UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS
FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS
THERETO FILED PURSUANT TO RULE 13d-2(a)
(Amendment No. __)*
Andataco, Inc.
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(Name of Issuer)
Class A Common Stock, $.01 par value
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(Title of Class of Securities)
033490 98 8
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(CUSIP Number)
H. Irwin Levy, Chairman
nStor Technologies, Inc.
100 Century Boulevard
West Palm Beach, Florida 33417
(407) 829-3500
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(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
June 8, 1999
------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this statement because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [ ].
Note. Schedules filed in paper format shall include a signed original
and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for
other parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 (the "Act") or otherwise subject to the liabilities of that section
of the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
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SCHEDULE 13D
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CUSIP No. 033490 98 8 Page 2 of 5 Pages
- ---------------------------------------- -------------------------------------------------
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NAME OF REPORTING PERSONS
1 S.S. OR I.R.S. IDENTIFICATION NOs. OF ABOVE PERSONS
nStor Technologies, Inc.
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
2
(b) [X]
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SEC USE ONLY
3
- ----------- ---------------------------------------------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
WC (see Item 3)
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CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ]
5
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CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------ --------- ----------------------------------------------------------------------------------------
SOLE VOTING POWER
7
Number of 18,021,281
Shares
Beneficially
Owned by
Each
Reporting
Person
With
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SHARED VOTING POWER
8
0
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SOLE DISPOSITIVE POWER
9
18,021,281
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SHARED DISPOSITIVE POWER
10
0
- ----------- ---------------------------------------------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
18,021,281
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CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
12
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
75.66%
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14 TYPE OF REPORTING PERSON*
CO
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</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
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SCHEDULE 13D
Page 3 of 5 Pages
Item 1. Security and Issuer.
This Statement on Schedule 13D relates to the shares of Class A Common
Stock, par value $.01 per share (the "Common Stock"), of Andataco, Inc., a
Massachusetts corporation (the "Company"). The principal executive offices of
the Company are located at 10140 Mesa Rim Road, San Diego, California 92121.
Item 2. Identity and Background.
This Statement on Schedule 13D is being filed on behalf of nStor
Technologies, Inc. ("NST"), a Delaware corporation, with its principal place of
business at 450 Technology Park, Lake Mary, Florida 32746.
NST is a global manufacturer of cross-platform information storage
solutions, including advanced external RAID subsystems, data storage products
and tape backup solutions.
During the past five years, NST (i) has not been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors), and
(ii) has not been a party to any civil proceeding of a judicial or
administrative body of competent jurisdiction which resulted in NST being
subject to any judgment, decree or final order enjoining future violations of,
or prohibiting or mandating activities subject to, federal or state securities
laws or finding any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
On June 8, 1999 (the "Closing Date"), NST purchased (the "Acquisition")
18,021,281 shares of the common stock (the "Andataco Stock") of the Company
representing approximately 75% of the total issued and outstanding capital stock
of the Company, from the Sykes Family Trust and the Sykes Children's Trust of
1993 (the "Selling Shareholders") for $5.1 million. The purchase price was paid
in the form of two, 9.5% subordinated promissory notes of NST. The principal
balance of the notes is due on June 17, 2004 and interest is payable monthly.
Item 4. Purpose of Transaction.
The shares were acquired by NST as the first step in a proposed
acquisition of all of the outstanding Class A Common Stock of the Company. NST
currently intends to acquire the balance of the Company's shares by merging
the Company with and into a wholly-owned subsidiary of NST. The merger
consideration is expected to be registered shares of common stock of NST.
NST has determined to supplement its operations through an acquisition
of the Company and currently intends to continue to operate the Company as a
separate, wholly-owned subsidiary. NST is currently in discussions with the
directors of the Company concerning their continued service on the Company's
Board pending the completion of the acquisition of the balance of the Company's
outstanding Class A Common Stock. NST currently intends to change the Company's
state of incorporation from Massachusetts to Delaware. At such time as the
balance of the Company's shares are acquired by NST, the Company will cease to
be a reporting company under the Securities and Exchange Act of 1934, as
amended, and will cease to trade publicly on the Over-the-Counter Market.
