SCHEDULE 14 A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
nSTOR TECHNOLOGIES, INC.
_________________________________________________________________
(Name of Registrant as Specified in Its Charter)
Payment of filing fee (check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11:
(1) Title of each class of securities to which transaction applies:
_____________________________________________
(2) Aggregate number of securities to which transaction applies:
______________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
__________________________________________________
(4) Proposed maximum aggregate value of transaction:
__________________________________________________
(5) Total fee paid:
__________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
__________________________________________________
(2) Form, Schedule or Registration Statement No.:
__________________________________________________
(3) Filing Party:
__________________________________________________
(4) Date Filed:
__________________________________________________
<PAGE>
nSTOR TECHNOLOGIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 8, 1998
________________________________________
To the Stockholders of
nStor Technologies, Inc.
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
nStor Technologies, Inc., a Delaware corporation (the "Company"), will be
held at 10:00 a.m., local time on Monday, June 8, 1998, at the Embassy
Suites, 225 East Altamonte Drive, Altamonte Springs, Florida 32701, for the
following purposes:
1. To elect seven (7) persons to the Company's Board of Directors to hold
office until the Company's next Annual Meeting of Stockholders or until
their successors are duly elected and qualified;
2. To amend the Company's Restated Certificate of Incorporation to increase
the authorized number of shares of Common Stock from 24,000,000 to
40,000,000;
3. To ratify the April 1998 approval by the Board of Directors of the sale of
3,500 shares of the Company's 8% Series A Preferred Stock and the related
issuance of warrants to acquire 280,000 shares of Common Stock;
4. To ratify the reappointment of BDO Seidman, LLP, certified public
accountants, as the Company's independent auditors for fiscal 1998; and
5. To transact such other business as may properly come before the Annual
Meeting and any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on May 8, 1998 as the
record date for determining those stockholders entitled to notice of, and to
vote at, the Annual Meeting and any adjournments or postponements thereof.
Whether or not you expect to be present, please promptly mark, sign and date
the enclosed proxy and return it in the enclosed pre-addressed envelope. No
postage is required if mailed in the United States.
By Order of the Board of Directors
Orilla F. Floyd,
Secretary
West Palm Beach, Florida
May 13, 1998
THIS IS AN IMPORTANT MEETING AND ALL STOCKHOLDERS ARE INVITED TO
ATTEND THE MEETING IN PERSON. THOSE STOCKHOLDERS WHO ARE UNABLE TO
ATTEND ARE RESPECTFULLY URGED TO EXECUTE AND RETURN THE ENCLOSED
PROXY CARD AS PROMPTLY AS POSSIBLE. STOCKHOLDERS WHO EXECUTE A
PROXY CARD MAY NEVERTHELESS ATTEND THE MEETING, REVOKE THEIR PROXY
AND VOTE THEIR SHARES IN PERSON.
<PAGE>
1998 ANNUAL MEETING OF STOCKHOLDERS
OF
nSTOR TECHNOLOGIES, INC.
---------------
PROXY STATEMENT
---------------
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of nStor Technologies, Inc.,
a Delaware corporation (the "Company"), of proxies from the holders
of the Company's Common Stock, par value $.05 per share (the
"Common Stock"), for use at the 1998 Annual Meeting of Stockholders
of the Company to be held at 10:00 a.m., local time, on Monday,
June 8, 1998, at the Embassy Suites, 225 East Altamonte Drive,
Altamonte Springs, Florida 32701, or at any adjournment(s) or
postponement(s) thereof (the "Annual Meeting"), pursuant to the
enclosed Notice of Annual Meeting.
The approximate date that this Proxy Statement and the
enclosed proxy are first being sent to stockholders is May 13,
1998. Stockholders should review the information provided herein
in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, a copy of which accompanies this
Proxy Statement. The Company's executive offices are located at
100 Century Boulevard, West Palm Beach, Florida 33417, and its
telephone number is (561) 640-3103.
INFORMATION CONCERNING PROXY
The enclosed proxy is solicited on behalf of the Company's
Board of Directors. The giving of a proxy does not preclude the
right to vote in person should any stockholder giving the proxy so
desire. Stockholders have an unconditional right to revoke their
proxy at any time prior to the exercise thereof, either in person
at the Annual Meeting or by filing with the Company's Secretary at
the Company's headquarters a written revocation or duly executed
proxy bearing a later date; however, no such revocation will be
effective until written notice of the revocation is received by the
Company at or prior to the Annual Meeting.
<PAGE>
The cost of preparing, assembling and mailing this Proxy
Statement, the Notice of Annual Meeting of Stockholders and the
enclosed proxy is to be borne by the Company. In addition to the
use of mail, employees of the Company may solicit proxies
personally and by telephone. The Company's employees will receive
no compensation for soliciting proxies other than their regular
salaries. The Company may request banks, brokers and other
custodians, nominees and fiduciaries to forward copies of the proxy
material to their principals and to request authority for the
execution of proxies. The Company may reimburse such persons for
their expenses in so doing.
PURPOSES OF THE MEETING
At the Annual Meeting, the Company's stockholders will
consider and vote upon the following matters:
(1) The election of seven (7) persons to the Company's Board of
Directors to hold office until the Company's next Annual
Meeting of Stockholders or until their successors are duly
elected and qualified;
(2) The amendment of the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of
Common Stock from 24,000,000 to 40,000,000 (the "Charter
Amendment Proposal");
(3) The ratification of the April 1998 approval by the Board of
Directors of the sale of 3,500 shares of the Company's 8%
Series A Preferred Stock and the related issuance of warrants
to acquire 280,000 shares of Common Stock (the "1998 Private
Placement Proposal");
(4) The ratification of the reappointment of BDO Seidman, LLP,
certified public accountants, as the Company's independent
auditors for 1998; and
(5) Such other business as may properly come before the Annual
Meeting and any adjournments or postponements thereof.
Unless contrary instructions are indicated on the enclosed
proxy, all shares represented by valid proxies received pursuant to
this solicitation (and which have not been revoked in accordance
with the procedures set forth above) will be voted (a) cumulatively
for the election of the seven nominees for director named below and
(b) in favor of all other proposals described in the accompanying
Notice of Annual Meeting. In the event a stockholder specifies a
different choice by means of the enclosed proxy, his shares will be
voted in accordance with the specification so made.
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OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on May 8,
1998 as the record date (the "Record Date") for determining
stockholders of the Company entitled to notice of and to vote at
the Annual Meeting. As of the Record Date, there were 18,670,477
shares of Common Stock issued and outstanding, all of which are
entitled to be voted at the Annual Meeting. Each share of Common
Stock is entitled to one vote on each matter submitted to
stockholders for approval at the Annual Meeting; except for the
cumulative voting rights with respect to the election of directors
(see "Proposal 1: Election of Directors: Nominees").
The attendance, in person or by proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote
at the Annual Meeting is necessary to constitute a quorum. The
affirmative vote of the majority of the outstanding shares of
Common Stock will be required for approval of the Company's 1998
Private Placement Proposal and the proposal to amend the Company's
Restated Certificate of Incorporation to increase the number of
authorized shares of Common Stock, $.05 par value per share, from
24,000,000 to 40,000,000 shares, and any other matter that may be
submitted to a vote of the stockholders, unless the matter is one
for which a greater vote is required by law or by the Company's
Certificate of Incorporation or By-laws. Under the Company's
Certificate of Incorporation, By-Laws and applicable Delaware law,
abstentions and broker non-votes will not have the effect of votes
in opposition to the election of a director, but on all other
matters, abstentions will be treated as votes against the proposal.
