receipt of the
copies of the supplemented or amended prospectus contemplated by
Section 3(e) or 3(f) and, if so directed by the Company, the
Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in the Investor's possession, of the
prospectus covering such Common Stock current at the time of
receipt of such notice;
(d) In the event the Investor determines to engage the
services of an underwriter, the Investor agrees to enter into and
perform its obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing
underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the
disposition of the Common Stock.
5. Expenses of Registration. All expenses (other than
brokerage commissions or discounts) incurred in connection with
registrations, filings or qualifications pursuant to Section
2, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees and the fees
and disbursements of counsel for the Company, shall be borne by
the Company; provided, however, that the Investor shall bear the
fees and out-of-pocket expenses of the one legal counsel selected
by the Investor pursuant to Section 3(g) hereof.
6. Indemnification.
(a) By the Company. To the extent permitted by law,
the Company will indemnify and hold harmless the Investor, any
underwriter (as defined in the Securities Act) for the Investor,
the directors, if any, of such underwriter and the officers, if
any, of such underwriter, and each person, if any, who controls
any such underwriter within the meaning of the Securities Act or
the Exchange Act (each, an "Indemnified Person"), against any
losses, claims, damages, expenses or liabilities (joint or
several) (collectively "Claims") to which any of them become
subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise
out of or are based upon any of the following statements,
omissions or violations in the Registration Statement, or any
post-effective amendment thereof, or any prospectus included
therein: (i) any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus if
used prior to the effective date of such Registration Statement,
or contained in the final prospectus (as amended or supplemented,
if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements
therein were made, not misleading or (iii) any violation or
alleged violation by the Company of the Securities Act, the
Exchange Act or any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any
state securities law (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to the
restrictions set forth in Section 6(d) with respect to the number
of legal counsel, the Company shall reimburse the Investor and
each such underwriters or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees
or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) (I) shall not apply to a
Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in
writing to the Company by any Indemnified Person or underwriter
for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such
amendment thereof or supplement thereto; (II) with respect to any
preliminary prospectus shall not inure to the benefit of any such
person from whom the person asserting any such Claim purchased
the Common Stock that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue
statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then
amended or supplemented; (III) shall not be available to the
extent such Claim is based on a failure of the Investor to
deliver or cause to be delivered the prospectus made available by
the Company; and (IV) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent
shall not be unreasonably withheld.
(b) By the Investor. In connection with any
Registration Statement in which an Investor is participating, the
Investor agrees to indemnify and hold harmless, to the same
extent and in the same manner set forth in Section 6(a), the
Company, each of its directors, each of its officers who signs
the Registration Statement, each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange
Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any
of them may become subject, under the Securities Act, the
Exchange Act or otherwise, insofar as such Claim arises out of or
is based upon any Violation, in each case to the extent (and only
to the extent) that such Violation occurs (I) in reliance upon
and in conformity with written information furnished to the
Company by the Investor expressly for use in connection with such
Registration Statement or (II) the Investor's violation of
Regulation M; and the Investor will promptly reimburse any legal
or other expenses reasonably incurred by them in connection with
investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) shall
not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the
Investor, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and
shall survive the transfer of the Common Stock by the Investor.
Notwithstanding anything to the contrary contained herein,
the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then
amended or supplemented.
(c) The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers
and similar securities industry professionals participating in
any distribution, to the same extent as provided above, with
respect to information such persons so furnished in writing by
such persons expressly for inclusion in the Registration
Statement.
(d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the
commencement of any action (including any governmental
action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying
party under this Section 6, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the
indemnifying parties and the Indemnified Person or the
Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to
retain its own counsel, with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable written opinion of
counsel retained by the indemnifying party, the representation by
such counsel of the Indemnified Person or Indemnified Party and
the indemnifying party would be inappropriate due to actual or
potential differing interests between such Indemnified Person or
Indemnified Party or other party represented by such counsel in
such proceeding. The Company shall pay for only one separate
legal counsel for the Investor. The failure to deliver written
notice to the indemnifying party within a reasonable time
of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent
that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section
6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as such expense,
loss, damage or liability is incurred and is due and payable.
(e) Contribution. To the extent any indemnification
provided for herein is prohibited or limited by law, the
indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law;
provided, however, that (i) no contribution shall be made under
circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6,
(ii) no seller of Common Stock guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller
of Common Stock who was not guilty of such fraudulent
misrepresentation and (iii) contribution by any seller of Common
Stock shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Common Stock.
7. Reports under Exchange Act. With a view to making
available to the Investor the benefits of Rule 144 or any other
similar rule or regulation of the SEC that may at any time
permit the Investor to sell securities of the Company to the
public without Registration, until such time as the Investor has
sold all the Common Stock pursuant to a Registration Statement
or Rule 144, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities
Act and the Exchange Act; and
(c) furnish to the Investor so long as the Investor
owns Common Stock, promptly upon request, (i) a written statement
by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange
Act, (ii) a copy of the most recent annual or quarterly report of
the Company and such other reports and documents so filed by the
Company and (iii) such other information as may be reasonably
requested to permit the Investor to sell such securities pursuant
to Rule 144 without Registration. In addition, Investor shall
continue to receive a monthly report from the Company.
8. Assignment of the Registration Rights. The rights to
have the Company register Common Stock pursuant to this Agreement
may not be assigned unless the Company agrees to the assignment
in writing.
9. Amendment of Registration Rights. Any provision of
this Agreement may be amended and the observance thereof may be
waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written
consent of the Company and Investor. Any amendment of waiver
effected in accordance with this Section 9 shall be binding
upon the Investor and the Company.
10. Miscellaneous.
(a) If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with
respect to the same Common Stock, the company shall act
upon the basis of instructions, notice or election received from
the registered owner of such Common Stock.
(b) Notices required or permitted to be given
hereunder shall be in writing and shall be deemed to be
sufficiently given when personally delivered or when sent by
registered mail, return receipt requested, addressed (i) if to
the Company, at nStor Technologies, Inc., 100 Century Blvd., West
Palm Beach, FL 33417, attn: Mark Levy, and (ii) if to the
Investor, at the address set forth under its name in the
Subscription Agreement, or at such other address as each
such party furnishes by notice given in accordance with this
Section 10(b), and shall be effective, when personally delivered,
upon receipt, and when so sent by certified mail, four business
days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a
waiver thereof.
(d) This Agreement shall be enforced, governed by and
construed in accordance with the laws of the State of Florida
applicable to the agreements made and to be performed entirely
within such state, without giving effect to rules governing the
conflict of laws. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule
of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or
enforceability of any other provision hereof.
(e) This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter
hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter
hereof.
(f) Subject to the requirements of Section 9 hereof,
this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the
context may require.
(h) The headings in the Agreement are for convenience
of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all
of which shall constitute one and the same agreement.
This Agreement, once executed by a party, may be delivered to the
other party hereto by telephone line facsimile transmission of a
copy of this Agreement bearing the signature of the party so
delivering this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
nSTOR TECHNOLOGIES, INC.
/s/ Mark Levy
By_____________________________
Mark Levy, Vice President
Its: Vice President
/s/ Maurice A. Halperin
_________________________________
(INVESTOR)
EXHIBIT 4.8
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED THE "ACT"), AND MAY NOT BE OFFERED, SOLD, ASSIGNED,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT
TO THE ACT OR AN OPINION OF LEGAL COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY, IS OBTAINED STATING THAT AN
EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE. THIS
WARRANT MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT UNDER THE
LIMITED CIRCUMSTANCES DESCRIBED HEREIN.
DATED: October 28, 1998 NO. __
FORM OF
WARRANT
nSTOR TECHNOLOGIES, INC.
Warrant to Purchase ______ Shares
of Common Stock, par value $.05 per share
VOID AFTER 5:00 P.M., EASTERN STANDARD TIME
ON OCTOBER 30, 2001
The Company (as hereafter defined) has previously issued to
Holder (as hereafter defined) 200 shares of the Company's 8%
Series B Convertible Preferred Stock (the Preferred Stock"). In
consideration of Holder's consent to the redemption by the
Company of all Preferred Stock currently owned by Holder, the
Company desires to issue this Warrant (as hereafter defined) in
accordance with the terms and conditions set forth herein.
This certifies that, for value received, ______________________
or registered assigns ___________________________, the "Holder"),
is entitled to purchase from nStor Technologies, Inc., a Delaware
corporation (the "Company"), ___________________________
(____________) fully paid and nonassessable shares (the "Shares")
of the Common Stock, par value $.05 per share, of the Company
("Common Stock") at a price of $1.00 per Share (the
"Exercise Price") at any time from and after October 30, 1998 to
and including 5:00 p.m. Eastern Standard Time on October 30, 2001
(the "Exercise Period"), subject to the terms, conditions and
adjustments set forth in this Warrant (the "Warrant").
1. Exercise of Warrants. This Warrant may be exercised in
whole or in part by the Holder during the Exercise Period upon
presentation and surrender hereof, with the attached Purchase
Form duly executed, at the office of the Company located at 100
Century Boulevard, West Palm Beach, FL 33417, accompanied by
full payment of the Exercise Price multiplied by the number
of Shares of the Company being purchased (the "Purchase Price"),
whereupon the Company shall cause the appropriate number of
Shares to be issued and shall deliver to the Holder, as promptly
as practicable, a certificate representing the Shares being
purchased. This Warrant may be exercised for not less than 1,000
Shares and in additional increments of 1,000 Shares at any time
and from time to time during the Exercise Period. Upon each
partial exercise hereof, a new Warrant evidencing the remainder
of the Shares will be issued to the Holder, at the Company's
expen se, as soon as reasonably practicable, at the same Exercise
Price, for the same Exercise Period, and otherwise of like tenor
as the Warrant partially exercised. The Purchase Price shall be
payable by delivery of a certified or bank cashier's check
payable to the Company, or by wire transfer of immediately
available funds to an account designated in writing by the
Company, in the amount of the Purchase Price. The Holder
shall be deemed for all purposes to have become the holder of
record of Shares so purchased upon exercise of this
Warrant as of the close of business on the date as of which this
Warrant, together with a duly executed Purchase Form, was
delivered to the Company and payment of the Purchase Price was
made, regardless of the date of delivery of any certificate
representing the Shares so purchased, except that if the Company
were subject to any legal requirements prohibiting it from
issuing shares of Common Stock on such date, the Holder shall be
deemed to have become the record holder of such Shares on the
next succeeding date as of which the Company ceased to be so
prohibited.
2. Exchange; Restrictions on Transfer or Assignment. This
Warrant is exchangeable, without expense, at the option of the
Holder, upon surrender hereof to the Company for other
Warrants of like tenor of different denominations entitling the
Holder to purchase in the aggregate the same number of Shares
purchasable hereunder. This Warrant and the Holder's
rights hereunder may not be transferred, assigned or subjected to
a pledge or security interest, except that the Holder may
transfer this Warrant in whole or in part (in minimum increments
of 1,000 Shares) to a corporation controlled by or under common
control with the Holder, by surrender of this Warrant to the
Company at its principal office with the assignment form
attached hereto duly completed and executed (with signature
guaranteed), whereupon the Company, if it determines that the
proposed assignment is permitted pursuant to the provisions
hereof, shall register the assignment of this Warrant in
accordance with the information contained in the assignment
instrument and shall, without charge, execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees
named in such assignment instrument (and, if applicable, a new
Warrant in the name of the Holder evidencing any remaining
portion of the Warrant not theretofore exercised, transferred or
assigned) and this Warrant shall promptly be cancelled.
Conditions to the transfer of this Warrant or any portion
thereof shall be that the proposed transferee deliver to the
Company his or its written agreement to accept and be bound by
all of the terms and conditions of this Warrant. The term
"Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged.
3. Rights and Obligations of Warrant Holders. This Warrant
does not confer upon the Holder any rights as a shareholder of
the Company, either at law or in equity. The rights of
the Holder are limited to those expressed herein and the Holder,
by acceptance hereof, consents to and agrees to be bound by and
to comply with all the provisions of this Warrant. Each
Holder, by acceptance of this Warrant, agrees that the Company
and its transfer agent, if any, may, prior to any presentation of
this Warrant for registration of transfer, deem and treat the
person in whose name this Warrant is registered as the absolute,
true and lawful owner of this Warrant for all purposes whatsoever
and neither the Company nor any transfer agent shall be
affected by any notice to the contrary.
4. Covenants and Warranties of the Company. The Company
covenants and agrees that (i) all Shares which may be issued and
delivered upon exercise of this Warrant and payment of
the Purchase Price will, upon delivery, be duly authorized,
validly issued, fully-paid and nonassessable shares of Common
Stock; and (ii) the Company shall at all times during the
Exercise Period reserve and keep available a number of authorized
but unissued shares of Common Stock sufficient to permit the
exercise in full of this Warrant. The Company will take
all such actions as may be necessary to assure that all shares of
Common Stock may be so issued without violation by the Company of
any applicable law or government regulation or any requirement of
any securities exchange upon which shares of Common Stock may be
listed (except for official notice of issuance, which the Company
will transmit promptly upon issuance of such shares). The
Company will at no time close its shareholder books or records in
any manner which interferes with the timely exercise of this
Warrant.
The Company represents and warrants that: (i) the Company is a
corporation duly organized, validly existing and in good standing
under the laws of the state of Delaware; (ii) the Company
has all requisite corporate power and authority to issue this
Warrant and to consummate the transactions contemplated hereby,
and such issuance and consummation will not conflict with,
result in a material breach of, constitute a material default
under or material violation of any provision of the Company's
Articles of Incorporation or Bylaws, and to the best knowledge of
the Company, any law or regulation of any governmental authority
or any provision of any agreement, judgment or decree affecting
the Company; and (iii) all corporate action required to
be taken by the Company in connection with the execution and
delivery of this Warrant and the performance of the Company's
obligations hereunder has been taken.
5. Disposition of Warrants or Shares. The Holder acknowledges
that this Warrant and the Shares issuable upon exercise thereof
have not been registered under the Act or applicable
state law. The Holder agrees, by acceptance of this Warrant, (i)
that no sale, transfer or distribution of this Warrant or the
Shares shall be made except in compliance with the Act and
the rules and regulations promulgated thereunder, including any
applicable prospectus delivery requirements and the restrictions
on transfer set forth herein, and (ii) that if distribution of
this Warrant or any Shares is proposed to be made by it otherwise
than by delivery of a prospectus meeting the requirements of
Section 10 of the Act, such action shall be taken only after
submission to the Company of an opinion of counsel, reasonably
satisfactory in form and substance to the Company's counsel, to
the effect that the proposed distribution will not be in
violation of the Act or of applicable state law.
6. Adjustment. The number of Shares purchasable upon the
exercise of this Warrant and the Exercise Price per Share are
subject to adjustment from time to time as provided in this
Section 6.