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Page 4 of 5 Pages
Except as set forth above, NST does not have any current plans or
proposals that may have, or which may relate to, or would result in (a) the
acquisition by any person of additional securities of the Company, or the
disposition of securities of the Company; (b) an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving the
Company or any of its subsidiaries; (c) a sale or transfer of a material amount
of assets of the Company or any of its subsidiaries; (d) any change in the
present Board of Directors or management of the Company, including any plans or
proposals to change the number or term of directors or to fill any existing
vacancies on the Board of Directors; (e) any material change in the present
capitalization or dividend policy of the Company; (f) any other material change
in the Company's business or corporate structure; (g) any changes in the
Company's charter, bylaws or instruments corresponding thereto or other actions
which may impede the acquisition of control of the Company by any person; (h)
causing a class of securities of the Company to be delisted from a national
securities exchange or to cease to be authorized to be quoted in an inter-dealer
quotation system of a registered national securities association; (i) causing a
class of equity securities of the Company to become eligible for termination of
registration pursuant to Section 12(g)(4) of the Securities Exchange Act of
1934; or (j) any actions similar to any of those enumerated above.
Item 5. Interest in Securities of the Issuer.
(a) NST beneficially owns 18,021,281 shares of the Company's Class
A Common Stock, constituting approximately 75.66% of all the
outstanding shares of the Company's Class A Common Stock as of
June 8, 1999.
(b) NST has sole power to direct the vote of the 18,021,281 shares
of the Company's Class A Common Stock.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
Pursuant to the Purchase Agreement between NST and the Selling
Shareholders, NST has agreed that, if it acquires the balance of the outstanding
shares of the Company, the purchase price for such shares will be equal to the
greater of the per share amount paid to the Selling Shareholders ($0.283) or the
fair market value of the remaining outstanding Company shares as determined by
an independent valuation. There are no other contracts, arrangements or
relationships between NST, the Company and the Selling Shareholders relating to
the Company's Class A Common Stock.
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Page 5 of 5 Pages
Item 7. Material to be Filed as Exhibits
Exhibit No.:
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99.1 Purchase Agreement, dated as of March 2, 1999, by and among
the Registrant, W. David Sykes and the Sykes Children's
Trust of 1993 dated November 22, 1993
99.2 Amendment No. 1 to Purchase Agreement, dated as of April
26, 1999, by and among the Registrant, W. David Sykes, the
Sykes Family Trust and the Sykes Children's Trust of 1993
dated November 22, 1993
99.3 Amendment No. 2 to Purchase Agreement, dated as of June 8,
1999, by and among the Registrant, W. David Sykes, the
Sykes Family Trust and the Sykes Children's Trust of 1993
dated November 22, 1993
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: June 18, 1999 nStor Technologies, Inc.
By: /s/ Mark Levy
-----------------------
Name: Mark Levy
Title: Vice President
PURCHASE AGREEMENT
This PURCHASE AGREEMENT (the "Agreement") is entered into as of the 2nd
day of March, 1999 by and between nSTOR TECHNOLOGIES, INC., a Delaware
corporation ("nStor"), and W. DAVID SYKES, an individual ("D. Sykes"), and the
SYKES CHILDREN'S TRUST OF 1993 dated November 22, 1993 (the "Trust"). D. Sykes
and the Trust are referred to herein together as "Sykes," and Sykes, D. Sykes,
the Trust and nStor are sometimes referred to herein individually as a "Party,"
and together as the "Parties".
RECITALS
Sykes is collectively the owner of 18,021,281 shares of the common
stock (the "Shares") of Andataco, Inc., a Massachusetts corporation
("Andataco"), and D. Sykes is the owner of a certain promissory note of Andataco
owned by and payable to D. Sykes in the face amount of $5,196,000 (the "Note").
Sykes wishes to sell the Shares and D. Sykes wishes to sell the Note to
nStor and D. Sykes wishes to enter into an employment agreement with nStor, and
nStor wishes to purchase the Shares and the Note from Sykes and D. Sykes and
enter into an employment agreement with D. Sykes, all upon the terms and subject
to the conditions provided herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
and the payment of valuable consideration as provided herein, and intending to
be legally bound, the Parties agree as follows:
1. Purchase of the Shares by nStor
Sykes agrees to sell, assign, transfer and convey the Shares to nStor,
and nStor agrees to purchase the Shares from Sykes, for a cash purchase price of
$3,000,000 (the "Stock Purchase Price"), payable on the Closing (as hereinafter
defined) by wire transfer or certified check and allocable between the Trust and
D. Sykes in proportion to their ownership of the Shares, subject to the terms
and conditions of this Agreement.