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 31, 1998,
information with respect to the beneficial ownership of the
Company's Common Stock by (i) each person known by the Company to
beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) each director and executive officer of the Company,
including executive officers named in the Summary Compensation
Table under "Executive Compensation" and (iii) all directors and
executive officers of the Company as a group.
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Amount and
Nature of Percent of
Name and Address of Beneficial Outstanding
Beneficial Owner Ownership (1) Shares
H. Irwin Levy 3,722,099 19.4%
100 Century Blvd.
West Palm Beach, FL 33417
R. Daniel Smith 1,205,000 6.4%
450 Technology Park
Lake Mary, FL 32746
Michael L. Wise 976,312 (2) 5.2%
285 Tanglewood Crossing
Lawrence, NY 11559
Joseph D. Weingard 841,280 (3) 4.5%
185 NW Spanish River Blvd.
Boca Raton, FL 33431
Mark F. Levy 764,167 (4) 4.1%
100 Century Blvd.
West Palm Beach, FL 33417
Bernard R. Green 270,000 (5) 1.4%
583 North Lake Way
Palm Beach, FL 33480
Richard Reiss, Jr. 70,000 (6)
1114 Avenue of the Americas
New York, NY 10036
Larry J. Calise - -
450 Technology Park
Lake Mary, FL 32746
All executive officers, 7,848,858 39.5%
directors and director
nominees as a group (8 persons)
__________
(1) Unless otherwise indicated, each stockholder listed has the
sole power to vote and direct disposition of the shares of
Common Stock shown as beneficially owned by such stockholder.
For purposes of this table, a person or group of persons is
deemed to have "beneficial ownership" of the following shares
which such person or group has the right to acquire pursuant
to options and/or warrants exercisable within 60 days: Mr. H.
Irwin Levy - 558,332 shares (includes warrants to purchase
166,667 shares that are held by a corporation controlled by
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<PAGE>
Mr. Levy); Mr. Smith - 200,000 shares; Mr. Wise - 160,000
shares; Mr. Weingard - 80,000 shares; Mr. Mark F. Levy -
151,667 shares (includes warrants to purchase 41,667 shares
that are held by a corporation controlled by Mr. Levy); Mr.
Green and Mr. Reiss - 20,000 shares each; and all executive
officers and directors as a group - 1,189,999 shares. See
"Executive Compensation".
(2) Includes 84,000 shares owned directly by Mr. Wise and 227,410
shares owned by a retirement trust controlled by Mr. Wise.
The balance, as to which Mr. Wise disclaims beneficial
ownership, consists of 389,502 shares owned by Mr. Wise's
wife, 65,000 shares owned by Mr. Wise's child and 50,400
shares owned jointly by Mr. Wise's wife and his mother.
(3) Includes 562,002 shares owned jointly with Mr. Weingard's
wife. Also includes 3,000 shares owned by Mr. Weingard's wife
as to which Mr. Weingard disclaims beneficial ownership.
(4) Includes 5,000 shares owned by Mr. Levy's wife and 7,500
shares owned by Mr. Levy as guardian for his children. Mr.
Levy disclaims beneficial ownership as to these shares.
(5) Includes 20,000 shares owned by Mr. Green's wife and 10,000
shares owned by a trust of which Mr. Green's wife is a
trustee. Mr. Green disclaims beneficial ownership as to these
shares.
(6) Less than 1%.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires the Company's directors and
executive officers, and persons who own more than ten percent of
the Company's outstanding Common Stock, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock. Such persons
are required by SEC regulation to furnish the Company with copies
of all such reports they file.
To the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written
representations that no other reports were required, the officers,
directors and greater than ten percent beneficial owners of the
Company have complied with all applicable Section 16(a) filing
requirements.
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MANAGEMENT
Directors, Director Nominees and Executive Officers of the
Company - Set forth below is the name, age, position with the
Company, the year in which each was first appointed or elected an
officer or director, and certain other information with respect to
each director, director nominee and executive officer:
Director Officer
Name Age Position Since Since
Michael L. Wise 54 Chairman of the Board 1989 - (1)
Larry J. Calise 40 Chief Financial Officer - April 1998
Bernard R. Green 79 Director 1997 -
H. Irwin Levy 71 Director 1995 (2) -
Mark F. Levy 43 Director and President 1992 (3) 1995 (3)
Richard Reiss, Jr. 54 Director 1997 -
R. Daniel Smith 45 Director and Executive 1997 1996
Vice President
Joseph D. Weingard 52 Director 1995 (4) - (4)
_________
(1) Mr. Wise previously served as President of the Company from
March 1989 until December 1990 and from October 1992 until
July 1996.
(2) Mr. H. Irwin Levy previously served as Chairman of the Board
of Directors of the Company from 1987 until July 1991.
(3) Mr. Mark Levy previously served as Vice President, Secretary,
and a director of the Company from 1985 to 1990.
(4) Mr. Weingard previously served as a director and in various
executive capacities of the Company, including Chief Executive
Officer and Vice Chairman, from 1981 until January 1992 and
Vice President and Secretary from 1995 until April 1997.
6
<PAGE>
Michael L. Wise has been associated with the Company in
various positions since 1986. Mr. Wise was the founder of IMNET
Corporation of Delaware and served as its President and Chairman of
the Board from July 1986 to June 1990. IMNET Corporation of
Delaware became a subsidiary of the Company in 1988. Mr. Wise has
a PhD in physics.
Larry J. Calise, a Certified Public Accountant, was appointed
Chief Financial Officer of the Company in April 1998. Prior to
joining the Company in December 1997, Mr. Calise served as Chief
Financial Officer of American Executive Centers, Inc., a provider
of business support services, from 1996 to 1997 and from 1986 until
1996, held various positions, including Vice President-Finance and
Administration for a division of Alexander Proudfoot, Plc, an
international management consulting firm.
Bernard R. Green is consultant to, and previously for more
than forty years, managing or senior partner of, the accounting
firm of Friedman, Alpren & Green of New York, New York and West
Palm Beach, Florida. Mr. Green previously served as a director of
Hilcoast Development Corp. ("Hilcoast"), a real estate developer,
from July 1992 until February 1997 and has been a private investor
for more than twenty years.
H. Irwin Levy is Chairman of the Board and Chief Executive
Officer of Hilcoast, which position he has held since August 1992.
Since December 1997, Mr. Levy has served as Chairman of the Board
of CV Reit, Inc., a New York Stock Exchange listed Real Estate
Investment Trust ("CV Reit") and was Chairman of the Board and
Chief Executive Officer of CV Reit from 1985 until July 1992. He
is currently of counsel to the West Palm Beach law firm of Levy
Kneen Mariani Curtin Wiener Kornfeld and del Russo which provides
legal services to the Company.
Mark F. Levy is President of Cenvill Recreation, Inc. and
certain affiliated companies, all of which are privately held
businesses. Mr. Levy is the son of H. Irwin Levy and is licensed
to practice law in the State of Florida.
Richard Reiss, Jr. is President of Georgica Advisors, a
private investment firm located in New York, New York. Mr. Reiss
was managing partner of Cumberland Associates, a private money
management firm from January 1978 until December 1996.
7
<PAGE>
R. Daniel Smith was President and Chief Executive Officer of
Intelligent Manufacturing Systems, Inc. ("IMS"), a company engaged
in the development and sale of software technologies, from October
1991 through June 1996. The Company acquired certain assets of IMS
in June 1997 (see "Certain Transactions - IMS"). Mr. Smith is
President of nStor Corporation, Inc., the Company's operating
subsidiary.