(a) Subdivision or Combination of Shares. If the Company
shall at any time subdivide its outstanding shares of Common
Stock into a greater number of shares (including a stock split
effected as a stock dividend) or combine its outstanding shares
of Common Stock into a lesser number of shares, the number of
Shares issuable upon exercise of this Warrant shall be adjusted
to such number as is obtained by multiplying the number of shares
issuable upon exercise of this Warrant immediately prior to such
subdivision or combination by a fraction, the numerator of
which is the aggregate number of shares of Common Stock
outstanding immediately after giving effect to such subdivision
or combination and the denominator of which is the aggregate
number of shares of Common Stock outstanding immediately prior to
such subdivision or combination, and the Exercise Price per Share
shall be correspondingly adjusted to such amount as shall,
when multiplied by the number of Shares issuable upon full
exercise of this Warrant (as increased or decreased to reflect
such subdivision or combination of outstanding shares of
Common Stock, as the case may be), equal the product of the
Exercise Price per Share in effect immediately prior to such
subdivision or combination multiplied by the number of Shares
issuable upon exercise of this Warrant immediately prior to such
subdivision or combination.
(b) Effect of Sale, Merger or Consolidation. If any
capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company
with another corporation, or sale of all or substantially all of
the Company's assets to another corporation shall be effected
after the date hereof in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a condition
of such reorganization, reclassification, consolidation, merger
or sale, lawful and adequate provision shall be made whereby the
Holder shall thereafter have the right to purchase and receive,
upon the basis and the terms and conditions specified in this
Warrant and in lieu of the Shares immediately theretofore
purchasable and receivable upon the exercise of this Warrant,
such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares
of Common Stock immediately theretofore purchasable and
receivable upon the exercise of this Warrant, and in any such
case appropriate provision shall be made with respect to the
rights and interests of the Holder to the end that the provisions
of this Warrant (including, without limitation, provisions for
adjustments of the Exercise Price and of the number of Shares
issuable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be possible, in relation to any
shares of stock, securities or assets thereafter deliverable upon
the exercise of this Warrant. The Company shall not effect any
such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets
shall assume, by written instrument executed and delivered to the
Holder at its last address appearing on the books of the Company,
the obligation to deliver to the Holder such shares of stock,
securities or assets as, in accordance with the foregoing
sentence, the Holder may be entitled to purchase.
(c) Notice to Holder of Adjustment. Whenever the number of
Shares purchasable upon exercise of this Warrant or the Exercise
Price per Share is adjusted as herein provided, the Company shall
cause to be mailed to the Holder, in accordance with the
provisions of Section 10 hereof, notice setting forth the
adjusted number of Shares purchasable upon the exercise of
the Warrant and the adjusted Exercise Price and showing in
reasonable detail the computation of the adjustment and the facts
upon which such adjustment is based.
(d) Notices to Holder of Certain Events. If at any time
after the date hereof:
(i) the Company shall declare any dividend or
other distribution upon or with respect to the Common Stock
payable otherwise than in cash out of the consolidated net income
of the Company and any subsidiaries thereof, including any
dividend payable in shares of Common Stock or other securities of
the Company; or
(ii) the Company shall offer for subscription to
the holders of its Common Stock any additional shares of stock of
any class or any other securities convertible into stock or any
rights to subscribe thereto; or
(iii) there shall be any capital reorganization
or reclassification of the capital stock of the Company (other
than a change in par value, or from par value to no par value, or
from no par value to par value or as result of the subdivision or
combination of shares), or any conversion of the Shares into
securities of another corporation, or a sale of all or
substantially all of the assets of the Company, or a
consolidation or merger of the Company with another corporation
(other than a merger with a subsidiary in which the Company is
the continuing corporation and which does not result in any
reclassification or change of the Shares issuable upon exercise
of the Warrants); or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company; then, in
any one or more of said cases, the Company shall cause to be
mailed to the Holder, not less than ten (10) days before any
record date or other date set for the definitive action, written
notice of the date upon which the books of the Company shall
close or a record shall be taken for purposes of such dividend,
distribution or subscription rights or upon which such
reorganization, reclassification, conversion, sale,
consolidation, merger, dissolution, liquidation or winding up
shall take place, as the case may be. Such notice shall also set
forth facts as shall indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on
the number of Shares and the kind and amount of the shares of
stock and other securities and property deliverable upon exercise
of the Warrants. Such notice shall also specify the date as of
which the holder of record of the shares of Common Stock shall
participate in said dividend, distribution or subscription rights
or shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, conversion, sale,
consolidation, merger, dissolution, liquidation or winding up,
as the case may be (on which date in the event of voluntary or
involuntary dissolution, liquidation or winding up of the
Company, the right to exercise the Warrants shall terminate).
(e) Fractional Shares. The Company shall not be required
to issue any fraction of a Share upon the exercise of this
Warrant. The number of full Shares which shall be issuable
upon the full or partial exercise of this Warrant shall be
computed on the basis of the aggregate number of Shares as to
which this Warrant is being exercised. In lieu of any fractional
interest in a Share otherwise deliverable upon the exercise of
this Warrant, the Company shall pay a cash adjustment (which may
be effected as a reduction of the amount to be paid by the Holder
upon such exercise) in respect of such fraction of a Share in an
amount equal to the same fraction multiplied by the closing sales
price of the Common Stock on the principal securities exchange
on which the Common Stock is traded, or if the Common Stock is
not so listed for trading, the closing bid price of the Common
Stock, in each case on the date of the notice of exercise
required pursuant to Section 1 above, or the next succeeding
trading date, if the date of such notice is not a trading date,
or if the Common Stock is not traded on such dates, the next
succeeding trading date on which the Common Stock is traded.
(f) No Other Adjustments. No adjustment to the number of
Shares subject to this Warrant or the Exercise Price per Share
shall be made pursuant to this Section 6 except as
expressly provided herein.
7. Piggy-Back Registration.
(a) In the event the Company shall, at any time prior to
the expiration of this Warrant, file a registration statement
with the Securities and Exchange Commission (the "SEC") to
register shares of Common Stock, the Company shall furnish the
Holders with at least thirty (30) days prior written notice
thereof and such Holders shall have the option to include the
Shares to be issued to the Holders upon the exercise of this
Warrant in such registration statement. The Holders shall
exercise the "piggy-back registration rights" granted pursuant to
this Section 7 by giving written notice to the Company within
twenty (20) days of the receipt of the aforementioned written
notice from the Company.
(b) Notwithstanding any other provision of this Warrant,
the Company's obligations under this Section 7 shall be subject
to and limited by the following terms and conditions:
(i) The obligations of the Company set forth under this
Section 7 shall not arise upon the filing of a registration
statement relating solely to shares of Common Stock issued
pursuant to employee stock option or other benefit plans, a
merger of other business combination or a registration statement
which does not include substantially the same information
as Form S-1, Form S-2 or Form S-3, or any successor forms
thereto.
(ii) If the Company files a registration statement in
connection with a proposed underwritten primary or secondary
public offering of Common Stock, the Company shall use
its best efforts to cause the managing underwriter of the
proposed offering to grant any request by the Holder that Shares
purchased by the Holder upon the exercise of this Warrant be
included in the proposed public offering on terms and conditions
which are customary under industry practice. Notwithstanding any
other provision of this Agreement, if the managing underwriter
of a proposed primary or secondary public offering of the Common
Stock gives written notice to the Company that, in the reasonable
opinion of such managing underwriter, marketing factors
require a limitation of the total number of shares of Common
Stock to be underwritten, then the number of Shares purchased by
the Holder upon the exercise of this Warrant which the
Company shall be obligated to include in the registration
statement shall be reduced in accordance with the limitations
imposed by the managing underwriter. Any such limitation
imposed by the managing underwriter shall be imposed pro rata
among all holders of Common stock exercising rights granted
pursuant to this Section 7 or otherwise, in accordance with the
amount of Common Stock which each such person requested to be
included in the registration statement.
(c) The Company will pay all Registration Expenses (as
hereinafter defined) of all registrations under this Warrant;
provided, however, that if a registration is withdrawn at the
request of the Holders requesting such registration (other than
as a result of information concerning the business or financial
condition of the Company which is made known to the
Holders after the date on which such registration was requested),
each of the Holders shall pay the Registration Expenses of such
registration pro rata in accordance with the number of its
Shares included in such registration. For purposes of this
Section 7, the term "Registration Expenses" shall mean all
expenses incurred by the Company in complying with this Section
7, including, without limitation, all registration and filing
fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company, state Blue Sky fees and
expenses, transfer agent fees, cost of engraving of stock
certificates, costs for mailing and tombstone advertising, cost
of preparing the registration statement, related exhibits,
amendments and supplements thereto, underwriting documents,
selected dealer agreements, preliminary and final
prospectuses, and the expense of any special audits incident to
or required by any such registration, but excluding underwriting
discounts and selling commissions attributable to the
Shares and the fees and expenses of the Holder's own counsel and
accountants, which shall be borne by such holders.
8. Indemnification and Notification.
(a) The Company will indemnify and hold harmless the
Holders, and each person, if any, who controls such Holders
within the meaning of Section 15 of the Act, from and against
any and all losses, claims, damages, expenses and liabilities
caused by any untrue statement of a material fact contained in
any registration statement or contained in a prospectus furnished
thereunder or caused by any omission to state a material fact
therein necessary to make the statement therein not misleading
provided, however, that the foregoing indemnification and
agreement to hold harmless shall not apply insofar as such
losses, claims, damages, expenses and liabilities are caused by
any such untrue statement or omissions based upon information
furnished in writing to the Company by any such Holder expressly
for use in any registration statement or prospectus.
(b) The Holders will indemnify the Company, and each person
who controls the Company within the meaning of Section 15 of the
Act, from and against any and all losses, claims, damages,
expenses and liabilities caused by an untrue statement of a
material fact contained in any registration statement or
contained in a prospectus furnished thereunder or caused by an
omission to state a material fact therein necessary to make the
statement therein not misleading insofar as such losses, claims,
damages, expenses and liabilities caused by such untrue statement
or omission based upon information furnished in writing to the
Company by any such Holder expressly for use in any registration
statement or prospectus.
(c) Promptly after the receipt by any indemnified party of
notice of the commencement of any action, said indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying
party in writing of the commencement thereof; but the omission to
so notify the indemnifying party will not relieve it from any
liabilities which it may have to them otherwise than under this
Section 8, except if such delay prejudices the indemnifying
party. In case any such action is brought against any party who
may seek indemnification hereunder and the indemnifying party is
notified of the commencement thereof as provided her ein, the
indemnifying party will be entitled to participate in, and, to
the extent that it may wish, to assume the defense thereof, with
counsel satisfactory to the indemnified party, and after notice
from the indemnifying party to such indemnified party of the
indemnifying party's election so to assume the defense thereof,
the indemnifying party will not be liable under this Section 8
for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other
than reasonable costs of investigation. The indemnifying party
will not be liable for any settlement effected without its
written consent.
9. Survival. The various rights and obligations of the Holder
and of the Company as set forth in Sections 4, 5, 6, 7 and 8
hereof shall survive the exercise of this Warrant and the
surrender of this instrument upon such exercise.
10. Notice. All notices required by this Warrant to be given or
made by the Company shall be given or made by first class mail,
postage prepaid, addressed to the registered holder hereof
at the address of such holder as shown on the books of the
Company.
11. Loss or Destruction. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any loss, theft or
destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company and its counsel,
or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like
tenor.
12. Miscellaneous.
(a) Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated except by a written
instrument executed by the Company and the Holder.
(b) This Warrant shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of
Florida, without regard to principles of conflicts of laws
thereof.
(c) Each provision of this Warrant shall be interpreted in
such a manner as to be effective, valid and enforceable under
applicable law, but if any provision of this Warrant is held
to be invalid, illegal or unenforceable under any applicable law
or rule in any jurisdiction, such provision will be ineffective
only to the extent of such invalidity, illegality or
unenforceability in such jurisdiction, without invalidating the
remainder of this Warrant in such jurisdiction or any provision
hereof in any other jurisdiction.
(d) No course of dealing or delay or failure to exercise
any right hereunder on the part of the Holder shall operate as a
waiver of such right or otherwise prejudice the Holder's
rights, power or remedies.
(e) The Company shall pay all expenses incurred by it in
connection with, and all documentary stamp and other taxes (other
than stock transfer taxes) and other governmental charges that
may be imposed in respect of, the issue, sale and delivery of
this Warrant and the Shares issuable upon the exercise hereof.
(f) This Warrant and the rights evidenced hereby shall
inure to the benefit of and be binding upon the successors and
assigns of the Company and the successors and permitted
assigns of the Holder.
IN WITNESS WHEREOF the Company has caused this Warrant to be
executed by its duly authorized officer as of the __ day of
October, 1998.
ATTEST: nSTOR TECHNOLOGIES, INC.
By: By:
Name: Name:
Title: Title:
ASSIGNMENT
To be executed by the registered holder to effect a
permitted transfer of the within Warrant. Capitalized terms have
the same meanings ascribed to them in the within Warrant.
FOR VALUE RECEIVED ("Assignor") hereby sells, assigns and transfers
unto ("Assignee")
(Name)
(Address)
the right to purchase __________ shares of Common Stock of nStor
Technologies, Inc. evidenced by the within Warrant, together with
all right, title and interest therein, and does irrevocably
constitute and appoint _____________________________
attorney to transfer the said right on the books of said
corporation with full power of substitution in the premises.
In satisfaction of a condition to the effectiveness of this
assignment, Assignor hereby certifies that Assignee is a
corporation controlled by or under common control with Assignor.
Date: Assignor:
By_________________________
Its_________________________
Signature:
PURCHASE FORM
To be executed upon exercise of the within Warrant.
Capitalized terms have the same meanings ascribed to them in the
within Warrant.
TO: nStor Technologies, Inc.
The undersigned hereby exercises the right to purchase
_____________ Shares of Common Stock evidenced by the within
Warrant, according to the terms and conditions thereof,
and hereby makes payment of the Purchase Price. The undersigned
requests that certificates for the Shares shall be issued in the
name set forth below:
Dated: Name:
(Address)
Social Security No.
or other identifying number
EXHIBIT 4.9
FORM OF
SUBSCRIPTION AGREEMENT
nStor Technologies, Inc., a Delaware corporation (the
"Company"), and H. Irwin Levy (the "Investor"), hereby agree as
follows:
1. Sale and Purchase of Shares.
(a) Subject to the prior approval of the Company's
Board of Directors, the Company agrees to issue to the Investor,
and the Investor agrees to purchase from the Company,
on the terms and conditions set forth in this Subscription
Agreement (the "Agreement"), 500 shares (the "Shares") of the
Company's Series C Preferred Stock (the "Preferred Stock")
having the designations set forth in the Certificate of
Designation attached hereto and made a part hereof.