2. Purchase of the Note by nStor
(a) D. Sykes agrees to sell, assign, transfer and convey the Note to
nStor, and nStor agrees to purchase the Note from D. Sykes, for a cash purchase
price of $5,000,000 (the "Note Purchase Price"), payable on the Closing by wire
transfer or certified check, subject to the terms and conditions of this
Agreement. D. Sykes agrees to accept the Note Purchase Price in full payment for
the assignment, transfer and conveyance of the Note and full payment and
satisfaction of any and all other indebtedness, obligations and liabilities of
Andataco to D. Sykes, whether due, accrued or contingent, including, without
limitation, payments by Andataco to D. Sykes for retirement benefits
(collectively, the "Indebtedness"). Nothing in this Section 2(a) shall affect in
any manner any vested rights of D. Sykes in any Andataco retirement plans and D.
Sykes shall be entitled to control all investments in such Andataco retirement
plans.
(b) The Indebtedness shall not include the Note, the Employment
Agreement between D. Sykes and Andataco dated as of May 1, 1997 (the "Andataco
Employment Agreement"), the Noncompetition Agreement between Andataco and D.
Sykes dated as of
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June 3, 1997 (the "Noncompetition Agreement"), or any participation by Andataco
in the Employment Agreement described in Section 3 hereof. If requested by nStor
or Andataco, at any time on or after the Closing Date (as hereinafter defined),
D. Sykes shall execute and deliver to Andataco an unconditional general release
and all original instruments evidencing the Indebtedness marked "paid in full,"
subject only to the exceptions provided in the immediately preceding sentence,
and D. Sykes shall execute and deliver such other agreements, instruments and
documents as counsel to nStor or Andataco may reasonably request to further
evidence the payment, discharge and satisfaction of the Indebtedness. In the
event that nStor or any of its subsidiaries or affiliates acquires all
outstanding shares of voting stock of Andataco in addition to the Shares, D.
Sykes shall immediately enter into a written agreement with Andataco
terminating, and execute and deliver to Andataco an unconditional general
release as to, the Noncompetition Agreement. Nothing contained in this Section 2
shall affect in any manner the right of D. Sykes, as an officer and director of
Andataco, to indemnification by Andataco as presently provided or to coverage
under the current Andataco director and officer insurance policy.
3. Employment of D. Sykes.
(a) Sykes and nStor's wholly owned subsidiary, nStor Corporation (the
"Company") shall enter into an employment agreement in the form attached hereto
as EXHIBIT A (the "Employment Agreement"), effective on the date on which nStor
or any of its subsidiaries or affiliates acquires all outstanding voting stock
of Andataco in addition to the Shares. nStor shall cause the Company to execute
and deliver the Employment Agreement. The Employment Agreement shall be executed
on the Closing Date by D. Sykes and the Company and delivered to counsel for
nStor and D. Sykes to jointly hold in escrow on behalf of nStor and D. Sykes,
respectively, and to date and deliver to D. Sykes and the Company upon the
occurrence of the condition set forth in the first sentence of this Section
3(a).
(b) D. Sykes shall also continue to be employed by Andataco in his
present capacity pursuant to the Andataco Employment Agreement as provided in
Section 1(b) of the Employment Agreement. In addition, so long as the Andataco
Board of Directors determines that it does not constitute a breach of the
Noncompetition Agreement, D. Sykes agrees that, commencing on the Closing Date
and during the time that he continues to be employed by Andataco before the
Employment Agreement is executed and delivered, he will perform services for the
Company on a "loaned executive" basis, substantially the same as his
responsibilities and duties as described in the Employment Agreement and in
consideration of the "Compensation" as defined and provided in Section 1(b)(ii)
of the Employment Agreement; provided, however, that (a) in the event Sykes
receives total compensation from the Company and Andataco in excess of the
Compensation payable to Sykes during such period of time (including, without
limitation, payments under the Noncompetition Agreement prior to its termination
as provided in Section 2 hereof), such excess shall be repaid by deductions from
any bonus compensation due D. Sykes for the period ended December 31, 1999
pursuant to Section 3(b) of the Employment Agreement; provided further, however,
that if the excess exceeds the bonus compensation payable for that period, it
shall not carryover in the next bonus period and D. Sykes shall keep such
excess, and (b) the grant of the Option pursuant to Section 4 of the Employment
Agreement shall be retroactive to the Closing Date . Further, D. Sykes agrees to
enter into an Amended and Restated Andataco Employment Agreement as provided in
Section 1(b)(iii) of the Employment Agreement.