Joseph D. Weingard has been a financial consultant in an
individual capacity since 1987 and is currently president of
Century Financial Advisors, Inc. Mr. Weingard was a director of
Hilcoast from August 1992 to February 1997, and a director of CV
Reit from May 1992 to July 1992. Mr. Weingard is a Certified
Public Accountant and holds real estate broker and mortgage broker
licenses.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 1997 and the two
month transition period ended December 31, 1996 (see "Executive
Compensation") the Board of Directors held seven meetings and on
one occasion took action by unanimous written consent. No director
attended fewer than 75 percent of the aggregate number of meetings
of the Board of Directors held during the period he served on the
Board.
An Audit Committee, which met twice during fiscal 1997, was
established in March 1997 and currently consists of Michael L.
Wise, Joseph D. Weingard and Bernard R. Green. The Audit
Committee's responsibilities include overseeing the financial
reporting process and the effectiveness of the Company's internal,
accounting and financial controls, and making recommendations to
the Board, including the designation of independent auditors on an
annual basis.
A Compensation Committee, which did not meet during fiscal
1997, was also established in March 1997 consisting of Michael L.
Wise, H. Irwin Levy and R. Daniel Smith. The Compensation
Committee's responsibilities include reviewing and approving
executive compensation, including benefits, and stock options
granted under the Company's 1996 Stock Option Plan.
EXECUTIVE COMPENSATION
In November 1996, the Company changed its fiscal year end from
October 31 to December 31. Accordingly, compensation for 1997
includes the two month transition period ended December 31, 1996
resulting in a fourteen month reporting period for 1997
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<PAGE>
(hereinafter referred to as the "1997 Period"). The following
table sets forth for the 1997 Period and the fiscal years ended
October 31, 1996 and 1995, the compensation awarded to, earned by
or paid to those persons who were, during the 1997 Period, (i) the
Chief Executive Officer of the Company and (ii) the other
executive officer of the Company whose compensation is required to
be disclosed pursuant to the rules of the SEC (collectively, the
"Named Officers"). No compensation was earned by the Named
Officers during the year ended October 31, 1995.
Summary Compensation Table
Name and All Other Annual
Principal Position Year Salary Bonus Compensation
Mark F. Levy, 1997 - - $39,500(1)
President and Chief 1996 - - $34,000(1)
Executive Officer
R. Daniel Smith, 1997 $296,500 - -
Executive Vice President 1996 $ 65,400(2) - -
__________
(1) Consists of Board meeting fees and monthly management/consulting fees for
services rendered by Mr. Levy in his capacity as a director and officer
of the Company.
(2) Represents salary received by Mr. Smith commencing June 3, 1996, the
first date of Mr. Smith's employment by the Company.
Option/Stock Appreciation Rights ("SAR") Grants
The following table sets forth information regarding options
to purchase the Company's Common Stock granted pursuant to the 1996
Stock Option Plan during the 1997 Period to the Named Officers. No
SARs were granted.
Individual Grants Potential
------------------- Realizable
Percent Value
Number of of Total at Assumed
Securities Options/ Annual Rates
Underlying SARs of Stock Price
Options/ Granted to Exercise Appreciation
SARs Employees or Base Expira- for Option Term
Granted in Fiscal Price tion --------------------
(#) (1) Year (2) ($/sh) Date 5%($) 10%($)
---------- ---------- -------- ------- ---------- ----------
Mark F. Levy 50,000 20% $2.38 10/06/07 $193,431 $308,007
40,000 16% $2.10 12/23/06 $136,827 $217,874
40,000 16% $4.00 12/23/06 $260,623 $414,999
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__________
(1) The Company granted an option to purchase 50,000 shares of the Company's
Common Stock on November 6, 1997 for services provided to the Company
during fiscal 1997, of which 30,000 shares became exercisable upon the
date of grant and 20,000 shares become exercisable on the first
anniversary of the grant date. The Company granted an option to
purchase 80,000 shares of the Company's Common Stock on December 23,
1996 for prior services provided to the Company which became exercisable
upon the date of grant.
(2) Mr. Levy is not a salaried employee of the Company (see discussion under
"Directors Compensation").
Aggregated Fiscal Year-End Option Value Table
The following table sets forth certain information concerning
unexercised stock options held by the Named Officers as of December
31, 1997. No options were exercised by any of the Named Officers
during the 1997 Period. No SAR's have been granted or are
outstanding.
OPTION EXERCISES DURING 1997
AND YEAR-END OPTION VALUES
Number of Value of Unexercised
Shares Unexercised Options at In-the-Money Options at
Acquired December 31, 1997 (#) December 31, 1997 ($)(1)
on Value ------------------------ --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------ ----------- -------------
Mark F.
Levy -0- -0- 110,000 20,000 -0- -0-
R. Daniel
Smith -0- -0- 200,000 800,000 -0- -0-
__________
(1) The closing price for the Company's Common Stock, as reported by the
American Stock Exchange ("Amex") on December 31, 1997, was $2.00.
None of the options held by the Named Officers were "in-the-money"
as of December 31, 1997.
Compensation Committee Interlocks and Insider Participation
Since the Compensation Committee did not meet during the 1997
Period, the entire Board of Directors participated in deliberations
concerning compensation paid to the Company's executive officers.
See "Certain Transactions".
R. Daniel Smith, an employee of the Company, is also a member
of the Board of Directors.
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Directors Compensation
Non-salaried directors of the Company receive $1,500 for each
directors' meeting attended. Members of the Company's Audit
Committee receive annual compensation of $5,000. Michael L. Wise,
Chairman of the Board, waived his Audit Committee compensation.
With the exception of R. Daniel Smith, none of the current
directors are salaried employees of the Company. In addition to
the above-described compensation received by the Named Officers
during the 1997 Period, non-salaried directors earned compensation
in the form of monthly management/consulting fees, board fees
and/or committee fees for services rendered to the Company in their
respective capacities as directors or officers as follows: Michael
L. Wise - $50,000, Joseph D. Weingard - $30,000, H. Irwin Levy -
$28,000, Bernard R. Green - $16,500 and Richard Reiss, Jr. -
$12,500 (see "Report on Executive Compensation"). Commencing in
September 1997, all directors agreed to defer receipt of all fees
earned until certain events occur including obtaining sufficient
financing. Mr. Wise's compensation was paid to Yadgim Partners,
of which Mr. Wise's wife is a general partner.
Pursuant to the Company's 1996 Stock Option Plan, each non-employee
director shall automatically be granted, effective each anniversary of said
director's appointment to the Board, an option to purchase 20,000 shares of
Common Stock at the then fair market value of the Common Stock.
REPORT ON EXECUTIVE COMPENSATION
During the 1997 Period the Board of Directors of the Company
administered the compensation program for executive officers.
Executive Compensation Policy - The Company's overall compensation
philosophy is as follows:
* Attract and retain quality talent, which is critical to both
the short-term and long-term success of the Company;
* Foster a performance-oriented environment, where compensation
is based upon corporate performance as measured by achievement
of short- and long-term objectives, taking into account
economic conditions and competitive compensation levels;
* Create a mutuality of interest between executive officers and
stockholders through compensation structures that share the
rewards and risks of strategic decision making; and
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* Promote a cohesive, team oriented ethic among members of
senior management in order to maintain the competitive
advantage of efficiently integrating diverse business
capabilities.
The Board's approach to base compensation is to offer
competitive salaries in comparison to those of other computer
equipment manufacturers. Increases in base compensation will be
based on the competence and performance of the Company's executives
and take into account the performance of the Company.