(b) The Company shall issue the Shares in
consideration of, and against payment by, the Investor of
_________________________ ($_______), in the form of the
Promissory Note listed on Appendix A hereof having a face value
equal to $_______ and which is being surrendered to the Company
on the date hereof.
(c) The closing shall take place at such time and
place as shall be mutually agreed.
2. Certain Representations of the Investor.
The Investor hereby represents and warrants to the
Company, its officers and directors, the following:
(a) The Investor is an individual resident of Palm
Beach County, in the state of Florida.
(b) The Investor has read carefully and understands
this Agreement and has consulted his own attorney or accountant
with respect to the investment contemplated hereby and
its suitability for the Investor.
(c) The Company has made available to the Investor, or
his designated representatives, during the course of this
transaction and prior to the purchase of any of the
securities referred to herein, the opportunity to ask questions
of and receive answers from the officers and directors of the
Company concerning the terms and conditions of the offering or
otherwise relating to the financial data and business of the
Company, to the extent that the Company or its officers and
directors possess such information or can acquire it without
unreasonable effort or expense. The Company has also made
available to the Investor for inspection, documents, records,
books and other written information about the Company, its
business and this investment at the office of the Company at 100
Century Blvd., West Palm Beach, FL 33417.
(d) The Investor understands and represents that: (i)
the Investor must bear the economic risk of this investment for
an indefinite period of time because the 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) the
Investor is purchasing the Shares for investment for his own
account and not for the account 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) the Investor agrees
not to resell or otherwise dispose of all or any part of the
Shares, except as permitted by law, including, without
limitation, any and all applicable provisions of this Agreement
and any regulations under the 1933 Act.
(e) The Investor 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 Shares. The
Investor represents, warrants and covenants that he is an
"Accredited Investor" within the meaning of Rule 501 of the 1933
Act. In particular, the Investor qualifies as such pursuant to
Subsections (a)(5) and (6) of Rule 501, which provides that an
Accredited Investor shall include:
any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of hispurchase
exceeds $1,000,000; and
any natural person who had an individual income in excess
of $200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation of
reaching the same income level in the current year."
(f) The Investor is aware that an investment in the
Shares is highly speculative and subject to substantial risks. The
Investor 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 Shares, which may make the
liquidation of this investment impossible for an indefinite
period of time. The financial condition of the Investor is such
that he is under no present or contemplated future need to dispose
of any of the Shares to satisfy any existing or contemplated
undertaking, need or indebtedness.
(g) All of the information that either Investor has
set forth or represented in this Agreement, with respect to his
financial position and business and investment experience
is correct and complete as of the date of this Agreement and, if
there should be any material change in such information prior to
the purchase of Shares, the Investor will immediately furnish
the revised or corrected information to the Company.
(h) The Investor agrees that he shall be bound by all
of the terms, conditions, duties and obligations of this Agreement
insofar as such matters affect the Company and/or the
Investor.
3. Restricted Stock and Legend.
(a) The Investor acknowledges that the Shares offered
hereunder are being offered pursuant to a private placement
exemption under the 1933 Act, and that the Shares are
deemed "restricted securities" as defined in the 1933 Act. Until
the securities offered hereunder become registered with the
Securities and Exchange Commission, each certificate
representing a share of Common Stock shall bear a legend in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM AND WITH THE CONSENT OF THE
ISSUER. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(b) Prior to any transfer or attempted transfer of any
of the Shares issued hereunder, or any interest therein, the
Investor shall give the Company written notice of his
intention to make such transfer, describing the manner of the
intended transfer and the proposed transferee. Promptly after
receiving such written notice, the Company shall present copies
thereof to counsel for the Company and to any special counsel
designated by such Investor or by such holder. If in the opinion
of each of such counsel the proposed transfer may be effected
without registration of the Shares under the applicable federal
or state securities laws, as promptly as practicable, the Company
shall notify the Investor of such opinions, whereupon the
Shares proposed to be transferred shall be transferred in
accordance with the terms of said notice. The Company shall not be
required to effect any such transfer prior to the receipt of
such favorable opinion(s); provided, however, the Company may
waive the requirement that Investor obtain an opinion of counsel,
in its sole and absolute discretion. As a condition to such
favorable opinion, counsel for the Company may require an
investment letter to be executed by the proposed transferee.
4. No Assignment.
This Agreement is neither transferable nor assignable
by the Investor without the prior written consent of the Company.
5. General.
(a) This Agreement shall be binding upon the Investor
and the Company and their respective representatives, successors,
and permitted assigns;
(b) This Agreement shall be governed, construed and
enforced in accordance with the internal laws of the State of
Florida;
(c) all covenants, agreements, representations and
warranties made herein or otherwise made in writing by any party
pursuant hereto shall survive the execution and delivery
of this Agreement and the consummation of the transactions
contemplated hereby;
(d) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same
instrument; and
(e) Notices required or permitted to be given
hereunder shall be in writing and shall be deemed to be
sufficiently given when personally delivered or when sent by
registered mail, return receipt requested, addressed (i) if to the
Company, at nStor Technologies, Inc., 100 Century Blvd., West Palm
Beach, FL 33417, attn: Mark Levy, and (ii) if to the Investor, at
the address set forth under its name below, or at such other
address as each such party furnishes by notice given in accordance
with this Section 5(e), and shall be effective, when personally
delivered, upon receipt, and when so sent by certified mail, four
business days after deposit with the United States Postal Service.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the 28th day of October, 1998.
nSTOR TECHNOLOGIES, INC.
a Delaware corporation
By:_________________________
Mark Levy, Vice President
INVESTOR
________________________________
H. Irwin Levy
____________________________________
Address
APPENDIX A
Promissory Note cancelled in payment of issuance of within stock:
Promissory Note dated ________________ in the principal
amount of $_______.
EXHIBIT 4.10
SUBSCRIPTION AGREEMENT
nStor Technologies, Inc., a Delaware corporation (the
"Company"), and H. Irwin Levy (the "Investor"), hereby agree as
follows:
1. Sale and Purchase of Shares.
(a) Subject to the prior approval of the Company's
Board of Directors, the Company agrees to issue to the Investor,
and the Investor agrees to purchase from the Company,
on the terms and conditions set forth in this Subscription
Agreement (the "Agreement"), 1,000 shares (the "Shares") of the
Company's Series C Preferred Stock (the "Preferred Stock")
having the designations set forth in the Certificate of
Designation attached hereto and made a part hereof.
(b) The Company shall issue the Shares in
consideration of the return by Investor of his shares of the
Company's Series B Preferred Stock, which certificate evidencing
such shares is being surrendered to the Company on the date
hereof.
(c) The closing shall take place at such time and
place as shall be mutually agreed.
2. Certain Representations of the Investor.
The Investor hereby represents and warrants to the
Company, its officers and directors, the following:
(a) The Investor is an individual resident of Palm
Beach County, in the state of Florida.
(b) The Investor has read carefully and understands
this Agreement and has consulted his own attorney or accountant
with respect to the investment contemplated hereby and
its suitability for the Investor.
(c) The Company has made available to the Investor, or
his designated representatives, during the course of this
transaction and prior to the purchase of any of the
securities referred to herein, the opportunity to ask questions
of and receive answers from the officers and directors of the
Company concerning the terms and conditions of the offering or
otherwise relating to the financial data and business of the
Company, to the extent that the Company or its officers and
directors possess such information or can acquire it without
unreasonable effort or expense. The Company has also made
available to the Investor for inspection, documents, records, books
and other written information about the Company, its
business and this investment at the office of the Company at 100
Century Boulevard, West Palm Beach, Florida 33417.
(d) The Investor understands and represents that: (i)
the Investor must bear the economic risk of this investment for an
indefinite period of time because the 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) the
Investor is purchasing the Shares for investment for his own
account and not for the account 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) the Investor agrees
not to resell or otherwise dispose of all or any part of the
Shares, except as permitted by law, including, without limitation,
any and all applicable provisions of this Agreement and any
regulations under the 1933 Act.
(e) The Investor 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 Shares. The
Investor represents, warrants and covenants that he is an
"Accredited Investor" within the meaning of Rule 501 of the 1933
Act. In particular, the Investor qualifies as such pursuant to
Subsections (a)(5) and (6) of Rule 501, which provides that an
Accredited Investor shall include:
any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase
exceeds $1,000,000; and
any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint ncome
with that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the
same income level in the current year."
(f) The Investor is aware that an investment in the
Shares is highly speculative and subject to substantial risks. The
Investor 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 Shares, which may make the
liquidation of this investment impossible for an indefinite
period of time. The financial condition of the Investor is such
that he is under no present or contemplated future need to dispose
of any of the Shares to satisfy any existing or contemplated
undertaking, need or indebtedness.
(g) All of the information that Investor has either
set forth or represented in this Agreement, with respect to his
financial position and business and investment experience,
is correct and complete as of the date of this Agreement and, if
there should be any material change in such information prior to
the purchase of Shares, the Investor will immediately furnish
the revised or corrected information to the Company.
(h) The Investor agrees that he shall be bound by all
of the terms, conditions, duties and obligations of this Agreement
insofar as such matters affect the Company and/or the
Investor.
3. Restricted Stock and Legend.
(a) The Investor acknowledges that the Shares offered
hereunder are being offered pursuant to a private placement
exemption under the 1933 Act, and that the Shares are deemed
"restricted securities" as defined in the 1933 Act. Until
the securities offered hereunder become registered with the
Securities and Exchange Commission, each certificate
representing a share of Common Stock shall bear a legend in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGIS-
TERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANS-
FERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLIC-
ABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM AND WITH THE CONSENT OF THE ISSUER.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFI-
NITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATIS-
FACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
(b) Prior to any transfer or attempted transfer of any
of the Shares issued hereunder, or any interest therein, the
Investor shall give the Company written notice of his intention to
make such transfer, describing the manner of the intended transfer
and the proposed transferee. Promptly after receiving such written
notice, the Company shall present copies
thereof to counsel for the Company and to any special counsel
designated by such Investor or by such holder. If in the opinion
of each of such counsel the proposed transfer may be effected
without registration of the Shares under the applicable federal
or state securities laws, as promptly as practicable, the Company
shall notify the Investor of such opinions, whereupon the
Shares proposed to be transferred shall be transferred in
accordance with the terms of said notice. The Company shall not be
required to effect any such transfer prior to the receipt of
such favorable opinion(s); provided, however, the Company may
waive the requirement that Investor obtain an opinion of counsel,
in its sole and absolute discretion. As a condition to such
favorable opinion, counsel for the Company may require an
investment letter to be executed by the proposed transferee.
4. No Assignment.
This Agreement is neither transferable nor assignable
by the Investor without the prior written consent of the Company.
5. General.
(a) This Agreement shall be binding upon the Investor
and the Company and their respective representatives, successors,
and permitted assigns;
(b) This Agreement shall be governed, construed and
enforced in accordance with the internal laws of the State of
Florida;
(c) all covenants, agreements, representations and
warranties made herein or otherwise made in writing by any party
pursuant hereto shall survive the execution and delivery
of this Agreement and the consummation of the transactions
contemplated hereby;
(d) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument; and
(e) Notices required or permitted to be given
hereunder shall be in writing and shall be deemed to be
sufficiently given when personally delivered or when sent by
registered mail, return receipt requested, addressed (i) if to the
Company, at nStor Technologies, Inc., 100 Century Boulevard, West
Palm Beach, Florida 33417, attn: Mark F. Levy, and (ii) if to the
Investor, at the address set forth under its name below, or at such
other address as each such party furnishes by notice given in
accordance with this Section 5(e), and shall be effective, when
personally delivered, upon receipt, and when sent by certified
mail, four business days after deposit with the United States
Postal Service.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the 28th day of October, 1998.
nStor Technologies, Inc. Investor
a Delaware corporation
/s/ Mark F. Levy /s/ Irwin Levy
By:___________________________ --------------------
Mark F. Levy, Vice President H. Irwin Levy
100 Century Blvd.
West Palm Beach, FL 33417
---------------------------
Address
EXHIBIT 4.11
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of October 28,
1998 (this "Agreement"), is made by and among nStor Technologies,
Inc., a Delaware corporation (the "Company"), and the person named
on the signature page hereto (the "Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, of
even date herewith between the Investor and the Company (the
"Subscription Agreement"), the Company has agreed, upon the terms
and subject to the conditions of the Subscription Agreement, to
issue and sell to the Investor shares (the "Shares") of Series C
Preferred Stock (the "Preferred Stock");
WHEREAS, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended,
and the rules and regulations thereunder, or any similar
successor statute (collectively, the "Securities Act"), and
applicable state securities laws with respect to the Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Investor hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms
shall have the following
meanings:
(i) "register," "registered" and "registration"
refer to a registration effected by preparing and filing a
Registration Statement or Statements on Form S-3 or
another form acceptable to Investor in compliance with the
Securities Act and pursuant to Rule 415 under the Securities Act or
any successor rule providing for offering securities on a
continuous basis ("Rule 415") and the declaration or ordering of
effectiveness of such Registration Statement by the United States
Securities and Exchange Commission ("SEC").
(ii) "Registration Statement" means a
registration statement under the Securities Act.
(iii) "Common Stock" shall mean the common stock
of the Company, par value $.05 per share.
(b) Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the
Subscription Agreement.
2. Registration.
(a) The Company shall prepare and file with the SEC,
no later than 90 days prior to the date by which the Series C
Preferred Stock may be converted into common stock, a registration
statement on Form S-3 covering at least 500,000
shares of Common Stock that are issuable upon conversion of
Preferred Stock.
(b) The Company represents and warrants that it meets
the requirements for the use of Form S-3 for registration of the
sale by the Investor of the Registerable Securities
and the Company shall file all reports required to be filed by
the Company with the SEC in a timely manner so as to maintain such
eligibility for the use of Form S-3.
(c) Notwithstanding the registration of the resale of
Common Stock in accordance with Section 2(a), if at any time of
offer and sale of such Common Stock such securities can be sold
pursuant to Rule 144 promulgated under the Securities Act ("Rule
144") in the manner, amount and on such terms as the Investor
wishes to offer and sell such securities, the Investor may endeavor
to offer and sell such securities pursuant to Rule 144.