4. Agreement Not to Compete
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D. Sykes recognizes that (i) Andataco has spent substantial money, time
and effort in developing and solidifying its relationships with its suppliers
and customers, (ii) long-term supplier and customer relationships often can be
difficult to develop, (iii) Andataco paid and pays its employees to, among other
things, develop and preserve business information, supplier and customer
goodwill, loyalty and contacts for and on behalf of Andataco, and (iv) nStor is
hereby agreeing to purchase the Shares from Sykes based upon D. Sykes'
assurances and promises contained herein not to take or divert Andataco's
suppliers' and customers' goodwill, including such suppliers' and customer's
goodwill as part of the combined businesses of Andataco and the Company as
contemplated by this Agreement and the Employment Agreement (for the purpose of
this Section 4, all references to the Company shall be deemed to be references
to the Company and Andataco). Accordingly, D. Sykes covenants and agrees that
for lesser of a period of three years following the Closing Date or a period of
one year following the termination for any reason of his employment by the
Company (or any successor to the business of the Company), he will not, directly
or indirectly:
(a) engage, either as principal, agent or consultant, or through any
corporation, firm, organization or other entity (a "Competitive Entity") in
which he may be an officer, director, employee, stockholder, partner, member, or
with which he is otherwise affiliated, in any activity or business that is in
competition with the business of the Company in any geographic area in the
United States or in any other country where the Company is doing business;
(b) on behalf of any Competitive Entity, solicit, call on, or in any
manner cause or attempt to cause or provide any Confidential Information (as
defined in the Employment Agreement) to any customer or active prospective
customer of the Company, or divert, terminate, limit, modify or fail to enter
into any existing or potential relationship between the Company and any customer
or active prospective customer of the Company; or
(c) induce or attempt to induce any employee, consultant or advisor of
the Company to accept employment or an affiliation with any Competitive Entity.
D. Sykes agrees that if he violates any of the provisions of this Section 4, the
Company would sustain irreparable harm and, therefore, in addition to any other
remedies that might be available to it, the Company shall be entitled to an
injunction restraining D. Sykes from committing or continuing any such violation
without the requirement to post a bond or other security. The Company and D.
Sykes agree that in the event any of the provisions of this Section 4 shall be
held to be in any way an unreasonable restriction on D. Sykes, the court so
holding may reduce the geographical area and/or period of time in which such
provision operates, or modify or eliminate any such restriction to the extent
necessary to render such provisions enforceable. Nothing in this Section 4 shall
be deemed to negate or limit in any manner the covenants and agreements of D.
Sykes pursuant to Section 6 of the Employment Agreement, but shall be in
addition thereto.
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5. Representations and Warranties of Sykes
In order to induce nStor into entering into this Agreement and to
purchase the Shares and the Note, Sykes hereby represent and warrant to nStor,
which representations and warranties shall remain true and correct on the
Closing Date, and covenant and agree with nStor, as follows:
(a) D. Sykes shall fully cooperate and use his reasonable best efforts
to cause Andataco and its employees to fully cooperate with the conduct of due
diligence as described in Section 7(a) hereof.
(b) Sykes are, and on the Closing Date will be, the owners of the
Shares, free and clear of any and all liens, claims, encumbrances and
restrictions, and the Shares may be sold, assigned, transferred and conveyed to
nStor without the requirement of any consent or approval by Andataco or any
other party, including, without limitation, the consent or approval of any party
whose failure to give such consent or approval would have an adverse effect on
Andataco, other than consents or approvals that shall be obtained by Sykes and
delivered to nStor on or before the Closing.
(c) The Note is assignable by D. Sykes to nStor without the requirement
of any consent or approval by Andataco or any other party, and upon the purchase
of the Note by nStor shall be the valid and binding obligation of Andataco and
enforceable by nStor in accordance with its terms in the same manner as if owned
by D. Sykes.
(d) When executed and delivered by Sykes, this Agreement will
constitute a valid and legally binding obligation of Sykes enforceable in
accordance with its terms, except as may be limited by (i) judicial principles
respecting election of remedies or limiting the availability of specific
performance, injunctive relief and other equitable remedies, (ii) judicial
principles with respect to provisions contrary to public policy, and (iii)
bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or
hereafter in effect, generally relating to creditors' rights.