The Board also believes that stock ownership enhances
management's focus on maximizing stockholder value. Consequently,
the Company has also adopted an incentive stock option plan for its
officers and employees. The administrators of that plan will
allocate options to employees, including executive officers, based
on an evaluation of their relative levels of responsibility for,
and contribution to, the Company's operating results (in relation
to the Company's other optionees) and the number of options then
owned by the employee.
The Company's executive compensation program for the 1997
Period generally consisted of three components: (i) monthly
consulting/management fees for non-salaried officer/directors (ii)
an annual salary for R. Daniel Smith, Executive Vice President of
the Company, president of the Company's operating subsidiary and a
director of the Company and (iii) a long-term component consisting
of grants of stock options to non-salaried director/officers.
Non-salaried directors are generally compensated in the form
of monthly management/consulting fees for services rendered to the
Company, including evaluating potential acquisitions, evaluating
and obtaining financing for Company operations, monitoring the
Company's operating subsidiary and providing various necessary
corporate and public company functions. These fees range from
$1,000 to $3,000 per month. See "Directors Compensation" for
amounts paid to non-salaried directors and a discussion regarding
automatic annual option grants.
During fiscal 1997, each director of the Company (except for
R. Daniel Smith, who is a salaried employee of the Company)
received options to purchase 20,000 shares of Common Stock pursuant
to the Company's 1996 Stock Option Plan. In addition to these
automatic option grants, Mark F. Levy and Michael L. Wise received
options to purchase 30,000 and 20,000 shares of Common Stock,
respectively. The additional options granted were for services
rendered during fiscal 1997.
For the one salaried officer/director, R. Daniel Smith, the
entire Board determined his annual salary would remain unchanged at
$250,000 per year.
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Respectfully submitted,
Michael L. Wise
Bernard R. Green
H. Irwin Levy
Mark F. Levy
Richard Reiss, Jr.
R. Daniel Smith
Joseph D. Weingard
PERFORMANCE GRAPH
The following graph compares the five-year cumulative return
on the Company's Common Stock to total returns on the Standard and
Poor's Smallcap 600 Index ("S&P Smallcap 600") and a component peer
group of Standard and Poor's Technology-500 ("S&P Technology-500").
The graph assumes that the value of the investment in the
Company's Common Stock, the S&P Smallcap 600 and the S&P
Technology-500 peer group was $100 on October 31, 1992, and that
all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
Base INDEXED RETURNS
Date October 31,
Oct.31, -------------------------------- December
Company/Index 1992 1993 1994 1995 1996 31, 1997
- ------------- ---- ------ ------ ------ -------- ---------
$ $ $ $ $ $
nStor Technologies,
Inc. 100 132.98 115.96 464.90 2,459.61 2,127.69
S&P Smallcap 600 100 133.71 129.13 156.46 188.47 250.16
S&P Technology-500 100 124.24 150.81 228.39 276.33 394.02
CERTAIN TRANSACTIONS
Consulting and Advisory Agreement with Hilcoast Advisory Services,
Inc. ("Advisor")
Since July 1, 1996, Advisor has provided certain financial
consulting and administrative services to the Company under an
agreement which expires June 30, 1998, as extended, provides for
the payment of $6,000 per month, plus reimbursement for all out-of-pocket
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expenses, and which may be terminated by the Company upon 60
days notice and by Advisor upon 180 days notice. H. Irwin Levy is
the Chairman of the Board, Chief Executive Officer and a majority
shareholder of Hilcoast, the parent of Advisor. Management
believes that the terms of this agreement are no less favorable to
the Company than those that would be received from other sources.
IMS
In June 1997, the Company purchased substantially all of the
assets of IMS, a company of which R. Daniel Smith was the Chief
Executive Officer and sole shareholder, consisting of computer
hardware and software, furniture and other equipment. The purchase
price amounted to approximately $135,000, which was based on the
net book value of the assets acquired. Management believes that
the terms of this transaction were no less favorable to the Company
than those that would be received from other sources.
Loan Made to Director by the Company
In May 1997, the Company loaned Richard Reiss, Jr. $130,000
which approximated the purchase price of 50,000 shares of the
Company's Common Stock that Mr. Reiss purchased on the open market.
The promissory note bears interest at prime which accrues until
maturity (approximately $6,900 at December 31, 1997) and matures in
May 1999.
Loans Made by a Director to the Company
In September 1997, H. Irwin Levy agreed to loan up to
$1,000,000 to the Company (the "Director Loan"). Through its March
1998 maturity date, the Director Loan bore interest, payable
monthly, at prime plus one and one-half percent (1.5%) per annum,
was subordinated to borrowings of the Company under an asset based
revolving credit facility, and was collateralized by substantially
all assets of the Company. As of December 31, 1997, the
outstanding balance under the Director Loan was $950,000 and a
total of $26,800 in interest expense had accrued, of which $11,300
had been paid by the Company. In connection with the Director
Loan, as of December 31, 1997, the Company issued warrants to Mr.
Levy to purchase 55,000 shares of Common Stock of the Company at a
purchase price of $2.35 per share, exercisable on the date of
grant, and expiring on September 16, 2000. In addition, from
January 14, 1998 through February 13, 1998, the Company issued
warrants to Mr. Levy to purchase up to 10,000 shares of Common
Stock of the Company under similar terms.
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During the first quarter of 1998, Mr. Levy advanced an
additional net amount of $1,050,000 (consisting of $1,460,000
advanced, less $410,000 repaid) of which $500,000 was loaned by MLL
Corp., a private company of which Mr. Levy is the majority
shareholder. The Director Loan was amended and restated in March
1998, bringing the total amount loaned to the Company to $2,000,000
(the "Amended Director Loan"). The Amended Director Loan is
subordinated to borrowings of the Company under an asset based
revolving bank credit facility, is collateralized by substantially
all assets of the Company, bears interest, payable monthly, at ten
percent (10%) per annum and matures on September 5, 1999. In
connection with the Amended Director Loan, the Company issued
warrants to Mr. Levy to purchase 666,666 shares of Common Stock of
the Company at a purchase price of $1.50 per share, exercisable on
the date of grant, expiring on March 5, 2001.
In April 1998, in connection with the Company's private
placement of equity securities (see "Proposal to Approve the 1998
Private Placement"), Mr. Levy sold $1,000,000 of participation
interests in the Amended Director Loan to private investors,
including $250,000 to members of his family, and invested
$1,000,000 in the Company's Preferred Stock (see "Proposal 3: The
1998 Private Placement - Interest of Certain Persons").
In April 1998, Mr. Levy advanced an additional $735,000 to the
Company which was repaid on April 16, 1998 from the proceeds of the
Company's private placement of equity securities (see "Proposal 3:
The 1998 Private Placement").
PROPOSAL 1: ELECTION OF DIRECTORS: NOMINEES
The Company's Certificate of Incorporation provides that the
number of directors constituting the Company's Board of Directors
shall be not less than three, the exact number of which shall be
fixed from time to time by the Company's Board of Directors. The
Board of Directors has fixed at seven the number of directors that
will constitute the Board for the ensuing year.
Messrs. Michael L. Wise, Chairman of the Board, Bernard R.
Green, H. Irwin Levy, Mark F. Levy, Richard Reiss, Jr., R. Daniel
Smith and Joseph D. Weingard have been nominated for election as
directors of the Company. Each of such nominees for election as a
director is a current member of the Board of Directors.