3. Obligations of the Company. In connection with the
registration of the Common Stock, the Company shall:
(a) Prepare and file with the SEC promptly (but in no
event later than the applicable time periods set forth in Section
2(a)) a Registration Statement or Statements with respect to the
Common stock and thereafter use its best efforts to cause the
Registration Statement to become effective as soon as possible
after such filing, and keep the Registration Statement, if the
Registration Statement utilizes to Rule 415, effective at all times
until such date as is two years, after the date such Registration
Statement is first ordered effective by the SEC. In any case, the
Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) filed by the Company
shall not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with
the Registration Statement as may be necessary to keep the
Registration Statement effective for the time periods set forth in
Section 3(a);
(c) Furnish to the Investor (i) promptly after the
same is prepared and publicly distributed, filed with the SEC or
received by the Company, one copy of the Registration Statement and
any amendment thereto, each preliminary prospectus and
prospectus and each amendment or supplement thereto and (ii) such
number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such
other documents as the Investor may reasonably request in order to
facilitate the disposition of the Common Stock owned by the
Investor;
(d) Use reasonable efforts to (i) register and qualify
the Common Stock covered by the Registration Statement under such
other securities or blue sky laws of such jurisdictions as the may
reasonably request, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and
supplements, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all
times that the Registration Statement is required to be effective
under Section 3(a) hereof and (iv) take all other actions
reasonably necessary or advisable to qualify the Common Stock for
sale in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a condition
thereto to (I) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section
3(d), (II) subject itself to general taxation in any such
jurisdiction, (III) file a general consent to service of process in
any such jurisdiction, (IV) provide any undertakings that cause
more than nominal expense or burden to the Company or (V) make any
change in its charter or bylaws, which in each case the Board of
Directors of the Company determines to be contrary to the best
interests of the
Company and its stockholders;
(e) As promptly as practicable after becoming aware of
such event, notify the Investor of the happening of any event of
which the Company has knowledge, as a result of which the
prospectus included in the Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts
promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver
a number of copies of such supplement or amendment to the Investor
as the Investor may reasonably request;
(f) As promptly as practicable after becoming aware of
such event, notify the of the issuance by the SEC of any stop order
or other suspension of effectiveness of the Registration Statement
at the earliest possible time;
(g) Permit a single firm of counsel designated as
selling stockholders' counsel by the Investor to review the
Registration Statement and all amendments and supplements
thereto a reasonable period of time prior to their filing with
the SEC, and shall not file any document in a form to which such
counsel reasonably objects;
(h) Make available for inspection by the Investor, any
underwriter participating in any disposition pursuant to the
Registration Statement and any attorney, accountant or other agent
retained by the Investor or underwriter (collectively, the
"Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably necessary to
enable each Inspector to exercise its due diligence
responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided,
however, that each Inspector shall hold in confidence (making such
confidential information known only to officers, agents
or employees thereof who have a need to know), shall not use any
information so obtained for any purpose other than preparation or
review of the registration statement, and shall not make any
disclosure (except to an Investor or underwriter) of any
Record or other information which the Company determines in good
faith to be confidential, and of which determination the Inspectors
are so notified, unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (ii) the release of such
Records is requested pursuant to a subpoena or other order from a
court or government body of competent jurisdiction, or (iii) the
information in such Records has been made generally
available to the public other than by disclosure in violation of
this or any other agreement. The Company shall not be required to
disclose any confidential information in such Records to any
Inspector or Investor until and unless the Investor or Inspector
shall have entered into confidentiality agreements (in a form as is
customary in similar circumstances) with the Company with respect
thereto, substantially in the form of this Section 3(h). The
Investor agrees that he shall, upon learning that disclosure of
such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice
to the Company and allow the Company, at the Company's expense, to
undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not
make any disclosure of information concerning an Investor provided
to the Company pursuant to Section 4(a) hereof
unless (i) disclosure of such information is necessary to comply
with federal or state securities laws, (ii) the disclosure of such
information is necessary to avoid or correct a misstatement
or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction or (iv)
such information has been made generally available to the public
other than by disclosure in violation of this or any other
agreement. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in
or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Investor, to
undertake, at Investor's expense, appropriate action to prevent
disclosure of, or to obtain a protective order for, such
information;
(i) Use its best efforts either to (i) cause all the
Common Stock covered by the Registration Statement to be listed on
the American Stock Exchange or other national
securities exchange and on each additional national securities
exchange on which similar securities issued by the Company are then
listed, if any, if the listing of such Common Stock
is then permitted under the rules of such exchange or (ii) secure
designation of all the Common Stock covered by the Registration
Statement as a National Association of Securities Dealers Automated
Quotations System ("Nasdaq") "national market
system security" within the meaning of Rule 11Aa2-1 of the SEC
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the quotation of the Common Stock on the
Nasdaq National Market System; or, if, despite the Company's best
efforts to satisfy the preceding clause (i) or (ii), the Company
is unsuccessful in satisfying the preceding clause (i) or (ii), to
arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such
with respect to such Common Stock;
(j) Provide a transfer agent and registrar, which may
be a single entity, for the Common Stock not later than the
effective date of the Registration Statement;
(k) Cooperate with the Investor to facilitate the
timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Common Stock to be
sold pursuant to the denominations or amounts as the case may be,
and registered in such names as the Investor may reasonably
request; and
(l) take all other reasonable actions necessary to
expedite and facilitate disposition by the Investor of the Common
Stock pursuant to the Registration Statement.
4. Obligations of the Investor. In connection with the
registration of the Common Stock, the Investor shall have the
following obligations:
(a) It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to
this Agreement with respect to the Investor that the
Investor shall furnish to the Company such information regarding
itself and the intended method of disposition of the Common Stock
held by it as shall be reasonably required to effect the
registration of the Common Stock and shall execute such
documents in connection with such registration as the Company may
reasonably request. At least fifteen (15) days prior to
the first anticipated filing date of the Registration Statement,
the Company shall notify the Investor of the information the
Company requires from the Investor (the "Requested
Information"). For each day that the Requested Information is
not received beginning five business days from the date of its
request, the Company shall have the right to extend the
period for filing set forth Section 2(a) hereof by one day.
(b) The Investor agrees to cooperate with the Company
as reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder.
(c) The Investor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind
described in Section 3(e) or 3(f), the Investor willimmediately
discontinue disposition of Common Stock pursuant to the
Registration Statementuntil such Investor's receipt of the copies
of the supplemented or amended prospectuscontemplated by Section
3(e) or 3(f) and, if so directed by the Company, the Investor shall
deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all
copies in the Investor's possession, of the prospectus
covering such Common Stock current at the time of receipt of such
notice;
(d) In the event the Investor determines to engage the
services of an underwriter, the Investor agrees to enter into and
perform its obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing
underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the
disposition of the Common Stock.
5. Expenses of Registration. All expenses (other than
brokerage commissions or discounts) incurred in connection with
registrations, filings or qualifications pursuant to
Section 2, including, without limitation, all registration,
listing and qualifications fees, printers and accounting fees and
the fees and disbursements of counsel for the Company, shall be
borne by the Company; provided, however, that the Investor shall
bear the fees and out-of-pocket expenses of the one legal counsel
selected by the Investor pursuant to Section 3(g) hereof.
6. Indemnification.
(a) By the Company. To the extent permitted by law,
the Company will indemnify and hold harmless the Investor, any
underwriter (as defined in the Securities Act) for the Investor,
the directors, if any, of such underwriter and the officers, if
any, of such underwriter, and each person, if any, who controls any
such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses,
claims, damages, expenses or liabilities (joint or several)
(collectively "Claims") to which any of them become subject under
the Securities Act, the Exchange Act or otherwise, insofar as such
Claims (or actions or proceedings, whether commenced or threatened,
in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration
Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with
the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act or any state
securities law or any rule or regulation under the Securities Act,
the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being, collectively,
"Violations").
Subject to the restrictions set forth in Section 6(d) with respect
to the number of legal counsel, the Company shall reimburse the
Investor and each such underwriters or controlling person, promptly
as such expenses are incurred and are due and payable, for any
legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein,
the indemnification agreement contained in this Section 6(a) (I)
shall not apply to a Claim arising out of or based upon a Violation
which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any
Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or
supplement thereto; (II) with respect to any preliminary
prospectus shall not inure to the benefit of any such person from
whom the person asserting any such Claim purchased the
Common Stock that are the subject thereof (or to the benefit of
any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or
supplemented; (III) shall not be available to the extent such Claim
is based on a failure of the Investor to deliver or cause
to be delivered the prospectus made available by the Company; and
(IV) shall not apply to
amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld.
(b) By the Investor. In connection with any
Registration Statement in which an Investor is participating, the
Investor agrees to indemnify and hold harmless, to the same
extent and in the same manner set forth in Section 6(a), the
Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls
the Company within the meaning of the Securities Act or the
Exchange Act (collectively and together with an Indemnified Person,
an "Indemnified Party"), against any Claim to which any
of them may become subject, under the Securities Act, the
Exchange Act or otherwise, insofar as such Claim arises out of or
is based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs (I) in reliance
upon and in conformity with written information furnished to the
Company by the Investor expressly for use in connection
with such Registration Statement or (II) the Investor's violation
of Regulation M; and the Investor will promptly reimburse any legal
or other expenses reasonably incurred by them in
connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written
consent of the Investor, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Common
Stock by the Investor. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not
inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented.
(c) The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in
any distribution, to the same extent as provided above, with
respect to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration
Statement.
(d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the
commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under
this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying parties and
the Indemnified Person or the Indemnified Party, as the case may
be; provided, however, that an Indemnified Person or Indemnified
Party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if, in the
reasonable written opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be
inappropriate due to actual
or potential differing interests between such Indemnified Person
or Indemnified Party or other party represented by such counsel in
such proceeding. The Company shall pay for only one
separate legal counsel for the Investor. The failure to deliver
written notice to the indemnifying party within a reasonable time
of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the e xtent that
the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course
of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
(e) Contribution. To the extent any indemnification
provided for herein is prohibited or limited by law, the
indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law;
provided, however, that (i) no contribution shall be made under
circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6,
(ii) no seller of Common Stock guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller
of Common Stock who was not guilty of such fraudulent
misrepresentation and (iii) contribution by any seller of Common
Stock shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Common
Stock.
7. Reports under Exchange Act. With a view to making
available to the Investor the benefits of Rule 144 or any other
similar rule or regulation of the SEC that may at any time
permit the Investor to sell securities of the Company to the
public without Registration, until such time as the Investor has
sold all the Common Stock pursuant to a Registration Statement
or Rule 144, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities
Act and the Exchange Act; and
(c) furnish to the Investor so long as the Investor
owns Common Stock, promptly upon request, (i) a written statement
by the Company that it has complied with the reporting requirements
of Rule 144, the Securities Act and the
Exchange Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed
by the Company and (iii) such other information as may be
reasonably requested to permit the Investor to sell such securities
pursuant to Rule 144 without Registration. In addition, Investor
shall continue to receive a monthly report from the Company.
8. Assignment of the Registration Rights. The rights to
have the Company register Common Stock pursuant to this Agreement
may not be assigned unless the Company agrees to the assignment in
writing.
9. Amendment of Registration Rights. Any provision of
this Agreement may be amended and the observance thereof may be
waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of
the Company and Investor. Any amendment of waiver effected in
accordance with this Section 9 shall be binding upon the Investor
and the Company.
10. Miscellaneous.
(a) If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with
respect to the same Common Stock, the company shall act upon the
basis of instructions, notice or election received from the
registered owner of such Common Stock.
(b) Notices required or permitted to be given
hereunder shall be in writing and shall be deemed to be
sufficiently given when personally delivered or when sent by
registered mail, return receipt requested, addressed (i) if to
the Company, at nStor Technologies, Inc., 100 Century Blvd., West
Palm Beach, FL 33417, attn: Mark Levy, and (ii) if to the Investor,
at the address set forth under its name in
the Subscription Agreement, or at such other address as each such
party furnishes by notice given in accordance with this
Section 10(b), and shall be effective, when personally delivered,
upon receipt, and when so sent by certified mail, four business
days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a
waiver thereof.
(d) This Agreement shall be enforced, governed by and
construed in accordance with the laws of the State of Florida
applicable to the agreements made and to be performed entirely
within such state, without giving effect to rules governing the
conflict of laws. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute
or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or
enforceability of any other provision hereof.
(e) This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof.
There are no restrictions, promises, warranties or undertakings,
other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof,
this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the
context may require.
(h) The headings in the Agreement are for convenience
of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement. This Agreement,
once executed by a party, may be delivered to the other party
hereto by telephone line facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
nSTOR TECHNOLOGIES, INC.
/s/ Mark F. Levy
By:_____________________________________
Mark F. Levy, Vice President
INVESTOR
/s/ H. Irwin Levy
________________________________________
H. Irwin Levy
EXHIBIT 4.12
nSTOR TECHNOLOGIES, INC.
100 Century Boulevard
West Palm Beach, FL 33417
November 9, 1998
H. Irwin Levy
100 Century Boulevard
West Palm Beach, FL 33417
Dear Sir:
This letter will confirm the agreement of nStor
Technologies, Inc. (the "Company") to file a registration statement
with the Securities and Exchange Commission, at the Company's
expense and no later than April 27, 1999, which includes the
1,000,000 shares of the Company's common stock issuable upon the
conversion of preferred stock certificate P-C-4 for 1,000 shares of
the Company's Preferred Series C stock issued to you on October 28,
1998.
Sincerely,
nSTOR TECHNOLOGIES, INC.
/s/ Mark F. Levy
By: _____________________________
Mark F. Levy
EXHIBIT 4.13
nSTOR TECHNOLOGIES, INC.
100 Century Boulevard
West Palm Beach, FL 33417
November 9, 1998
LibertyView Capital Management, Inc.
101 Hudson Street
Jersey City, NJ 07302
Attention: Alan Mark
Gentlemen:
This letter is intended to confirm the terms and conditions
under which you have agreed, on behalf of LibertyView Fund, LLC,
LibertyView Plus Fund and CPR (USA) Inc. (collectively, the
"Investors"), to allow nStor Technologies, Inc. (the "Company") to
redeem all of the issued and outstanding shares of the Company's 8%
Series B Convertible Preferred Stock (the "Preferred Stock") held
by the Investors. The terms of the redemption are set forth below:
1. The Company shall redeem $2.3 million of outstanding Preferred
Stock for 105% of the $1,000.00 per share par value thereof (a
total of $2.415 million) plus accrued dividends through the
Closing Date, as defined below.
2. The Company will issue to the Investors 300,000 warrants to
purchase additional shares of the Company's common stock. The
warrants will expire three years from the Closing Date
and will have an exercise price of $1.00 per share.
3. The Company will immediately deposit $50,000.00 in escrow with
the Investors' counsel, Goldstein, Goldstein & REIS, LLP (the
"Escrow Agent"). The closing will take place on or
before the close of business on Friday, October 23, 1998 (the
"Closing Date").
If the closing is not completed by that time, or otherwise
extended as set forth below, the Escrow Agent is authorized to
release the escrow deposit to the Investors and the Investors
shall have no further obligations with respect to
the redemption of the Preferred Stock pursuant to the terms of this
agreement.
4. The Company may extend the Closing Date through the close of
business on Friday, October 30, 1998 (the "Extended Closing Date")
by depositing an additional $100,000.00 with the Escrow Agent on or
before the close of business on the Closing Date. In the event
that the additional amount is deposited with the
Escrow Agent, the Escrow Agent may not release any funds from the
escrow account unless and until the closing fails to occur on or
before the Extended Closing Date. If the closing is not completed
by that time, the Escrow Agent is authorized to release the escrow
deposit to the Investors and the Investors shall have no further
obligations with respect to the redemption of the Preferred
Stock pursuant to the terms of this agreement.