(e) To Sykes' knowledge, Andataco is duly organized, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts and is
qualified to do business and in good standing in each other jurisdiction where
the business of Andataco requires it to be so qualified, including, without
limitation, the State of California. To Sykes' knowledge, Andataco has all
requisite corporate power and authority to own its assets and to carry on its
business as presently conducted in each jurisdiction where such assets is
located and such business is conducted.
(f) Attached hereto as EXHIBIT B is a copy of Andataco's Form 10-K for
the fiscal year ended October 31, 1998 (the "1998 10-K") and its Form 10-Q for
the quarter ended January 31, 1999. The 1998 10-K does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make each statement contained therein not misleading. From and after
January 31, 1999, to D. Sykes' knowledge, no events have occurred or are
threatened that would materially affect the financial condition, assets or
business of Andataco.
(g) As of the date of this Agreement, Andataco's only authorized
capital stock consists of the common and preferred stock as described in the
1998 10-K, and there are no issued shares of any class of voting stock of
Andataco other than the class of which the Shares are a part. Of the authorized
common stock, 23,819,399 shares are issued and outstanding
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and of these 18,021,281 shares are owned by Sykes and constitute the Shares. The
Shares constitute the only common stock of Andataco in which Sykes has a direct
or beneficial interest. The 1998 10-K accurately and fairly describes Andataco's
1997 Equity Incentive Plan, as amended (the "Plan"). The Plan, the Andataco 1996
Stock Option Plan, the Andataco 1993/1991 Stock Option Plan, the Andataco
Director Stock Option Plan and the 180,000 warrants issued to Imperial "Bar,"
are the only plans, agreements or commitments of Andataco to issue additional
authorized capital stock.
(h) Sykes shall not, between the date hereof and the Closing Date,
accept from Andataco any compensation or other payments or benefits from
Andataco, including, without limitation, accrued but unpaid compensation, other
than compensation for services on a current basis.
(i) Sykes shall, between the date hereof and the Closing Date: (i)
cause the business of Andataco to be conducted in the ordinary course, (ii) not
cause Andataco to have any material change in its business, financial condition
or assets, (iii) not cause, by request to the Andataco Board of Directors or
otherwise, Andataco to grant any options or other rights to acquire any capital
stock of Andataco, or issue any capital stock of Andataco to any person, or
enter into any employment agreements with any persons.
6. Representations and Warranties of nStor
In order to induce Sykes to enter into this Agreement and to sell the
Shares and the Note, nStor represents and warrants to Sykes as of the date
hereof, and as of the Closing Date, and covenants and agrees with Sykes, as
follows:
(a) nSTOR is a corporation duly organized, validly existing and in good
standing within the laws of the State of Delaware and has all requisite and
corporate authority to carry on business as it is now carried on and conducted.
When executed and delivered by nStor, this Agreement will constitute a valid and
legally binding obligation of nStor enforceable in accordance with its terms,
except as may be limited by (i) judicial principles respecting election of
remedies or limiting the availability of specific performance, injunctive relief
and other equitable remedies, (ii) judicial principles with respect to
provisions contrary to public policy, and (iii) bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
generally relating to creditors' rights.
(b) nSTOR expressly represents and warrants as of the Closing Date
that: (i) it is acquiring the Shares and the Note for investment purposes only,
for its own account, and not with the view to, or for resale in connection with,
any distribution thereof, (ii) it has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
this investment and is able to bear the economic risk of this investment, (iii)
its purchase of the Shares and the Note has not been accompanied by the
publication of any advertisement, (iv) its purchase of the Shares and the Note
has not been effected by or through a broker-dealer in a public offering. On the
Closing Date, nStor will separately represent and warrant in writing to Sykes,
if then true, that: (v) it has had the opportunity to ask questions of the
directors, officers and employees of Andataco and has obtained and carefully
reviewed and considered all the information regarding Andataco that nSTOR
considers necessary or appropriate to decide whether to purchase the Shares and
the Note, and (vi) Sykes and Andataco have provided nSTOR with access to all
financial information, records, documents, contracts, agreements, court filings,
case records and ledgers relating to Andataco.
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(c) nSTOR (i) has adequate means of providing for its current needs and
possible contingencies, and has no need now, and anticipates no need in the
foreseeable future, to sell the Shares or the Note which it is hereby purchasing
and (ii) is able to bear the economic risks of this investment, and,
consequently, without limiting the generality of the foregoing, is able to hold
its Shares and the Note indefinitely and has a sufficient net worth to sustain a
loss of its entire investment in Andataco in the event such loss should occur.