It is intended that the shares represented by the enclosed
proxy will be voted cumulatively for the election of the seven
nominees listed above, unless otherwise instructed. The Board of
Directors has no reason to believe that any of the nominees will
refuse to act or be unable to accept election; however, in the
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event that one or more of the nominees is unable to accept election
or if any other unforeseen contingencies should arise, each proxy
that does not direct otherwise will be voted for the remaining
nominees, if any, and for such other person(s) as may be designated
by the Board of Directors.
Pursuant to the Restated Certificate of Incorporation, the
election of directors is by cumulative voting. Each holder of
Common Stock shall be entitled to as many votes as shall equal the
number of votes which he/she would be entitled to cast for the
election of directors with respect to his/her shares of Common
Stock multiplied by the number of directors to be elected (7), and
he/she may cast all of such votes for a single director or may
distribute them among the number of directors to be voted for, or
for any two or more of them as he/she may see fit. By giving your
Proxy, you are authorizing the holders thereof to vote your shares
for the nominees as they determine is appropriate. The seven
nominees receiving the highest number of votes will be elected.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE ABOVE NOMINEES AS DIRECTORS.
PROPOSAL 2: APPROVAL OF THE CHARTER AMENDMENT
General
The Board of Directors has unanimously adopted a resolution to
submit to a vote of the stockholders a proposal to amend paragraph
4(a) of the Company's Restated Certificate of Incorporation to
increase the number of shares of Common Stock which the Company is
authorized to issue from 24,000,000 to 40,000,000.
The full text of paragraph 4(a) of the Restated Certificate of
Incorporation, if amended as proposed, would read as follows:
"4(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."
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The terms of the additional shares of Common Stock will be
identical to those of the currently outstanding Common Stock.
However, because stockholders have no preemptive rights to purchase
any additional shares of Common Stock which may be issued, the
issuance of additional shares will reduce the percentage interest
of current stockholders in the total outstanding shares. The
Charter Amendment Proposal will not increase the number of shares
of preferred stock authorized. The relative rights and limitations
of the Common Stock and preferred stock would remain unchanged
under the Charter Amendment Proposal.
Purposes and Effects of Increasing the Number of Authorized Shares
of Common Stock
If approved by the Company's stockholders, the Charter
Amendment Proposal would increase the number of shares of Common
Stock which the Company is authorized to issue from 24,000,000 to
40,000,000. The additional 16,000,000 shares, if and when issued,
would have the same rights and privileges as the currently
outstanding shares of Common Stock.
The Board of Directors recommends the proposed increase in the
authorized number of shares of Common Stock to enable the Company
to satisfy its obligations under the terms of the Subscription
Agreement. See "Consequences if Stockholder Approval Not
Obtained". In addition, the approval of the Charter Amendment
Proposal would help ensure an adequate supply of authorized and
unissued shares of Common Stock for (i) additional issuances under
the Company's 1996 Stock Option Plan, (ii) the raising of
additional capital for the operations of the Company, (iii) the
financing of acquisitions of other businesses, (iv) the
satisfaction of the Company's contingent obligations to issue
Common Stock, and (v) the retirement of outstanding Company debt
obligations. Except as described in this Proxy Statement, there
are currently no plans or arrangements relating to the issuance of
any of the additional shares of Common Stock proposed to be
authorized and such shares would be available for issuance without
further action by stockholders, unless required by the Company's
Restated Certificate of Incorporation, its Bylaws, its listing
agreement with Amex or other principal national securities exchange
or system, or applicable law.
The increase in the number of authorized shares of Common
Stock has not been proposed for any anti-takeover purpose and the
Board of Directors and members of management of the Company have no
knowledge of any current effort to obtain control of the Company or
to accumulate large amounts of its Common Stock. However, the
availability of additional shares of Common Stock could make any
attempt to gain control of the Company or of the Board of Directors
more difficult. Shares of authorized, but unissued Common Stock
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could be issued in an effort to dilute the stock ownership and
voting power of any person or entity desiring to acquire control of
the Company, which might have the effect of discouraging or
lessening the likelihood of such a change of control. Such shares
could also be issued to other persons or entities who support the
Board of Directors in opposing a takeover attempt that the Board of
Directors considers not to be in the best interests of the Company
and its stockholders.
In evaluating the Charter Amendment Proposal, stockholders
should consider the effect of certain other provisions of the
Company's Restated Certificate of Incorporation and Bylaws that may
have anti-takeover consequences, including (i) the authorization of
1,000,000 shares of preferred stock, the terms of which may be
fixed by the Board of Directors without further action by the
Company's stockholders, (ii) the provision that standing directors
may only be removed by a majority vote of stockholders, (iii) the
limitation on the ability of stockholders to call a special
meeting, and (iv) the provision that vacancies in, and newly
created directorships resulting from an increase in the number of
directors on, the Board of Directors may be filled by a majority of
the remaining directors.
Vote Required; Effective Date of Amendment to Charter;
Recommendation of the Board of Directors
If the Charter Amendment Proposal is approved by the holders
of a majority of the outstanding shares of Common Stock, it will
become effective upon the filing by the Company of a Certificate of
Amendment to the Company's Restated Certificate of Incorporation
with the Delaware Secretary of State, which filing is expected to
be done as soon as practicable after stockholder approval is
obtained. The directors and executive officers of the Company
intend to vote their shares in favor of the Charter Amendment
Proposal.
FOR THE REASONS DESCRIBED ABOVE, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE CHARTER
AMENDMENT PROPOSAL.
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PROPOSAL 3: THE 1998 PRIVATE PLACEMENT
In a private placement of equity securities completed on April
16, 1998 (the "1998 Private Placement"), the Company sold to three
institutional investors and to H. Irwin Levy, a director of the
Company, a total of 3,500 shares of the Preferred Stock and issued
warrants to purchase a total of 280,000 shares of Common Stock (the
"Warrants"). The Company received gross proceeds of $3,500,000 and
net proceeds of approximately $3,305,000 (including $1,000,000
placed in escrow (see "Consequences if Stockholder Approval Not
Obtained") after the payment of brokerage fees and transaction
expenses. The 1998 Private Placement was necessary to enable the
Company to meet its currently existing financial obligations as
they come due and to function as a going concern.
Why the Company is Requesting Stockholder Approval
The Company is requesting its stockholders to approve the 1998
Private Placement Proposal pursuant to the terms of the
Subscription Agreement for the Preferred Stock (the "Subscription
Agreement"), which requires the Company to obtain such approval.
In addition, the Company's listing agreement with Amex requires
stockholder approval for the issuance of common stock at below
market prices in an amount equal to 20% or more of the number of
shares of common stock outstanding (see "Amex Listing Obligation").
A failure to obtain such approval would entitle the holders of the
Preferred Stock to require the Company to redeem a portion of their
shares at a premium. See "Consequences if Stockholder Approval Not
Obtained".
Consequences if Stockholder Approval Not Obtained
If the Company's stockholders do not approve the 1998 Private
Placement Proposal, the terms of the Subscription Agreement and a
listing rule of Amex will prohibit the Company from issuing at
below market prices more than 20% of the shares of Common Stock
issued and outstanding on the closing date of the 1998 Private
Placement (3,734,095 shares of Common Stock) upon the conversion of
the outstanding Preferred Stock and the exercise of the outstanding
Warrants. If the Company's stockholders do not approve the Charter
Amendment Proposal, the Company's commitment to issue Common Stock
may exceed the 24,000,000 shares presently authorized under the
Company's Restated Certificate of Incorporation. If either of such
proposals is not approved by the stockholders on or before July 15,
1998, the Company may be obligated to redeem, at the sole option of
certain of the holders of the Preferred Stock, $1,000,000 worth of
such Preferred Stock. As required under the Subscription
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Agreement, the Company placed $1,000,000 into escrow upon closing
of the 1998 Private Placement for satisfaction of this obligation
upon a failure of the stockholders to obtain the necessary
approvals outlined herein. The Company may need use of the
$1,000,000 held in escrow to meet its current financial
obligations. Accordingly, such redemption payment from escrow
could have a material adverse effect on the Company's liquidity and
financial position.