5. If the closing occurs on or before either the Closing Date
or the Extended Closing Date as set forth above, the escrow amount
shall be applied against, and deducted from the redemption
price for the Preferred Stock.
6. The existing warrants held by the Investors shall not be
affected in any way by this agreement.
If this letter accurately sets forth our agreement, please
sign on the signature line set forth below and return a signed copy
to me by fax at (561) 640-3160. Upon receipt of the signed
agreement, we will wire transfer the initial escrow deposit to
the Escrow Agent.
Sincerely,
nSTOR TECHNOLOGIES, INC.
/s/ Mark F. Levy
By: _________________________
AGREED TO AND ACCEPTED this 15th day of October, 1998
LIBERTYVIEW CAPITAL MANAGEMENT, INC.
By: /s/ Steven S. Rogers
___________________________________
Steven S. Rogers
Chief Administrative Officer
and General Counsel
LibertyView Capital Management, Inc.
EXHIBIT 4.14
nSTOR TECHNOLOGIES, INC.
100 Century Boulevard
West Palm Beach, FL 33417
November 9, 1998
LibertyView Capital Management, Inc.
101 Hudson Street
Jersey City, NJ 07302
Attention: Alan Mark
Gentlemen:
This letter will confirm the agreement of nStor
Technologies, Inc. (the "Company") to file a registration statement
with the Securities and Exchange Commission, at the Company's
expense and no later than April 27, 1999, which includes the
300,000 shares of the Company's common stock issuable upon the
exercise of the Company's warrants
issued to you and your affiliates on October 28, 1998.
Sincerely,
nSTOR TECHNOLOGIES, INC.
/s/ Mark F. Levy
By: __________________________________
EXHIBIT 4.15
FORM OF
SUBSCRIPTION AGREEMENT
nStor Technologies, Inc., a Delaware corporation (the
"Company"), and ___________________ (the "Investor"), hereby
agree as follows:
1. Sale and Purchase of Shares.
(a) Subject to the prior approval of the Company's
Board of Directors, the Company agrees to issue to the Investor,
and the Investor agrees to purchase from the Company, on the terms
and conditions set forth in this Subscription Agreement (the
"Agreement"), _____________ SHARES (the "Shares") of the Company's
Series D Preferred Stock (the "Preferred Stock") having the
designations set forth in the Certificate of Designations attached
hereto and made a part hereof.
(b) The Company shall issue the Shares in
consideration of, and against payment by, the Investor of
___________________ Dollars ($_________).
(c) The closing shall take place at such time and
place as shall be mutually agreed.
2. Certain Representations of the Investor.
The Investor hereby represents and warrants to the
Company, its officers and directors, the following:
(a) The Investor is an individual resident of Palm
Beach County, in the state of Florida.
(b) The Investor has read carefully and understands
this Agreement and has consulted his own attorney or accountant
with respect to the investment contemplated hereby and its
suitability for the Investor.
(c) The Company has made available to the Investor, or
his designated representatives, during the course of this
transaction and prior to the purchase of any of the securities
referred to herein, the opportunity to ask questions of and receive
answers from the officers and directors of the Company concerning
the terms and conditions of the offering or otherwise relating to
the financial data and business of the Company, to the extent that
the Company or its officers and directors possess such information
or can acquire it without unreasonable effort or expense. The
Company has also made available to the Investor for inspection,
documents, records, books and other written information about the
Company, its business and this investment at the office of the
Company at 100 Century Blvd., West Palm Beach, FL 33417.
(d) The Investor understands and represents that: (i)
the Investor must bear the economic risk of this investment for
an indefinite period of time because the 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 much registration is available; (ii) the Investor is
purchasing the Shares for investment for his own account and not
for the account 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) the Investor agrees not to resell or
otherwise dispose of all or any part of the Shares, except as
permitted by law, including, without limitation, any and all
applicable provisions of this Agreement and any regulations under
the 1933 Act.
(e) The Investor 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 Shares. The Investor
represents, warrants and covenants that he is an "Accredited
Investor" within the meaning of Rule 501 of the 1933 Act. In
particular, the Investor qualifies as such pursuant to
Subsections (a)(5) and (6) of Rule 501, which provides that an
Accredited Investor shall include:
any natural person whose individual net
worth, or joint net worth with that
person's spouse, at the time of his
purchase exceeds $1,000,000; and
any natural person who had an individual
income in excess of $200,000 in each of
the two most recent years or joint income
with that person's spouse in excess of
$300,000 in each of those years and has a
reasonable expectation of reaching the
same income level in the current year."
(f) The Investor is aware that an investment in the
Shares is highly speculative and subject to substantial risks.
The Investor 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 Shares, which may make the
liquidation of this investment impossible for an indefinite period
of time. The financial condition of the Investor is such that he
is under no present or contemplated future need to dispose of any
of the Shares to satisfy any existing or contemplated undertaking,
need or indebtedness.
(g) All of the information that either Investor has
set forth or represented in this Agreement, with respect to his
financial position and business and investment experience is
correct and complete as of the date of this Agreement and, if
there should be any material change in such information prior to
the purchase of Shares, the Investor will immediately furnish the
revised or corrected information to the Company.
(h) The Investor agrees that he shall be bound by all
of the terms, conditions, duties and obligations of this Agreement
insofar as such matters affect the Company and/or the Investor.
3. Restricted Stock and Legend.
(a) The Investor acknowledges that the Shares offered
hereunder are being offered pursuant to a private placement
exemption under the 1933 Act, and that the Shares are deemed
"restricted securities" as defined in the 1933 Act. Until the
securities offered hereunder become registered with the
Securities and Exchange Commission, each certificate representing
a share of Common Stock 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 SHARE(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.
(b) Prior to any transfer or attempted transfer of any
of the Shares issued hereunder, or any interest therein, the
Investor shall give the Company written notice of his intention
to make such transfer, describing the manner of the intended
transfer and the proposed transferee. Promptly after receiving
such written notice, the Company shall present copies thereof to
counsel for the Company and to any special counsel designated by
such Investor or by such holder. If in the opinion of each of such
counsel the proposed transfer may be effected without registration
of the Shares under the applicable federal or state securities
laws, as promptly as practicable, the Company shall notify the
Investor of such opinions, whereupon the Shares proposed to be
transferred shall be transferred in accordance with the terms of
said notice. The Company shall not be required to effect any such
transfer prior to the receipt of such favorable opinion(s);
provided, however, the Company may waive the requirement that
Investor obtain an opinion of counsel, in its sole and absolute
discretion. As a condition to such favorable opinion, counsel for
the Company may require an
investment letter to be executed by the proposed transferee.
4. No Assignment.
This Agreement is neither transferable nor assignable
by the Investor without the prior written consent of the Company.
5. General.
(a) This Agreement shall be binding upon the Investor
and the Company and their respective representatives, successors,
and permitted assigns;
(b) This Agreement shall be governed, construed and
enforced in accordance with the internal laws of the State of
Florida;
(c) all covenants, agreements, representations and
warranties made herein or otherwise made in writing by any party
pursuant hereto shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby;
(d) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument; and
(e) Notices required or permitted to be given
hereunder shall be in writing and shall be deemed to be
sufficiently given when personally delivered or when sent by
registered mail, return receipt requested, addressed (i) if to the
Company, at nStor Technologies, Inc., 100 Century Blvd., West Palm
Beach, FL 33417, attn: Mark Levy, and (ii) if to the Investor, at
the address set forth under its name below, or at such other
address as each such party furnishes by notice given in accordance
with this Section 5(e), and shall be effective, when personally
delivered, upon receipt, and when so sent by certified mail, four
business days after deposit with the United States Postal Service.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the ____th day of October, 1998.
nStor Technologies, Inc. Investor
a Delaware corporation
By:___________________________ __________________________
Mark Levy
Its: Vice President
__________________________
Address
EXHIBIT 4.16
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of
______________, 1998 (this "Agreement"), is made by and among nStor
Technologies, Inc., a Delaware corporation (the
"Company"), and the person named on the signature page hereto
(the "Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, of
even date herewith between the Investor and the Company (the
"Subscription Agreement"), the Company has agreed, upon the terms
and subject to the conditions of the Subscription Agreement, to
issue and sell to the Investor shares (the "Shares") of Series D
Preferred Stock (the "Preferred Stock");
WHEREAS, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended,
and the rules and regulations thereunder, or any similar
successor statute (collectively, the "Securities Act"), and
applicable state securities laws with respect to the Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Investor hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms
shall have the following meanings:
(i) "register," "registered" and "registration"
refer to a registration effected by preparing and filing a
Registration Statement or Statements on Form S-3 or
another form acceptable to Investor in compliance with the
Securities Act and pursuant to Rule 415 under the Securities Act or
any successor rule providing for offering securities on a
continuous basis ("Rule 415") and the declaration or ordering of
effectiveness of such Registration Statement by the United States
Securities and Exchange Commission ("SEC").
(ii) "Registration Statement" means a
registration statement under the Securities Act.
(iii) "Common Stock" shall mean the common stock
of the Company, par value $.05 per share.
(b) Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the
Subscription Agreement.
2. Registration.
(a) The Company shall prepare and file with the SEC by
______________ a registration statement on Form S-3 covering at
least 1,000,000 shares of Common Stock that are issuable upon
conversion of Preferred Stock.
(b) The Company represents and warrants that it meets
the requirements for the use of Form S-3 for registration of the
sale by the Investor of the Registerable Securities and the Company
shall file all reports required to be filed by
the Company with the SEC in a timely manner so as to maintain such
eligibility for the use of Form S-3.
(c) Notwithstanding the registration of the resale of
Common Stock in accordance with Section 2(a), if at any time of
offer and sale of such Common Stock such securities can be sold
pursuant to Rule 144 promulgated under the Securities Act ("Rule
144") in the manner, amount and on such terms as the Investor
wishes to offer and sell such securities, the Investor may endeavor
to offer and sell such securities pursuant to Rule 144.
3. Obligations of the Company. In connection with the
registration of the Common Stock, the Company shall:
(a) Prepare and file with the SEC promptly (but in no
event later than the applicable time periods set forth in Section
2(a)) a Registration Statement or Statements with respect to the
Common stock and thereafter use its best efforts to cause the
Registration Statement to become effective as soon as possible
after such filing, and keep the Registration Statement, if the
Registration Statement utilizes to Rule 415, effective at all times
until such date as is two years, after the date such Registration
Statement is first ordered effective by
the SEC. In any case, the Registration Statement (including any
amendments or supplements thereto and prospectuses contained
therein) filed by the Company shall not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading;
(b) Prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in
connection with the Registration Statement as may be necessary to
keep the Registration Statement effective for the time periods set
forth in Section 3(a);
(c) Furnish to the Investor (i) promptly after the
same is prepared and publicly distributed, filed with the SEC or
received by the Company, one copy of the Registration Statement and
any amendment thereto, each preliminary prospectus and
prospectus and each amendment or supplement thereto and (ii) such
number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto
and such other documents as the Investor may reasonably request
in order to facilitate the disposition of the Common Stock owned by
the Investor;
(d) Use reasonable efforts to (i) register and qualify
the Common Stock covered by the Registration Statement under such
other securities or blue sky laws of such jurisdictions as the may
reasonably request, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and
supplements, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all
times that the Registration Statement is required to be effective
under Section 3(a) hereof and (iv) take all other actions
reasonably necessary or advisable to qualify the Common Stock for
sale in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a condition
thereto to (I) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section
3(d), (II) subject itself to general taxation in any such
jurisdiction, (III) file a general consent to service of process in
any such jurisdiction, (IV) provide any undertakings that cause
more than nominal expense or
burden to the Company or (V) make any change in its charter or
bylaws, which in each case the Board of Directors of the Company
determines to be contrary to the best interests of the
Company and its stockholders;
(e) As promptly as practicable after becoming aware of
such event, notify the Investor of the happening of any event of
which the Company has knowledge, as a result of which the
prospectus included in the Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of
the circumstances under which they were made, not misleading, and
use its best efforts promptly to prepare a supplement or amendment
to the Registration Statement to correct such untrue
statement or omission, and deliver a number of copies of such
supplement or amendment to the Investor as the Investor may
reasonably request;
(f) As promptly as practicable after becoming aware of
such event, notify the of the issuance by the SEC of any stop order
or other suspension of effectiveness of the Registration Statement
at the earliest possible time;
(g) Permit a single firm of counsel designated as
selling stockholders' counsel by the Investor to review the
Registration Statement and all amendments and supplements
thereto a reasonable period of time prior to their filing with
the SEC, and shall not file any document in a form to which such
counsel reasonably objects;
(h) Make available for inspection by the Investor, any
underwriter participating in any disposition pursuant to the
Registration Statement and any attorney, accountant or other agent
retained by the Investor or underwriter (collectively, the
"Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably necessary to
enable each Inspector to exercise its due diligence
responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided,
however, that each Inspector shall hold in confidence (making such
confidential information known only to officers, agents
or employees thereof who have a need to know), shall not use any
information so obtained for any purpose other than preparation or
review of the registration statement, and shall not make any
disclosure (except to an Investor or underwriter) of any
Record or other information which the Company determines in good
faith to be confidential, and of which determination the Inspectors
are so notified, unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (ii) the release of such
Records is requested pursuant to a subpoena or other order from a
court or government body of competent jurisdiction, or (iii) the
information in such Records has been made generally available to
the public other than by disclosure in violation of this or any
other agreement. The Company shall not be required to disclose any
confidential information in such Records to any Inspector or
Investor until and unless the Investor or Inspector shall have
entered into confidentiality agreements (in a form as is customary
in similar circumstances) with the Company with respect thereto,
substantially in the form of this Section 3(h). The Investor
agrees that he shall, upon learning that disclosure of such Records
is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice
to the Company and allow the Company, at the Company's expense,
to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.
The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the
Company pursuant to Section 4(a) hereof unless (i) disclosure of
such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is
ordered pursuant to a subpoena or other order from a court or
governmental body of competent jurisdiction or (iv) such
information has been made generally available to the public other
than by disclosure in violation of this or any other agreement.