(d) nSTOR acknowledges and agrees that neither the Shares nor the Note
have been registered under the Securities Act of 1933, as amended (the "Act") or
under the California Corporate Securities Law of 1968, as amended (the
"California Law") or other applicable law, and that accordingly the Shares and
the Note will not be fully transferable except as permitted under various
exemptions contained in the Act, California Law or other applicable state law,
or upon satisfaction of the registration requirements of the Act, the
qualification requirements of California Law or other applicable state law, or
the registration requirements of other applicable state securities laws. nSTOR
hereby acknowledges and agrees that the certificates representing the Shares and
the Note will bear any legends required under the Act, California Law or other
applicable state law.
(e) If nStor acquires the common stock of Andataco held by shareholders
other than Sykes, it will do so for consideration no less than the greater of
the price per share received by Sykes for the Shares or the fair market value of
such stock valued as of the day immediately prior to the date of execution of
this Agreement as stated in an opinion obtained prior to such acquisition from a
recognized investment banking firm. nStor agrees that the shareholders of
Andataco other than Sykes shall be given and advised of their "dissenter's"
rights, as provided under Massachusetts law and all other applicable law, in
connection with any acquisition by nStor of their shares of Andataco stock.
7. Due Diligence; Standstill; Confidentiality; Disclosure
(a) Commencing with the date hereof, nStor shall conduct due diligence
as to Andataco and Sykes and Andataco's organization, properties, financial
condition and operations, upon reasonable notice and during normal business
hours. Sykes shall cooperate with nStor in the conduct of such due diligence,
and provide such documents and information as may reasonably be requested. nStor
agrees to use its best efforts to complete such due diligence, use its
reasonable best efforts to obtain financing necessary for it to consummate the
transactions contemplated by this Agreement (the "nStor Financing") and complete
its preparations to close the transactions contemplated by this Agreement,
within 30 days following the date of this Agreement (the "30 Day Period"). nStor
shall be entitled to a 20 day extension of the 30 Day Period (the "20 Day
Period") upon the payment to Sykes of a non-refundable cash deposit in the
amount of $100,000 on or before the end of the 30 Day Period, which deposit
shall be applied against the Stock Purchase Price.
(b) In consideration of the expenses incurred and to be incurred by
nStor in conducting due diligence pursuant to Section 7(a), during the 30 Day
Period, and the 20 Day Period if applicable, Sykes shall not solicit or accept
offers from, nor shall he negotiate for or enter into any agreements with, any
other parties for the any of the transactions or agreements contemplated by this
Agreement.
(c) The existence and contents of this Agreement, the existence of
negotiations between the Parties and all documents and information obtained by
either Party from the other Party, regardless of identifying mark or label and
whether written, oral or in electronic form, shall remain strictly confidential
(the "Confidential Information"), and neither of the Parties shall
6
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reveal any of the Confidential Information or provide any copies of any
documents or other materials relating to the Confidential Information to any
person, corporation or other entity, other than the Board of Directors and
senior officers of and the attorneys and financial advisors for Andataco,
without the prior written consent of the providing Party.
(d) The Parties understand that the transactions provided herein will
require, pursuant to applicable securities and other laws, a public announcement
by nStor upon the execution and delivery of this Agreement by the Parties, and
the Parties have agreed upon a press release in the form attached hereto as
EXHIBIT C. This press release may be issued by nStor upon the execution and
delivery of this Agreement. Sykes also acknowledges that nStor will be required
to file a Schedule 13D pursuant to Rule 13d-1 of the Securities Exchange Act of
1934 upon obtaining the nStor Financing. In addition, attached hereto as EXHIBIT
D is a press release prepared by the Parties for publication upon a termination
of this Agreement and the transactions contemplated hereby. This press release
shall be issued by nStor immediately upon termination of this Agreement
according to its terms. The Parties agree that no deviation shall be made from
such press releases unless mutually agreed by the Parties. The Parties agree
that no other public disclosure shall be made by the Parties until the Closing
except upon the mutual consent of the Parties, unless counsel to nStor advises
nStor that it is legally required to make such disclosure or to respond to
requests for such disclosure and in either such event the Parties agree to use
their reasonable best efforts to mutually agree upon the wording of such
disclosure. Nothing in any public disclosure, shall be deemed in any way to
modify or limit in any way the provisions of Section 7(c).
(e) nStor shall maintain Andataco's current director and officer
insurance policy or equivalent for a period of two years after the Closing.
nStor shall not alter the current indemnification rights of Andataco officers
and directors until the sooner of (i) two years after the Closing or (ii) the
termination of the separate existence of Andataco.