In the event that the Company does not obtain Stockholder
approval, the holders of the Preferred Stock may convert the
remainder of their Preferred Stock at market price and the dividend
paid upon such conversion shall be increased from eight percent
(8%) to fifteen percent (15%). In the event that, for any reason,
holders of Preferred Stock cannot convert any portion of their
Preferred Stock, the Company shall be required to offer redemption
of such Preferred Stock at its face amount, plus a premium of at
least 23%, plus accrued interest.
POSSIBLE DISADVANTAGES OF APPROVING
THE 1998 PRIVATE PLACEMENT PROPOSAL
Potential for Increased Dilution of Common Stockholders
If the Company's stockholders approve the 1998 Private
Placement Proposal, the number of shares of Common Stock that may
ultimately be issued upon the conversion of the Preferred Stock and
the exercise of the Warrants may significantly reduce the
percentage of ownership of the current holders of the Common Stock
and dilute their interest in the Company's profits.
Potential for Increased Number of Shares Available for Sale
The approval of the 1998 Private Placement Proposal may result
in a greater number of shares of Common Stock becoming eligible for
sale on the open market. Under the Subscription Agreement, the
Company is required to file a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), that
allows the public sale of all of the Common Stock issued upon
conversion of the Preferred Stock and upon exercise of the
Warrants. Such sales, or the possibility of such sales, could
depress the market price of the Common Stock.
Potential for a Change in Control
The approval of the 1998 Private Placement Proposal could,
depending on the market prices of the Common Stock during the
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period prior to the conversion of the Preferred Stock, result in
the issuance of a large number of shares of Common Stock, thereby
possibly resulting in a change in control of the Company if the
converting holders were to retain such shares of Common Stock
rather than sell them. Under the terms of the Subscription
Agreement for the Preferred Stock, no holder can convert its shares
into Common Stock to the extent that such conversion would result
in it being the beneficial owner, in accordance with the provisions
of Rule 13d-3 of the Securities Exchange Act of 1934, as amended,
of more than 4.99% of the then issued and outstanding Common Stock
of the Company.
Potential for Discouraging Certain Changes in Control
The potential for the issuance of a larger number of shares of
Common Stock following stockholder approval of the 1998 Private
Placement Proposal might have the effect of delaying, deferring or
even preventing a change in control of the Company or discouraging
tender offers for the Company's shares of Common Stock. The Board
of Directors has considered these consequences and concluded that
the advantages discussed in the next section below outweigh any
potential negative effects. See "Effects of 1998 Private Placement
on Holders of Common Stock".
Summary of the 1998 Private Placement
Although a summary of the material terms of the 1998 Private
Placement is set forth below, the detailed provisions are contained
in the Subscription Agreement, the Certificate of Designation, the
Stock Purchase Warrant, the Registration Rights Agreement and other
related transaction documents (the "Transaction Documents") which
are attached as an exhibit to the Company's amended Form 10-K (Form
10-K/A) filed with the SEC. The Transaction Documents are
available to be copied from the Secretary of the Company upon
request.
Issuance of Preferred Stock
Pursuant to the Subscription Agreement, the Company issued and
sold in a private placement to certain accredited investors a total
of 3,500 shares of Preferred Stock at a purchase price of $1,000
per share, resulting in gross proceeds to the Company of
$3,500,000.
Each holder of Preferred Stock has the option to convert such
shares into shares of Common Stock from time to time, beginning on
the earlier to occur of: (i) the date upon which a registration
statement covering such shares of Common Stock is declared
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effective by the SEC, or (ii) July 15, 1998. On April 16, 2000,
all shares of the Preferred Stock then outstanding will
automatically be converted into Common Stock provided that all
shares of Common Stock issuable upon conversion of the Preferred
Stock are (i) authorized and reserved for issuance, (ii) registered
under the Securities Act for resale, and (iii) eligible to be
traded on Amex or another principal national securities market or
system. Each holder of Preferred Stock is entitled to a dividend
on such Preferred Stock payable only on the conversion date in
either (i) cash, or (ii) issuance of additional shares of Common
Stock at the discretion of the Board of Directors. Each holder of
Preferred Stock is entitled to a liquidation preference equal to
the amount per share of Preferred Stock that would have been
payable had each share been converted into Common Stock immediately
prior to an event of liquidation, dissolution or winding up of the
Company. Except as otherwise provided by applicable law, each
holder of 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
Preferred Stock could be converted at the record date for
determining stockholders entitled to vote.
Conversion Rate
The Company cannot determine the exact number of shares of
Common Stock that will ultimately be issued upon the conversion of
the Preferred Stock if the stockholders approve the 1998 Private
Placement Proposal. The exact number of shares of Common Stock
issuable will depend on the market price of the Common Stock at the
time of conversion. The conversion price (the "Conversion Price")
is the lesser of (i) $1.44, or (ii) seventy-seven percent (77%) of
the average closing bid price of the Common Stock for the three (3)
trading days immediately preceding the date of conversion. The
average closing bid price of the Common Stock for the three (3)
days immediately preceding the filing of this Proxy Statement was
$1.29. The number of shares of Common Stock issuable upon
conversion of shares of Preferred Stock (the "Conversion Shares")
equals the purchase price of the Preferred Stock ($1,000 per share)
divided by the Conversion Price, multiplied by the number of shares
of Preferred Stock converted.
The number of Conversion Shares will increase if the market
price of the Common Stock decreases and will decrease if the market
price of the Common Stock increases. Therefore, the number of
Conversion Shares may be substantially greater than the 3,734,095
shares currently permitted under the Subscription Agreement and the
Amex listing rules if the market price for the Common Stock
decreases. See "Amex Listing Obligation" and "Effects of 1998
Private Placement on Holders of Common Stock".
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The Conversion Price is subject to adjustment for customary
anti-dilution events such as stock splits, stock dividends,
reorganizations, and certain mergers affecting the Common Stock.
If a conversion occurs when the Common Stock has been involuntarily
delisted from Amex or the Company has received a delisting letter
and cannot certify to the satisfaction of the holders of the
Preferred Stock that the Company is in fact in compliance with the
listing requirements, the Conversion Price will equal the lesser of
(i) $1.44, or (ii) seventy-two percent (72%) of the averge closing
bid price for the last three (3) trading days prior to the
termination of trading. If either the 1998 Private Placement
Proposal or the Charter Amendment Proposal is not approved by the
Company's stockholders on or before July 15, 1998, the Company will
be required to redeem a portion of the outstanding Preferred Stock
at a premium. See "Consequences if Stockholder Approval Not
Obtained".
The Conversion Shares could exceed the number of shares
authorized, but unissued based upon (i) the number of shares of
Common Stock issued and outstanding, and (ii) the number of shares
of Common Stock issuable under currently outstanding options and
warrants. As a result, certain option and warrant holders have
agreed not to exercise their rights under said options and warrants
unless and until the stockholders approve the Charter Amendment
Proposal. See "Proposal to Approve the Charter Amendment". In
addition, H. Irwin Levy, a Director of the Company and one of the
holders of the Preferred Stock, has agreed to a lock-up period of
six months during which he may not convert his shares of Preferred
Stock.