The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through
other means, give prompt notice to the Investor, to undertake, at
Investor's expense, appropriate action to prevent disclosure of, or
to obtain a protective order for, such information;
(i) Use its best efforts either to (i) cause all the
Common Stock covered by the Registration Statement to be listed on
the American Stock Exchange or other national securities exchange
and on each additional national securities exchange on which
similar securities issued by the Company are then listed, if any,
if the listing of such Common Stock is then permitted under the
rules of such exchange or (ii) secure designation of all the Common
Stock covered by the Registration Statement as a National
Association of Securities Dealers Automated Quotations System
("Nasdaq") "national market system security" within
the meaning of Rule 11Aa2-1 of the SEC under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the
quotation of the Common Stock on the Nasdaq National Market System;
or, if, despite the Company's best efforts to satisfy the preceding
clause (i) or (ii), the Company is unsuccessful in satisfying the
preceding clause (i) or (ii), to arrange for at least two market
makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Common Stock;
(j) Provide a transfer agent and registrar, which may
be a single entity, for the Common Stock not later than the
effective date of the Registration Statement;
(k) Cooperate with the Investor to facilitate the
timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Common Stock to be
sold pursuant to the denominations or amounts as the case may be,
and registered in such names as the Investor may reasonably
request; and
(l) take all other reasonable actions necessary to
expedite and facilitate disposition by the Investor of the Common
Stock pursuant to the Registration Statement.
4. Obligations of the Investor. In connection with the
registration of the Common Stock, the Investor shall have the
following obligations:
(a) It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to
this Agreement with respect to the Investor that the
Investor shall furnish to the Company such information regarding
itself and the intended method of disposition of the Common Stock
held by it as shall be reasonably required to effect
the registration of the Common Stock and shall execute such
documents in connection with such registration as the Company may
reasonably request. At least fifteen (15) days prior to
the first anticipated filing date of the Registration Statement,
the Company shall notify the Investor of the information the
Company requires from the Investor (the "Requested
Information"). For each day that the Requested Information is
not received beginning five business days from the date of its
request, the Company shall have the right to extend the
period for filing set forth Section 2(a) hereof by one day.
(b) The Investor agrees to cooperate with the Company
as reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder.
(c) The Investor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind
described in Section 3(e) or 3(f), the Investor will
immediately discontinue disposition of Common Stock pursuant to
the Registration Statement until such Investor's receipt of the
copies of the supplemented or amended prospectus
contemplated by Section 3(e) or 3(f) and, if so directed by the
Company, the Investor shall deliver to the Company (at the expense
of the Company) or destroy (and deliver to the
Company a certificate of destruction) all copies in the
Investor's possession, of the prospectus covering such Common Stock
current at the time of receipt of such notice;
(d) In the event the Investor determines to engage the
services of an underwriter, the Investor agrees to enter into and
perform its obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing
underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the
disposition of the Common Stock.
5. Expenses of Registration. All expenses (other than
brokerage commissions or discounts) incurred in connection with
registrations, filings or qualifications pursuant to
Section 2, including, without limitation, all registration,
listing and qualifications fees, printers and accounting fees and
the fees and disbursements of counsel for the Company, shall be
borne by the Company; provided, however, that the Investor shall
bear the fees and out-of-pocket expenses of the one legal counsel
selected by the Investor pursuant to Section 3(g) hereof.
6. Indemnification.
(a) By the Company. To the extent permitted by law,
the Company will indemnify and hold harmless the Investor, any
underwriter (as defined in the Securities Act) for the Investor,
the directors, if any, of such underwriter and the officers, if
any, of such underwriter, and each person, if any, who controls any
such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses,
claims, damages, expenses or liabilities (joint or several)
(collectively "Claims") to which any of them become subject under
the Securities Act, the Exchange Act
or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of
or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective
amendment thereof, or any prospectus included therein: (i) any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained
in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any material fact
necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act or any state
securities law or any rule or regulation under the Securities Act,
the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth
in Section 6(d) with respect to the number of legal counsel, the
Company shall reimburse the Investor and each such underwriters or
controlling person, promptly as such expenses are
incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) (I) shall not apply to a
Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in
writing to the Company by any Indemnified Person or underwriter for
such Indemnified Person expressly for use in connection
with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto; (II) with respect to any
preliminary prospectus shall not inure to the benefit of any such
person from whom the person asserting any such Claim purchased the
Common Stock that are the subject thereof (or to the benefit of any
person controlling such person) if the untrue statement or omission
of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or
supplemented; (III) shall not be available to the extent such Claim
is based on a failure of the Investor to deliver or cause
to be delivered the prospectus made available by the Company; and
(IV) shall not apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of
the Company, which consent shall not be unreasonably withheld.
(b) By the Investor. In connection with any
Registration Statement in which an Investor is participating, the
Investor agrees to indemnify and hold harmless, to the same
extent and in the same manner set forth in Section 6(a), the
Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls
the Company within the meaning of the Securities Act or the
Exchange Act (collectively and together with an Indemnified Person,
an "Indemnified Party"), against any Claim to which any
of them may become subject, under the Securities Act, the
Exchange Act or otherwise, insofar as such Claim arises out of or
is based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs (I) in reliance
upon and in conformity with written information furnished to the
Company by the Investor expressly for use in connection
with such Registration Statement or (II) the Investor's violation
of Regulation M; and the Investor will promptly reimburse any legal
or other expenses reasonably incurred by them in
connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written
consent of the Investor, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Common
Stock by the Investor. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not
inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented.
(c) The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in
any distribution, to the same extent as provided above, with
respect to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration
Statement.
(d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the
commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under
this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying parties and
the Indemnified Person or the Indemnified Party, as the case may
be; provided, however, that an Indemnified Person or Indemnified
Party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if, in the
reasonable written opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be
inappropriate due to actual
or potential differing interests between such Indemnified Person
or Indemnified Party or other party represented by such counsel in
such proceeding. The Company shall pay for only one
separate legal counsel for the Investor. The failure to deliver
written notice to the indemnifying party within a reasonable time
of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that
the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course
of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
(e) Contribution. To the extent any indemnification
provided for herein is prohibited or limited by law, the
indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law;
provided, however, that (i) no contribution shall be made under
circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6,
(ii) no seller of Common Stock guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller
of Common Stock who was not guilty of such fraudulent
misrepresentation and (iii) contribution by any seller of Common
Stock shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Common Stock.
7. Reports under Exchange Act. With a view to making
available to the Investor the benefits of Rule 144 or any other
similar rule or regulation of the SEC that may at any time
permit the Investor to sell securities of the Company to the
public without Registration, until such time as the Investor has
sold all the Common Stock pursuant to a Registration Statement
or Rule 144, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities
Act and the Exchange Act; and
(c) furnish to the Investor so long as the Investor
owns Common Stock, promptly upon request, (i) a written statement
by the Company that it has complied with the reporting requirements
of Rule 144, the Securities Act and the
Exchange Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and
documents so filed by the Company and (iii) such other
information as may be reasonably requested to permit the Investor
to sell such securities pursuant to Rule 144 without
Registration. In addition, Investor shall continue to receive a
monthly report from the Company.
8. Assignment of the Registration Rights. The rights to
have the Company register Common Stock pursuant to this Agreement
may not be assigned unless the Company agrees to the assignment in
writing.
9. Amendment of Registration Rights. Any provision of
this Agreement may be amended and the observance thereof may be
waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of
the Company and Investor. Any amendment of waiver effected in
accordance with this Section 9 shall be binding upon the Investor
and the Company.
10. Miscellaneous.
(a) If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with
respect to the same Common Stock, the company shall act upon the
basis of instructions, notice or election received from the
registered owner of such Common Stock.
(b) Notices required or permitted to be given
hereunder shall be in writing and shall be deemed to be
sufficiently given when personally delivered or when sent by
registered mail, return receipt requested, addressed (i) if to
the Company, at nStor Technologies, Inc., 100 Century Blvd., West
Palm Beach, FL 33417, attn: Mark Levy, and (ii) if to the Investor,
at the address set forth under its name in
the Subscription Agreement, or at such other address as each such
party furnishes by notice given in accordance with this
Section 10(b), and shall be effective, when personally delivered,
upon receipt, and when so sent by certified mail, four business
days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a
waiver thereof.
(d) This Agreement shall be enforced, governed by and
construed in accordance with the laws of the State of Florida
applicable to the agreements made and to be performed entirely
within such state, without giving effect to rules governing the
conflict of laws. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute
or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or
enforceability of any other provision hereof.
(e) This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof.
There are no restrictions, promises, warranties or undertakings,
other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof,
this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the
context may require.
(h) The headings in the Agreement are for convenience
of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement. This Agreement,
once executed by a party, may be delivered to the other party
hereto by telephone line facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
nSTOR TECHNOLOGIES, INC.
By:__________________________________
Mark Levy, Vice President
Its: Vice President
Exhibit 10.1
FORM OF
AMENDED AND RESTATED PROMISSORY NOTE
U.S. $_____________ September 22, 1998
THIS AMENDED AND RESTATED PROMISSORY NOTE amends, restates
and renews the indebtedness evidenced by that certain Promissory
Note dated March 5, 1998, in the principal amount of
$____________, the original of which is attached hereto and
marked "cancelled". This Amended and Restated Promissory Note
shall hereafter evidence the obligations of the Maker (as
hereafter defined) to Payee (as hereafter defined) with respect
to the indebtedness of the attached note now evidenced by this
Amended and Restated Promissory Note.
FOR VALUE RECEIVED, the undersigned nSTOR TECHNOLOGIES,
INC., a Delaware corporation with its principal place of business
at 100 Century Boulevard, West Palm Beach, Florida 33417; Fax:
(561) 640-3160 (hereinafter called "Maker") hereby promises to
pay to the order of ______________________________________ at the
address of Payee's principal place of business stated above, or at
such other place as the Payee may designate in writing, the sum of
________________________U.S. Dollars (U.S. $____________) (the
"Principal Amount"), plus interest on the outstanding balance of
the Principal Amount at the rate of ten percent (10%) per annum,
payable monthly, from the date hereof until the date when said sum
is paid in full in accordance with the terms hereof. The entire
Principal Amount plus all accrued interest thereon shall be due and
payable in full on September 5, 2000.
This note evidences an obligation under, and pursuant to the
terms of, a Loan Agreement, dated of even date herewith (the
"Loan Agreement"), between Payee and Maker. This note is secured
by that certain Amended and Restated Security Agreement, dated of
even date herewith (the "Security Agreement") between Maker,
Payee and certain other parties.
Each of the following shall constitute an event of default
("Event of Default") hereunder: (i) failure by Maker to pay the
Principal Amount plus all accrued interest thereon in full on or
before the date when due hereunder, (ii) occurrence of an "Event
of Default" under the Loan Agreement (an "Event of Default" as
defined therein), or (iii) occurrence of an "Event of
Default" under the Security Agreement (an "Event of Default" as
defined therein).
Upon the occurrence of an Event of Default hereunder, the
entire unpaid amount of this note shall thereupon be immediately
due and payable, and the Payee shall have all rights and
remedies provided under this note, the Loan Agreement, the
Security Agreement, and applicable law.
Maker shall have the right, in Maker's discretion at any
time, without payment of premium or penalty, to prepay in whole
or in part the unpaid balance of this note.
Payment of this Note is subject to all of the terms and
conditions of the Loan Agreement.
This note shall be governed by and construed under the laws
of the State of Florida. The exclusive venue for any litigation
in connection with or arising out of this note shall be Palm
Beach County, Florida, and the Maker hereby consents and submits
to the jurisdiction of the state and federal courts sitting in
Palm Beach County, Florida.
MAKER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES THE RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS NOTE.
nSTOR TECHNOLOGIES, INC.
By: /s/ Michael L. Wise
___________________________
Name: Michael L. Wise
Title: Vice President
Exhibit 10.2
SECURITY AGREEMENT
This SECURITY AGREEMENT ("Agreement") is made and
entered into as of this 31st day of July, 1998, by nSTOR
TECHNOLOGIES, INC., a Delaware corporation, with its
principal place of business at 100 Century Boulevard, West Palm
Beach, Florida 33417 ("Debtor") in favor of H. Irwin Levy, an
individual resident of the State of Florida ("Secured Party"),
with a business address at 100 Century Boulevard, West Palm
Beach, Florida 33417.
WITNESSETH:
WHEREAS, Secured Party has entered into a Loan Agreement of
even date herewith with Debtor (the "Loan Agreement");
WHEREAS, pursuant to the Loan Agreement, as security for
payment of the indebtedness due thereunder and under the
Promissory Note of even date therewith delivered pursuant to the
Loan Agreement (the "Note"), and in consideration of the
financial accommodations and agreements therein contained, Debtor
agreed to grant to Secured Party a lien and security interest in
all assets now owned or hereafter acquired by Debtor;
NOW, THEREFORE, in consideration of the foregoing,
Debtor and Secured Party hereby agree as follows:
I. Definitions. When used herein, the following
capitalized defined terms shall have the following respective
meanings:
"Account Debtor" shall mean the party obligated on or
under any Account Receivable.
"Account Receivable" shall mean (a) any present or
future right of the Debtor to receive and collect payment for
goods or services now or hereafter rendered, to an Account
Debtor, (b) all present and future chattel paper and instruments
acquired by the Debtor drawn, made, issued or otherwise created
in connection with any transaction giving rise to an Account
Receivable and any proceeds thereof, (c) all present and future
rights of the Debtor to proceeds of any insurance, indemnity,
warranty or guaranty with respect to any goods sold or leased or
services rendered in a transaction giving rise to an Account
Receivable, (d) all present and future rights of the Debtor to
claim for damages arising out of a breach of or default under any
contract, to terminate any contract giving rise to any Account
Receivable, to perform thereunder and to compel performance and
otherwise exercise all remedies thereunder, (e) all goods in the
Debtor's possession or held for the Debtor's account the sale or
lease of which shall have given rise to an Account Receivable and
the proceeds of any resale or subsequent lease thereof, and (f)
all present and future rights of Debtor to receive cash, property
or other distributions from any partnership arising out of or in
connection with Debtor's interest as a limited or general partner
in such partnership.
"Chattel Paper" shall mean all of Debtor's now owned or
hereafter acquired chattel paper, such term having the broadest
meaning attributable to it under the Uniform Commercial Code
in force in the state of Florida (hereinafter the "Uniform
Commercial Code").
"Collateral" shall mean all right, title and interest
of the Debtor in and to (i) any Account Receivable, (ii) all
Inventory, (iii) all Equipment, (iv) all Fixtures, (v) all
Personal Property, (vi) all Chattel Paper, (vii) all General
Intangibles, (viii) all Documents, (ix) all Instruments, (x) all
bank accounts, cash, stock and all other assets of any nature or
kind now owned or hereafter acquired by Debtor, and all interest
of Debtor in any of the foregoing, together with (xi) all
additions to, substitutions for and all proceeds, products and
accessions of any and all property described and designated as
(i) through (x) above and all proceeds, monies, income, products
and benefits attributable or accruing to any of the foregoing
property and which Debtor is or may hereafter become entitled to
receive on account of said property.