8. Lease Guaranty
At the Closing, nStor agrees to execute a written guaranty, in form and
substance as nStor may reasonably agree, of Andataco's performance under the
real property lease between Syko Properties, Inc., a corporation owned and/or
controlled by D. Sykes, as lessor, and Andataco, as lessee, dated as of January
1, 1993, as amended, pursuant to which Andataco leases the premises in which it
conduct business in San Diego, California (the "Lease"); provided, however, that
nStor's obligation under this Section 8 is conditioned upon the Lease being
terminable by Andataco in its sole discretion at any time upon nine months
notice to the lessor.
9. Closing
The closing and consummation of all transactions provided in this
Agreement (the "Closing") shall take place at 10:00 A. M on the last day of the
30 Day Period, or the 20 Day Period if applicable, or, if such day is not on a
business day in the state where the Closing occurs, on the next business day
(the "Closing Date"), at the offices of Holland & Knight LLP, counsel to nStor,
One East Broward Boulevard, Suite 1300, Fort Lauderdale, Florida 33301, or on
such other day and at such other time and place as the Parties may mutually
agree.
10. Termination
nStor may terminate this Agreement for any reason in its sole and
absolute discretion at any time prior to the Closing Date upon notice to Sykes
that it has not obtained the nStor
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Financing and does not wish to proceed with the transactions contemplated by
this Agreement. Upon any such termination, the Parties shall have no further
obligations under this Agreement, except that the obligations of the Parties
under Section 6(c), Section 10 and Section 12 shall survive such termination.
11. Expenses
Each Party shall bear its and his own expenses, including legal and
accounting fees and costs, in connection with this Agreement and the Closing;
provided, however, that: (a) if the Closing occurs, nStor shall reimburse Sykes
for documented attorney, accountant and investment banking fees and expenses up
to the amount of $430,000, (b) if the Closing does not occur through no fault of
Sykes, nStor shall reimburse Sykes for documented attorney and accountant fees
and expenses up to the amount of $20,000, and (c) if the Closing does not occur
as a result of Sykes willfully and knowingly breaching any of his
representations and warranties in Section 5 hereof, Sykes shall indemnify and
hold harmless, and immediately reimburse, nStor for its costs and expenses,
including reasonable attorney's and accountant's fees and expenses, incurred in
the conduct of its due diligence under Section 7(a) hereof and in preparing for
the Closing.
12. Indemnification
a. Indemnification by nStor. nStor shall indemnify, defend and hold
harmless Sykes against any and all damages, losses, claims, liabilities,
charges, suits, penalties, costs and expenses, including court costs, attorneys'
fees and expenses and other costs of collection (collectively "Loss" or
"Losses"), which Sykes personally may sustain, or to which he may be subjected,
arising out of or attributable to: (i) the failure of nStor to consummate the
acquisition of the Shares and the Note for other than nStor's right to terminate
pursuant to Section 10 hereof; (ii) the failure of nStor or its officer,
directors, shareholders, affiliates, employees or agents to treat the minority
shareholders of Andataco, Inc. fairly or properly after the Closing.
b. Notice and Resolution of Indemnity Claims . If at any time Sykes
shall claim indemnification from nStor for any Loss or, in the reasonable
judgment of Sykes, for what, in the future, may result in a Loss ("Anticipated
Loss") due to the filing, at or before the time of such claim, of an action,
claim or suit with an arbitrator, mediator, court or other governmental entity
("Claim"), then Sykes shall send written notice of the same (a "Notice of
Claim") to nStor. A Notice of Claim shall specify the basis for such Claim
supported by relevant information and documentation.
(i) If nStor shall object to such Claim, it shall give written notice of
such objection (a "Notice of Objection") to Sykes within 15 days after receipt
by nStor of the Notice of Claim, specifying the basis of the objections
supported by relevant information and documentation with respect thereto. If
nStor does not give a Notice of Objection within such 15 days, or shall have
agreed to pay such Claim in whole or in part within such 15-day period, nStor
shall thereupon be liable for the payment of such Claim.
(ii) In the event that nStor shall have timely given a Notice of
Objection in whole or in part to any Notice of Claim, during the 20-day period
following that date, nStor and Sykes shall privately attempt to resolve the
Claim. If nStor and Sykes shall have failed to resolve or compromise or agree to
postpone resolution of the Claim within the 20--day period, then the Claim shall
be settled by arbitration in San Diego, California, as determined by the three
arbitrators referred to in Section 12(b)(iii) below, in accordance with the
rules of the American Arbitration Association and the procedures set forth
below.