Issuance of the Warrants
As part of the 1998 Private Placement, the Company issued
Warrants to acquire 280,000 shares of Common Stock to the holders
of the Preferred Stock at an exercise price of $1.50 per share.
The Warrants are currently exercisable and expire on April 14,
2001. H. Irwin Levy, a director of the Company, received a warrant
to purchase 80,000 shares of Common Stock pursuant to the 1998
Privte Placement. See "Interest of Certain Persons".
Registration of Common Stock
The Company has agreed to file a registration statement with
the SEC covering 200% of the number of shares of Common Stock
issuable upon the conversion of the Preferred Stock. If such
registration statement is not filed on or before May 16, 1998 or is
not declared effective by the SEC on or before July 15, 1998, the
Company will be required to pay liquidated damages to certain
holders of the Preferred Stock equal to two percent (2%) of the
principal amount of the securities for each month such registration
statement is not filed and/or declared effective.
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Amex Listing Obligation
The Company's listing agreement with Amex requires the Company
to comply with certain criteria, including the requirement to
obtain stockholder approval for (i) the issuance of common stock at
below market prices in an amount equal to 20% or more of the number
of shares of common stock then outstanding, (ii) the issuance of
more than 5% of the Company's common stock then outstanding to all
officers, directors or key employees, in the aggregate, in any one
year, and (iii) the issuance of more than 10% of the Company's
common stock then outstanding to all officers, directors or key
employees, in the aggregate, in any five year period.
To ensure continued compliance with the listing rules of Amex,
the terms of the Subscription Agreement for the Preferred Stock
expressly provide that no more than 3,734,095 shares of Common
Stock (approximately 20% of the shares of Common Stock outstanding
on the closing date of the 1998 Private Placement) may be issued at
below market prices unless and until the approval of the
stockholders sought hereby is obtained. The terms of the
Certificate of Designation for the Preferred Stock expressly
provide that holders of Preferred Stock who are officers,
directors, or key employees may not convert their shares prior to
obtaining stockholder approval if such conversion would result in
(i) the issuance of more than 5% of the Company's Common Stock to
all officers, directors and key employees, in the aggregate, in any
one year, or (ii) the issuance of more than 10% of the Company's
Common Stock to such officers, directors and key employees in the
aggregate, in any five year period.
Effects of the Approval of the 1998 Private Placement Proposal
The approval of the 1998 Private Placement Proposal by the
Company's stockholders will result in (i) the approval of the
issuance by the Company of shares of Common Stock in satisfaction
of its obligations under the Subscription Agreement as described in
this Proxy Statement, (ii) the approval of the issuance by the
Company of shares of Common Stock at below market prices in an
amount greater than the limit imposed by Amex of 20% of the Common
Stock then outstanding, (iii) the approval of the issuance of more
than 5% of the Company's Common Stock then outstanding to officers,
directors and key employees, in the aggregate, in any one year in
satisfaction of the listing requirements imposed by Amex, and (iv)
the approval of the issuance of more than 10% of the Company's
Common Stock then outstanding to officers, directors and key
employees, in the aggregate, in any five year period in
satisfaction of the listing requirements imposed by Amex. (No
shares of Common Stock were issued to Mr. Levy during the past
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year.) As discussed above, the Company is also required to obtain
stockholder approval of an amendment to its Restated Certificate of
Incorporation to increase the number of authorized shares of Common
Stock so that there are a sufficient number of authorized, but
unissued shares of Common Stock for conversion of the Preferred
Stock and exercise of the related warrants, based on current market
prices of the Common Stock. See "Proposal to Approve the Charter
Amendment".
Effects of 1998 Private Placement on Holders of Common Stock
There is no theoretical limit on the number of Conversion
Shares which holders of Preferred Stock would be entitled to
receive, upon conversion of such Preferred Stock, subject to (i)
the approval of the Company's stockholders of the 1998 Private
Placement Proposal and the Charter Amendment Proposal, and (ii) the
change in control provision limiting the number of Conversion
Shares issuable to any holder of Preferred Stock to 4.99% of the
then outstanding shares of Common Stock of the Company. See
"POSSIBLE DISADVANTAGES OF APPROVING THE 1998 PRIVATE PLACEMENT
PROPOSAL".
The following table illustrates the effect of various
Conversion Prices assuming (i) all Preferred Stock (3,500 shares)
was converted at the same time at these prices, and (ii) the
Company's stockholders approve the 1998 Private Placement Proposal
and the Charter Amendment Proposal:
Number of As Percent of
Assumed Conversion Common Stock
Conversion Shares Outstanding
Price (1) Issuable (2) After Conversion (3)
---------- --------------- -------------------
$0.25 14,000,000 42.9%
$0.50 7,000,000 27.3%
$0.75 4,666,667 20.0%
$1.00 3,500,000 15.8%
$1.25 2,800,000 13.0%
$1.44 (4) 2,430,556 11.5%
__________
(1) The Conversion Price applicable to any conversion equals the
lesser of (i) $1.44 or (ii) seventy-seven percent (77%) of the
average closing bid price of the Common Stock for the three
(3) trading days immediately preceding the date of conversion.
(2) $1,000 divided by the Conversion Price multiplied by the
number of shares of Preferred Stock being converted (3,500).
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(3) Assumes that the number of shares outstanding at the time of
conversion equals 18,670,477 shares of Common Stock issued and
outstanding on April 16, 1998, plus the number of Conversion
Shares issuable at the Conversion Price indicated.
(4) The maximum Conversion Price.
Board of Directors' Authority
Under applicable Delaware law and the Company's Restated
Certificate of Incorporation, the Board of Directors has the
authority, without further action by the stockholders, to issue
additional shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions granted to
or imposed upon any series of unissued Preferred Stock and to fix
the number of shares constituting any series and the designation of
such series.
Board of Directors' Approval
The Board of Directors has concluded that the 1998 Private
Placement was in the best interest of the Company and authorized
the officers of the Company to enter into the 1998 Private
Placement and the Subscription Agreement, the Certificate of
Designation, the Stock Purchase Warrants, the Registration Rights
Agreement and all other related agreements.
Interest of Certain Persons
H. Irwin Levy is a Director of the Company and is one of the
holders of the Preferred Stock. See "Amex Listing Obligation" for
a discussion of the additional Amex listing agreement rules that
effect Mr. Levy. Therefore, Mr. Levy has agreed not to convert any
of his shares of Preferred Stock until such time as the Company has
received stockholder approval for the 1998 Private Placement
Proposal. In addition, Mr. Levy has agreed to a six month lock-up
period during which he may not convert any of his shares of the
Preferred Stock.
No Appraisal or Dissenters Rights; No Preemptive Rights
Under applicable Delaware law, stockholders are not entitled
to any statutory dissenters rights or appraisal of their shares of
Common Stock in connection with the 1998 Private Placement.
Existing stockholders have no preemptive rights in respect to any
of the securities to be issued in the 1998 Private Placement or any
other security issued by the Company.
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Agreement Among Certain Stockholders
Certain of the officers, directors and other stockholders of
the Company (collectively constituting a majority of the shares of
Common Stock), have agreed with the holders of the Preferred Stock
to vote all of the shares of Common Stock over which they exercise
voting authority in favor of the 1998 Private Placement Proposal.
As of the date of this Proxy Statement, the Company believes that
such agreement covers approximately 9,533,031 shares, representing
approximately 51.06% of the shares outstanding on the record date
for the Annual Meeting.