"Default" shall mean the occurrence of any one or more
of the following events: (a) the Debtor's failure to pay, when
due, any amount payable in respect of all or any portion of the
Indebtedness; (b) the loss, theft, destruction or encumbrance of,
or substantial damage to, the Collateral or any portion thereof
or the making of any levy, seizure or attachment thereof or
therein; (c) the Debtor's failure to refusal to perform, or
breach or violation of any of the terms, covenants,
representations or warranties of, or occurrence of any event of
default under this Agreement, the Loan Agreement, the Note or any
other instrument, document or agreement evidencing, securing or
relating to any portion of the Indebtedness; (d) the Debtor's
failure to pay debts as and when due and payable, or the making
of any assignment by Debtor for the benefit of creditors; (e) the
commencement of any proceedings by or against Debtor under any
insolvency, bankruptcy or other debtor relief laws in any
jurisdiction, including without limitation any such proceedings
seeking the liquidation, arrangement, or reorganization of the
Debtor under any bankruptcy or insolvency procedure, or any
formal or informal proceeding for the liquidation, dissolution or
settlement of claims by or against the Debtor; (f) any
application for the appointment of a receiver for the assets
of Debtor, (g) the entry of a judgment against the Debtor or (h)
the occurrence of an Event of Default under the Loan Agreement or
the Note (as Event of Default is defined therein).
"Documents" shall mean all documents now owned or
hereafter acquired by Debtor, such term having the broadest
meaning attributable to it under the Uniform Commercial Code or
other applicable law.
"Fixtures" shall mean all goods, chattels, fixtures,
equipment and all personal property affixed or in any manner
attached to any land and/or building(s) or structure(s) thereon,
now owned or hereafter acquired by Debtor or in which Debtor now
owns or hereafter acquired any interest, including all additions,
accessions and appurtenances thereto, all replacements and
substitutions therefor, and all proceeds, products and
accessions, thereof, however attached or affixed and wherever
located. As used herein the term "Fixtures" shall have the
broadest meaning attributable to it under the Uniform Commercial
Code or other applicable law.
"General Intangibles" shall mean all personal property
other than goods, accounts, chattel paper, documents and
instruments, now owned or hereafter acquired by Debtor, such term
having the broadest meaning attributable to it under the Uniform
Commercial Code or other applicable law, and including without
limitation all things in action, all contract rights,
subscription rights and all rights and interests of any nature or
kind now owned or hereafter acquired by Debtor in any
partnership, venture or other business association or entity.
"Indebtedness" shall mean (a) all liabilities and
obligations of Debtor to Secured Party arising under or pursuant
to the Loan Agreement, the Note or this Agreement, (b) all
renewals, extensions, increases, modifications and/or
rearrangements or reschedulings of any or all of the
foregoing referenced liabilities and obligations and of any part
thereof, and any substitutions of the same, to which the Secured
Party may hereafter agree in writing, and (c) all costs, expenses
and attorneys' fees and legal expenses which may be paid or
incurred by the Secured Party in connection with (x) enforcing
payment by Debtor of the Indebtedness, (y) enforcing its security
interest hereunder, or (z) protecting, preserving, handling,
dealing with, selling or otherwise disposing of or realizing upon
the Collateral or its security interest therein.
"Instruments" shall mean all instruments now owned or
hereafter acquired by Debtor, such term having the broadest
meaning attributable to it under the Uniform Commercial Code or
other applicable law.
"Inventory" shall mean all goods now or hereafter (a)
held by Debtor for sale or lease, (b) furnished or to be
furnished by Debtor to a third party under any contract of
service, (c) held by Debtor as raw materials or work in process
or (d) used or consumed by Debtor in the ordinary course of
business.
"Personal Property" shall mean all goods and all
personal property of any nature or description, wherever located,
now owned or hereafter acquired by Debtor, together with all
additions or appurtenances thereto, all substitutions therefor,
and all proceeds, products and accessions thereof. As used
herein the term "goods" shall have the broadest meaning
attributable to it under the Uniform Commercial Code or other
applicable law.
1. Grant of Security Interest. As security for the
payment of the Indebtedness, the Debtor hereby grants, pledges
and assigns to the Secured Party a continuing security interest
in the Collateral.
2. Perfection of Security Interest.
(a) Financing Statements and Other Actions. The
Debtor hereby authorizes the Secured Party to file one or more
financing or continuation statements, and amendments thereto,
relating to all or any part of the Collateral, without the
signature of the Debtor where permitted by applicable law, and
agrees itself to take all such other actions and to execute and
deliver and file or cause to be filed such financing statements,
continuation statements, and other documents, as the Secured
Party may reasonably require in order to establish and maintain a
perfected, valid and continuing security interest of the Secured
Party in the Collateral.
(b) Delivery. The Debtor agrees immediately to
deliver to the Secured Party, appropriately endorsed to the order
of the Secured Party, any Document or Instrument of which the
Debtor is or becomes owner or holder.
3. Records; Information. The Debtor agrees to keep
at its principal place of business, as shown in the opening
paragraph of this Agreement, its records concerning the
Collateral, which records shall be sufficiently accurate to
enable the Secured Party or its designee to determine
at any time the status thereof. The Debtor agrees promptly to
furnish to the Secured Party such information concerning the
Debtor, the Collateral and any Account Debtor as the Secured
Party may reasonably request.
4. Representations and Warranties of the Debtor. The
Debtor represents and warrants that: (a) it is a corporation duly
organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and is qualified to
do business in all such jurisdictions in which it is doing
business, (b) the execution, delivery and performance of this
Agreement and the above pledge and assignment and grant of a
security interest in the Collateral to the Secured Party
have been duly authorized and are not contrary to or in violation
of law, any order of a court or government agency, the Debtor's
certificate of incorporation or by-laws, or any other agreement,
instrument, or other document to which the Debtor is a party or
by which the Debtor or any of its assets may be bound, (c) this
Agreement is the legal, valid and binding obligation of the
Debtor and, subject to the making of any filings required
pursuant to Section 3(a) hereof and the delivery of any
Collateral to the Secured Party pursuant to Section 3(b) hereof,
creates a valid, enforceable and perfected security interest in
the Collateral, first and prior to any or all other liens,
claims, encumbrances or security interests except for the
Permitted Liens and the Pari Passu Liens (as such terms are
defined in the Loan Agreement), and the Debtor is duly authorized
to make all filings and take all other actions necessary or
desirable to perfect and to continue perfected such security
interest, (d) all of the Debtor's right, title and interest in
and to the Collateral is free and clear of all liens, claims,
charges, pledges, security interests and encumbrances, except for
the security interests granted to the Secured Party herein, the
Permitted Liens and the Pari Passu Liens (as such terms are
defined in the Loan Agreement), and (e) no consent of any person
or entity is required, except such as have been obtained in
writing by Debtor and delivered to Secured Party, in order to
render this Agreement, the Loan Agreement and the Note fully
enforceable against the Debtor in accordance with their terms or
to prevent the execution and delivery of this Agreement, the Loan
Agreement and the Note from violating the terms of or giving rise
to a default or event of default under any other agreement,
instrument or document to which the Debtor is a party or by which
the Debtor or any of its assets are bound.
5. Covenants.
(a) Affirmative Covenants. The Debtor shall (i)
perform and observe all the terms and provisions of any agreement
for the rendering of services or any other agreement, giving rise
to an Account Receivable to be performed or observed by it,
maintain any such agreement in full force and effect, enforce any
such agreement in accordance with its terms, and take all such
action to such and as may be from time to time requested by the
Secured Party; (ii) at the Debtor's expense, furnish to the
Secured Party promptly upon receipt thereof copies of all
notices, requests and other documents received by the Debtor in
connection with any Account Receivable, and from time to time (x)
furnish to the Secured Party such information and reports
regarding any Account Receivable as the Secured Party may
reasonably request, and (y) upon request of the Secured Party,
make to any Account Debtor such demand and request for
information and reports or for such action as the Debtor may be
entitled to make in connection with any Account Receivable; (iii)
at the Debtor's expense, take such action as the Debtor or the
Secured Party may deem necessary or advisable to enforce
collection of amounts due or to become due in respect of any
Account Receivable; (iv) take out and maintain in effect such
policies of insurance covering the Collateral as the Secured
Party may reasonably require; and (v) maintain and preserve the
Collateral in good condition and take all such action to such end
as may be from time to time requested by the Secured Party.
(b) Negative Covenants. The Debtor shall not
without the prior written consent of the Secured Party (i) sell,
assign or otherwise dispose of the Collateral, or (ii) create or
suffer to exist any security interest, financing statement, lien
or other encumbrances upon or with respect to the Collateral to
secure indebtedness of any person or entity, except for the
security interest granted to the Secured Party hereunder and the
Permitted Liens (as defined in the Loan Agreement).
6. Rights of the Secured Party upon Default. On and
after the occurrence of a Default by the Debtor, all the
Indebtedness shall, at the option of the Secured Party, become
immediately due and payable, without notice or demand. The
Secured Party may (a) enforce collection of any of the Collateral
by suit or any other lawful means available to the Secured Party,
(b) surrender, release or exchange all or any part of the
Collateral, or compromise or extend or renew for any period any
indebtedness thereunder or evidenced thereby, (c) assert all
other rights of a secured party under the Uniform Commercial Code
or other applicable law, including, without limitation, the right
to take possession of, hold, collect, sell, lease or otherwise
retain, liquidate or dispose of all or any portion of the
Collateral. The proceeds of any collection, liquidation or other
disposition of the Collateral shall be applied by the Secured
Party first to the payment of all expenses (including without
limitation, all fees, taxes, reasonable attorney's fees and legal
expenses) incurred by the Secured Party in connection with
retaking, holding, collecting, or liquidating the Collateral.
The balance of such proceeds, if any, shall, to the extent
permitted by law, be applied to the payment of the Indebtedness
in such order of application as the Secured Party may, in its
sole discretion, elect. In case of any deficiency, the Debtor
shall, whether or not then due, remain liable therefor.
In addition to the foregoing, the Secured Party shall be entitled
to exercise any and all other rights and remedies provided to
Secured Party under this Agreement, the Loan Agreement, the Note,
and applicable law and equity.
7. The Secured Party' Duties and Right to Perform.
The powers conferred on the Secured Party hereunder are solely to
protect the Secured Party' interest in the Collateral and
shall not impose any duty upon it to exercise any such powers.
The Secured Party shall have no duty as to the Collateral or as
to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to the Collateral.
If the Debtor fails to perform any of its obligations hereunder,
or under any agreement giving use to or in connection with any
Account Receivable, the Secured Party may themselves perform, or
cause the performance of, such agreement, and the expenses of the
Secured Party incurred in connection therewith shall be payable
by the Debtor.
8. Indemnity and Expenses. The Debtor agrees to
indemnify the Secured Party from and against any and all claims,
losses and liabilities arising out of or connected with this
Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting solely
from the Secured Party' gross negligence or wilful misconduct.
9. Security Interest Absolute. All rights of the
Secured Party hereunder, and all obligations of the Debtor
hereunder, shall be absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of the
Indebtedness or any agreement or instrument contemplated thereby;
(b) any change in the time, manner or place of
payment of, or in any other term of, all or any of the
Indebtedness, or any other amendment or waiver of or any consent
to any departure from the terms of the Indebtedness or any other
agreements contemplated thereby;
(c) any exchange, release or non-perfection of
any other security interest, or any release or amendment or
waiver of or consent to departure from any guaranty, for all or
any of the Indebtedness; or
(d) any other circumstance (other than payment in
full) which might otherwise constitute a defense available to, or
a discharge of, the Debtor in respect of the Indebtedness or in
respect of this Agreement.
10. Cumulative Security. Neither the execution and
delivery of this Agreement nor the taking hereafter of any
security for payment of the Indebtedness shall in any manner
impair or affect any other security for payment of the
Indebtedness. All such present and future additional
security is to be considered as cumulative security.
11. Continuing Agreement. This is a continuing
agreement and the grant of a security interest hereunder shall
remain in full force and effect and all the rights, powers and
remedies of Secured Party hereunder shall continue to exist until
the Indebtedness is paid in full as the same becomes due and
payable and until Secured Party, upon request of Debtor, has
executed a written termination statement, reassigned to Debtor
without recourse the Collateral and all rights conveyed hereby,
and returned possession of the Collateral to Debtor.
12. Notices. All notices, requests and other
communications to either party hereunder shall be in writing and
shall be given to such party at its address or telefax number set
forth at the beginning of this Agreement or such other address or
telefax number of which such party may hereafter give notice to
the other. Each such notice, request or other communication
shall be effective (i) if given by telefax, upon transmission
with a machine-generated transmittal confirmation, (ii) if given
by mail, 72 hours after such communication is deposited in the
United States mails with first class postage prepaid, addressed
as aforesaid, or (iii) if given by any other means, when
delivered at the address specified in this Section.
13. Remedy and Waiver. Secured Party may remedy any
Default without waiving the Default rendered, and may waive any
Default without waiving any prior or subsequent Default.
No failure or delay by the Secured Party in the exercise of any
right or remedy under this Agreement or under the Uniform
Commercial Code or any applicable law shall operate as a waiver
hereunder or thereunder, and no partial exercise by the Secured
Party of any right or remedy of the Secured Party hereunder or
thereunder shall preclude the further exercise by the Secured
Party of any other right or remedy hereunder or thereunder.
14. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Florida.
15. Successors and Assigns. The rights and
obligations of the parties hereto shall be binding on and shall
inure to the benefit of their successors and assigns, except that
in accordance with Section 6 of this Agreement, the rights and
obligations hereunder may not be assigned by Debtor.
16. Modification. This agreement or any provision
hereof may be modified or amended only by a written agreement
signed by both parties hereto.
18. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly
executed as of the day and year first above written.
DEBTOR
nSTOR TECHNOLOGIES, INC.
/s/ Mark F. Levy
By: ___________________________
Mark F. Levy
Name:__________________________
Title: Vice President
Secured Party
/s/ H. Irwin Levy
________________________________
H. Irwin Levy
Exhibit 10.3
LOAN AGREEMENT
This Loan Agreement (the "Agreement") is made as of the 31st
day of July, 1998 by and between nSTOR TECHNOLOGIES, INC. a
Delaware corporation, with its principal place of business at 100
Century Boulevard, West Palm Beach, Florida 33417; Fax: (561)
640-3160 (the "Borrower") and H. Irwin Levy, an individual
resident of the State of Florida, with a business address at 100
Century Boulevard, West Palm Beach, Florida 33417; Fax: (561)
640-3160 (the "Lender").
In consideration of the mutual covenants contained herein
and other good and valual consideration, the receipt and
sufficiency of which are hereby acknoledged, Lender and Borrower
agree as follows:
1. Loan and Note.
(a) Subject to the terms and conditions of this
Agreement, Lender agrees to lend to Borrower, the principal
amount of ONE MILLION FIVE HUNDRED THOUSAND Dollars
($1,500,000.00) (the "Maximum Loan Amount"), as may be amended,
renewed, increased, restated, replaced, or otherwise modified
from time to time (the "Loan"). The Loan shall be evidenced by
a promissory note of Borrower payable to order of Lender of even
date herewith, in the form attached hereto and incorporated
herein as Exhibit "A", as may be amended, renewed, increased,
restated, replaced, or otherwise modified from time to time (the
"Note"), and shall bear interest at the rate and be subject to
such repayment and other terms as set forth therein and herein.