Vote Required
Stockholder approval of the 1998 Private Placement Proposal
requires the affirmative vote of the holders of a majority of the
shares of Common Stock entitled to vote thereon, present in person
or by proxy at the Annual Meeting. The directors and officers of
the Company intend to vote their shares in favor of the 1998
Private Placement Proposal.
FOR THE REASONS DESCRIBED ABOVE, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE 1998
PRIVATE PLACEMENT PROPOSAL.
PROPOSAL 4: RATIFICATION OF THE
REAPPOINTMENT OF THE COMPANY'S INDEPENDENT AUDITORS
The firm of BDO Seidman, LLP, certified public accountants,
served as the Company's independent auditors for the fiscal year
ended December 31, 1997. BDO Seidman has advised the Company that
the firm does not have any direct or indirect financial interest in
the Company or any of its subsidiaries, nor has such firm had any
such interest in connection with the Company or its subsidiaries
during the past year, other than in its capacity as the Company's
independent auditors. The Board of Directors has selected BDO
Seidman as the Company's independent auditors for the fiscal year
ending December 31, 1998. Although the Board is not required to do
so, it is submitting its selection of the Company's independent
auditors for ratification at the Annual Meeting, in order to
ascertain the views of its stockholders. The Board will not be
bound by the vote of the stockholders; however, if the selection is
not ratified, the Board would reconsider its selection. One or
more representatives of BDO Seidman may be present at the Annual
meeting, will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate
questions from stockholders.
27
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS VOTE FOR RATIFICATION OF THE REAPPOINTMENT OF BDO
SEIDMAN, AS THE COMPANY'S INDEPENDENT AUDITORS.
OTHER BUSINESS
The Board knows of no other business to be brought before the
Annual Meeting. If, however, any other business should properly
come before the Annual Meeting, the persons named in the
accompanying proxy will vote proxies as in their discretion they
may deem appropriate, unless they are directed by a proxy to do
otherwise.
INFORMATION CONCERNING STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated by the SEC, a stockholder
intending to present a proposal to be included in the Company's
proxy statement for the Company's 1999 Annual Meeting of
Stockholders must deliver a proposal in writing to the Company's
principal executive offices no later than January 13, 1999.
By Order Of The Board of Directors
Orilla F. Floyd, Secretary
West Palm Beach, Florida
May 13, 1998
28
<PAGE>
PROXY CARD
nSTOR TECHNOLOGIES, INC.
100 Century Blvd.
West Palm Beach, FL 33417
THIS PROXY IS SOLICITED ON BEHALF OF THE
COMPANY'S BOARD OF DIRECTORS
The undersigned holder of Common Stock of nStor Technologies, Inc.,
a Delaware corporation (the "Company"), hereby appoints Mark F.
Levy and Orilla F. Floyd and each of them, as proxies for the
undersigned, each with full power of substitution, for and in the
name of the undersigned to act for the undersigned and to vote, as
designated below, all of the shares of Common Stock of the Company
that the undersigned is entitled to vote at the 1998 Annual Meeting
of Stockholders of the Company, to be held at 10:00 a.m., local
time, on Monday, June 8, 1998, at Embassy Suites, 225 East
Altamonte Drive, Altamonte Springs, Florida 32701, and at any
adjournment(s) or postponement(s) thereof.
(1) Election of directors: Michael L. Wise, Bernard R. Green, H. Irwin
Levy, Mark F. Levy, Richard Reiss, Jr., R. Daniel Smith, and Joseph D.
Weingard.
[ ] VOTE FOR all nominees listed above, except vote withheld
from the following nominees (if any).
______________________________________________________
[ ] VOTE WITHHELD for all nominees.
Cumulative votes for one or more nominees as follows:
Michael L. Wise __________
Bernard R. Green __________
H. Irwin Levy __________
Mark F. Levy __________
Richard Reiss, Jr. __________
R. Daniel Smith __________
Joseph D. Weingard __________
The Board of Directors unanimously recommends a vote
For the election of all the nominees for election as
directors.
<PAGE>
(2) To amend the Company's Restated Certificate of Incorporation to increase
the authorized number of shares of Common Stock from 24,000,000 to
40,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors unanimously recommends a vote
For this proposal.
(3) To ratify the April 1998 approval by the Board of Directors of the sale
of 3,500 shares of the Company's 8% Series A Preferred Stock and the
related issuance of warrants to acquire 280,000 shares of Common Stock;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors unanimously recommends a vote
For this proposal.
(4) To ratify the reappointment of BDO Seidman, LLP, certified public
accountants, as the Company's independent auditors for fiscal 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors unanimously recommends a vote
For this proposal.
(5) Upon such other matters as may properly come before the Annual Meeting
and any adjournments thereof. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before
the Annual Meeting, and any adjournments or postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED CUMULATIVELY "FOR"
THE ELECTION OF ALL NOMINEES LISTED ABOVE. IF NO DIRECTION IS
MADE, THIS PROXY WILL ALSO BE VOTED IN FAVOR OF AMENDING THE
COMPANY'S CERTIFICATE OF INCORPORTION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 24,000,000 TO
40,000,000, IN FAVOR OF RESERVING FOR ISSUANCE SHARES OF THE
COMPANY'S COMMON STOCK PURSUANT TO THE COMPANY'S 8% CONVERTIBLE
PREFERRED STOCK AND THE WARRANTS THERETO, AND IN FAVOR OF THE
RATIFICATION OF BDO SEIDMAN, LLP.
<PAGE>
PURSUANT TO THE RESTATED CERTIFICATE OF INCORPORATION, THE
ELECTION OF DIRECTORS IS BY CUMULATIVE VOTING. EACH HOLDER OF
COMMON STOCK SHALL BE ENTITLED TO AS MANY VOTES AS SHALL EQUAL
THE NUMBER OF VOTES WHICH HE/SHE WOULD BE ENTITLED TO CAST FOR
THE ELECTION OF DIRECTORS WITH RESPECT TO HIS/HER SHARES OF
COMMON STOCK MULTIPLIED BY THE NUMBER OF DIRECTORS TO BE
ELECTED (7), AND HE/SHE MAY CAST ALL OF SUCH VOTES FOR A SINGLE
DIRECTOR OR MAY DISTRIBUTE THEM AMONG THE NUMBER OF DIRECTORS
TO BE VOTED FOR AS HE/SHE MAY SEE FIT. PLEASE INDICATE YOUR
VOTE FOR EACH DIRECTOR BY INSERTING THE APPROPRIATE NUMBER OF
VOTES IN THE SPACE NEXT TO EACH DIRECTOR'S NAME. BY GIVING
YOUR PROXY, YOU ARE AUTHORIZING THE HOLDERS THEREOF TO VOTE
YOUR SHARES FOR THE NOMINEES AS THEY DETERMINE IS APPROPRIATE.
THE SEVEN NOMINEES RECEIVING THE HIGHEST NUMBER OF VOTES WILL
BE ELECTED.
The undersigned hereby acknowledges receipt of (i) the Notice
of Annual Meeting, (ii) the Proxy Statement, and (iii) the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
Dated_________________________, 1998
____________________________________
(Signature)
____________________________________
(Signature if held jointly)
IMPORTANT: Please sign exactly as your name appears hereon
and mail it promptly even though you now plan to attend the
meeting. When shares are held by joint tenants, both should
sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or
other authorized officer. If a partnership, please sign in
partnership name by authorized person.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD
AND PROMPTLY RETURN IT IN THE ENVELOPE PROVIDED.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