The outstanding balance of the Loan may increase and decrease
from time to time, and Advances thereunder may be repaid and
reborrowed, but the total of Advances outstanding at any one time
under the Revolving Loan shall never exceed the Maximum Loan
Amount.
(b) The proceeds of the Loan are to be used by the
Borrower solely as working capital in the ordinary course of
Borrower's business.
2. Collateral Security. The Borrower's obligations under
this Agreement and the Note shall be secured by a security
interest (the "Security Interest") in all assets of the Borrower
pursuant to a security agreement of even date herewith, in the
form attached hereto as Exhibit B (the "Security Agreement").
The security interest granted to Lender pursuant to the Security
Agreement shall be (i) subordinated to (A) the security interest
in favor of Finova Capital Corporation (the "Finova Security
Interest") as evidenced by the loan or credit agreement in effect
between Finova Capital Corporation and the nStor Corporation,
Inc. as of the date hereof and the UCC-1 Financing Statement
relating thereto filed of record with the Secretary of State of
the State of Florida as of the date hereof, (B) the security
interests granted under other "Senior Indebtedness" (as
hereinafter defined) (the "Senior Indebtedness Security
Interest"); and (ii) pari passu with (A) all security
interests granted or granted hereafter to H. Irwin Levy, and (B)
the security interests granted to other lenders as of the date
hereof (the "Pari Passu Liens"). The Finova Security Interest,
the Senior Indebtedness Security Interest, and the Pari Passu
Liens are collectively referred to hereinafter as the "Permitted
Liens"). The Borrower shall execute and deliver and cause to be
executed and delivered such further instruments and documents,
including without limitation UCC-1 Financing Statements, as shall
be reasonably necessary and proper to effectuate the granting and
perfection of the Security Interest.
3. Subordination. The Lender shall execute and deliver
such further instruments and documents as shall be reasonably
necessary and proper to reflect the subordination of the Security
Interest to the Permitted Liens. For purposes of this Agreement,
Senior Indebtedness shall mean all indebtedness, obligations and
liabilities of Borrower to banks and other financial institutions
now existing or hereafter arising.
4. Loan Documents. This Agreement, the Note, the Security
Agreement, as the same may be amended, renewed, increased,
restated, replaced, or otherwise modified from time to time,
together with such financing statements, subordination
agreements, and other instruments and documents as shall be
delivered in connection therewith shall be referred to
collectively herein as the "Loan Documents".
5. Covenants of Borrower.
Borrower hereby covenants and agrees with Lender as
follows:
(a) To duly and punctually perform, observe and comply
with all of the terms, provisions, conditions, covenants and
agreements on its part to be performed, observed and complied
with hereunder and under the Loan Documents. Borrower will not
suffer or permit any Event of Default (as hereinafter defined) to
exist hereunder or thereunder. Borrower will promptly give notice
in writing to Lender of the occurrence of any event or
circumstance materially affecting in an adverse manner Borrower's
ability to repay the Loan.
(b) The Borrower shall not use the proceeds of the
Loan for any purpose other than the permitted purposes set forth
in Section 1(b) of this Agreement.
6. Representations and Warranties of Borrower. As a
condition to and as an inducement to the Lender to make the Loan
hereunder, Borrower hereby represents, warrants and certifies to
the Lender that as of the date hereof, for so long as any portion
of the Loan, or any accrued interest thereon, is outstanding and
not paid to Lender in full and for so long as any of Borrower's
obligations under any of the Loan Documents have not been
satisfied, each of the following statements is and will remain
true and correct in all respects:
(a) The execution and delivery of the Loan Documents,
and the performance by the Borrower of its obligations
thereunder, will not be in conflict with, or constitute (with or
without the passage of time or giving of notice) a breach or
default under, or require any consent or waiver (other than any
consents or waivers that have been obtained), or result in the
creation of any mortgage, pledge, lien, encumbrance or charge
upon the assets of the Borrower under (i) any provision of the
articles of incorporation or bylaws of the Borrower as in effect
on the date hereof, (ii) any instrument, mortgage, deed of trust,
contract or agreement to which the Borrower is a party
or by which it is bound, or (iii) any judgment, decree or order
of a court, tribunal or governmental authority by which the
Borrower is bound.
(b) Each of the Loan Documents to which Borrower is a
party has been duly authorized and validly executed by the
Borrower pursuant to all requisite corporate action of the
Borrower, and is and will remain the duly valid and binding
obligation of the Borrower, enforceable against the Borrower in
accordance with its terms.
(c) Neither the Borrower nor any of its properties or
assets are bound by, subject to or affected by any note,
indebtedness, bond, mortgage, lien, indenture, deed of trust, or
other similar instrument or obligation other than: (i) those
established pursuant to the Loan Documents, (ii) those underlying
or those which may hereafter be established as and underlying the
Permitted Liens or the Pari Passu Liens, and (iii) debt incurred
in the ordinary course of business of the Borrower.
(d) Neither the Borrower nor any of its properties or
assets are subject to any order, writ, injunction, directive or
decrees or statute, rule or regulation not applicable to Florida
corporations generally.
(e) No authorizations, approvals, consents of, and no
filings or registrations with, any governmental or regulatory
authority or agency are necessary for the execution, delivery or
performance by the Borrower of any of the Loan Documents to which
it is a party or for the validity or enforceability thereof,
except for the filings and recordings of UCC-1 Financing
Statements pursuant to the Loan Documents.
(f) Except as set forth on Schedule A attached hereto,
there are no actions, suits, proceedings or investigations
pending or threatened, including without limitation, actions,
suits or proceedings relating to product or service liability
claims, against or affecting the Borrower or any of its
properties or business, at law or in equity, or before or by any
federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, whether as plaintiff or defendant, which individually or
in the aggregate could have a material adverse effect on the
properties, operations or financial condition of the Borrower.
There is no state of facts or contemplated event which may
reasonably be expected to give rise to such claim, action, suit,
proceeding or investigation which could have a material adverse
effect on the properties, operations or financial condition of
the Borrower. The Borrower is not operating under, or subject
to, or in default with respect to, any judgment, order, writ,
injunction, rule, regulation or decree of any court or federal,
state, municipal or other governmental agency or body, domestic
or foreign.
(g) The Borrower i s not in violation of, or default
under (i) any instrument, mortgage, deed of trust, contract or
agreement to which it is a party or by which it is bound, or (ii)
any provision of the articles of incorporation or bylaws of the
Borrower.
(h) There are no liens, mortgages, encumbrances,
security interests or rights of third parties with respect to the
Collateral (as defined in the Security Agreement) other than the
Permitted Liens.
(i) As of the date hereof, after taking into account
the transactions contemplated by the Loan Documents, the fair
value of the Borrower or any and all property (tangible and
intangible) of the Borrower is greater than the total amount of
liabilities, including any contingent liabilities, of the
Borrower.
(j) As of the date hereof, after taking into account
the transactions contemplated by the Loan Documents, the present
fair salable value of the Borrower or of the assets (tangible or
intangible) of the Borrower is not less than the amount that will
be required to pay the probable liabilities of the Borrower on
its existing debts as the debts become absolute and matured.
(k) As of the date hereof, after taking into account
the transactions contemplated by the Loan Documents, the Borrower
is able to realize upon its assets (tangible and intangible) and
pay its debts and other liabilities, contingent obligations and
other commitments as they mature in the normal course of
business.
(l) The Borrower owns, holds or licenses all material
patents, trademarks, franchises, licenses, permits, rights-of-way
and consents as are required or necessary to own its material
properties and assets and to conduct its businesses as presently
conducted.
(m) As of the date hereof, after taking into account
the transactions contemplated by the Loan Documents, the Borrower
does not have an unreasonably small capital, taking into
consideration, among other things, the following:
(i) The cash and other current assets of the
Borrower;
(ii) The experience of the management in
operating the business and in acquiring and disposing of assets;
(iii) Contingent liabilities of the Borrower;
(iv) The amortization requirements of all
long-term debt and the anticipated interest payable on all debt;
and
(v) Customary terms of trade payables in the
business in which the Borrower is engaged.
7. Events of Default. The following events shall
constitute "Events of Default" hereunder:
(a) Borrower fails to pay any principal, interest, or
other amount due on any indebtedness owed Lender under the Loan
Documents within ten (10) days after any such amount
becomes due in accordance with the terms thereof or hereof;
(b) There occurs an "Event of Default" under the
Security Agreement or under the Note (as "Event of Default" is
defined in those documents respectively) or Borrower fails to
fully and promptly perform any agreement, term, covenant, or
condition of this Agreement, the Note or the Security Agreement;
(c) There occurs an event of default under any other
instrument, agreement or document evidencing indebtedness from
the Borrower to any other person or entity;
(d) Borrower liquidates or dissolves, Borrower
commences, or consents to or acquiesces in, a voluntary
proceeding in bankruptcy or insolvency; Borrower applies for, or
consents or acquiesces in, the appointment of a receiver for all
or a substantial part of its property; Borrower makes an
assignment for the benefit of creditors; or Borrower is unable to
pay its debts as they mature or admits in writing its inability
to pay it debts as they mature;
(e) An involuntary proceeding in bankruptcy or
insolvency is commenced against Borrower; a receiver is
involuntarily appointed for all or a substantial part of the
property of Borrower; or an order is entered for the issuance of
a warrant of attachment, execution, distraint, or similar process
against all or a substantial part of the property of Borrower;
and
(f) Any breach of a representation, warranty or
covenant made by Buyer hereunder or if any representation or
warranty made by Buyer hereunder is untrue.
8. Remedies of Lender. Borrower agrees that the
occurrence of such Event of Default shall constitute a default
under each of the Loan Documents, and, other than as provided in
Section F.1 hereof, in the event such Event of Default shall
continue unremedied for a period of thirty (30) days after the
earlier to occur of (i) an officer of Borrower becomes aware of
such default or (ii) notice of such default to the Borrower by
the Lender, Lender shall be entitled to: (1) accelerate and
declare immediately due and payable all indebtedness evidenced by
this Agreement and the Note; (2) exercise any and all of the
various remedies therein provided herein, in the Note, in the
Security Agreement and in any other of the Loan Documents; and
(3) cumulatively exercise all other rights, options and
privileges, and remedies provided by law or in equity.
9. Notices. All notices, requests and other
communications to either party hereunder shall be in writing and
shall be given to such party at its address or telefax number set
forth at the beginning of this Agreement or such other address or
telefax number of which such party may hereafter give notice to
the other. Each such notice, request or other communication
shall be effective (i) if given by telefax, upon transmission
with a machine-generated transmittal confirmation, (ii) if given
by mail, 72 hours after such communication is deposited in the
United States mails with first class postage prepaid, addressed
as aforesaid, or (iii) if given by any other means, when
delivered at the address specified in this Section.
10. Miscellaneous.
(a) Whenever in this Agreement one of the parties
hereto is named or referred to, the heirs, legal representatives,
permitted successors and permitted assigns of such party shall be
included, and all covenants and agreements contained in this
Agreement by or on behalf of Borrower or by or on behalf of
Lender shall bind and inure to the benefit of their respective
heirs, legal representatives, permitted successors and permitted
assigns, whether so expressed or not.
(b) The headings of the sections, paragraphs and
subdivisions of this Agreement are for the convenience of
reference only, are not to be considered a part hereof and shall
not limit or otherwise affect any of the terms hereof.
(c) Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally, but only
by written instrument signed by the party against whom
enforcement of the change, waiver, discharge or termination is
sought.
(d) This Agreement shall be governed in its
enforcement, construction and interpretation by the laws of the
State of Florida, without reference to principles of conflict of
laws. The exclusive venue for any litigation in connection with
or arising out of this Agreement or the Note shall be Palm Beach
County, Florida.
(e) In the event any legal proceedings are instituted
between the parties concerning this Agreement or the Note, the
prevailing party shall be entitled to recover its costs of suit,
including reasonable attorneys' fees, at both trial and appellate
levels from the losing party.
(f) BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT, THE NOTE, OR ANY OF THE
OTHER LOAN DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
LENDER TO ENTER INTO THE LOAN.
(g) This Agreement may not be amended or modified
except by a writing signed by both parties hereto.
(h) This Agreement, the Note, the Security Agreement
and the other Loan Documents shall constitute the entire
agreement and understanding of the parties hereto with respect
to the subject matter hereof, and there are no other agreements
or understandings, oral or written, that are not merged herein or
superseded hereby.
(i) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, Borrower and Lender have executed this
Agreement as of the date first set forth above.
BORROWER
nSTOR TECHNOLOGIES, INC.
/s/ Mark F. Levy
By:___________________________
Name: Mark F. Levy
Title: Vice President
LENDER
/s/ H. Irwin levy
_____________________________
H. Irwin Levy
SCHEDULE A
1. Pending Litigation
Complaint filed in Nassau County, New York involving a claim
for contractual and proprietary interests in the prospect of a
transaction to purchase certain net assets acquired by Borrower.
EXHIBIT A
Exhibit A omitted
EXHIBIT B
(Security Agreement filed as a
separate exhibit at exhibit 10.2)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000075448
<NAME> NSTOR TECHNOLOGIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 710<F1>
<SECURITIES> 0
<RECEIVABLES> 4,312
<ALLOWANCES> (256)
<INVENTORY> 2,497
<CURRENT-ASSETS> 7,894
<PP&E> 9,863<F2>
<DEPRECIATION> (1,917)<F3>
<TOTAL-ASSETS> 15,840
<CURRENT-LIABILITIES> 6,770
<BONDS> 0
0
0<F4>
<COMMON> 952
<OTHER-SE> 2,536
<TOTAL-LIABILITY-AND-EQUITY> 15,840
<SALES> 15,170
<TOTAL-REVENUES> 15,226
<CGS> 12,700
<TOTAL-COSTS> 8,535
<OTHER-EXPENSES> 991<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 723
<INCOME-PRETAX> (7,723)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,723)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,896)<F6>
<EPS-PRIMARY> ($.47)
<EPS-DILUTED> 0
<FN>
<F1>Cash balance includes $521 of restricted cash.
<F2>PP&E balance includes $6,892 of goodwill and other intangible assets.
<F3>Accumulated depreciation balance includes $817 of accumulated amortization
attributable to goodwill and other intangible assets.
<F4>Preferred stock issued and outstanding includes the following: Series A
Convertible Preferred Stock, 1,667 shares; Series B Convertible Preferred
Stock, 3,300 shares; Series C Preferred Stock, 1,500 shares.
<F5>Other costs of $991 represents depreciation and amortization expense.
<F6>Net loss applicable to common stock of $8,896 is after $1,173 in preferred
stock dividends of which $1,045 was an embedded dividend attributable to a
beneficial conversion privilege.
</FN>
</TABLE>