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(iii) Each of (A) Sykes and (B) nStor shall appoint one arbitrator,
and the two arbitrators so appointed shall then together appoint a third
arbitrator ("neutral arbitrator") from a list of persons supplied by the
American Arbitration Association in San Diego, California. If one party shall
fail to appoint the arbitrator to be appointed by it within 15 days of the end
of the 20-day period provided for in Section 12(b)(ii) above, the arbitrator
appointed by the other party shall select from a list of persons supplied by the
American Arbitration Association a person who shall serve as the single neutral
arbitrator for purposes of the arbitration. If each party shall have appointed
one arbitrator; but such designees cannot agree on the person to act as the
neutral arbitrator within a period of 15 days after the appointment of the
second arbitrator, then either party may apply to the American Arbitration
Association in San Diego, California, which shall appoint a neutral arbitrator.
As used hereafter the term "arbitrator" shall include the singular and the
plural as applicable. The arbitrator shall conduct the arbitration with all
reasonable dispatch in accordance with the rules of the American Arbitration
Association, provided, however, that the parties to such arbitration shall take
such action and execute such instruments as shall be necessary to cause the
California Rules of Civil Procedure pertaining to pre-trial discovery to be
applicable in respect of such proceeding. The arbitrator shall render a written
award (the "Award") which shall be delivered to Sykes and nStor. An Award
hereunder may be used as a basis for the entry of judgment in any jurisdiction.
In the event the parties have submitted a Claim for an Anticipated Loss to
arbitration under this Section 12(b)(iii), then the arbitrator may, in its sole
discretion, postpone resolution of the Claim until the time which it has
determined, in its sole discretion, to be the time when such Anticipated Loss
shall have occurred or passed has been reached.
(iv) Prior to making the Award, the arbitrator shall direct Sykes
and nStor to submit statements describing any element of Loss or Anticipated
Loss as to which a Claim is made that is attributable to attorneys' fees,
disbursements, and any similar costs incident to such Loss or Anticipated Loss,
supported by affidavits showing that such costs actually have been or are likely
to be incurred, and all such attorneys' fees, disbursements and other costs
shall be apportioned as determined by the arbitrator. All fees of the arbitrator
and administrative expenses of the American Arbitration Association shall be
treated as costs for purposes of this Article. As a part of each Award made
pursuant to this Agreement, the arbitrator shall allow interest thereon (other
than on the portion of the Award representing attorneys' fees, disbursements and
costs) from the date of the Loss or the date the Anticipated Loss becomes a Loss
to the date of payment at the rate of 10% per annum.
(v) The Award shall be a conclusive determination of the matter and
shall be binding upon Sykes and nStor, and shall not be contested by either of
them. nStor shall satisfy its obligations to pay an Award in cash.
(vi) If a the subject of a Claim involves a third-party claim which
has not yet been determined, the arbitrator may in his discretion make a
separate determination solely as to whether the third-party claim is one for
which indemnification may be had or may defer a determination as to whether
indemnification may be had pending the further development of information as to
the nature of the third-party claim. If the arbitrator determines that the
third-party claim is not subject to indemnification, he shall set forth the
basis of his decision in detail, which decision shall be deemed to be an "Award"
hereunder.
(vii) Promptly after the assertion by any third party of any claim
against Sykes that, in the judgment of Sykes, may result in the incurrence by
Sykes of Loss for which Sykes would be entitled to indemnification, Sykes shall
deliver to nStor a Notice of Anticipated Loss describing in reasonable detail
such Claim. If Sykes request nStor defend him against such Claim, then nStor
may, at its option, assume the defense of Sykes against such
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Claim (including the employment of counsel, who shall be counsel satisfactory to
Sykes,) and the payment of expenses. If Sykes does not request nStor to defend
him against such Claim or nStor fails to assume the defense of such Claim within
a reasonable time after having been requested by Sykes to assume the defense,
then Sykes shall have the right to defend himself in any such action and, if
appropriate under Section 12(a) above, be indemnified for his costs and fees of
defense by nStor. nStor shall not be liable to indemnify Sykes for any
settlement of any such action or claim effected without the consent of nStor,
but if settled with the written consent of nStor, or if there be a final
judgment for the plaintiff in any such action, nStor shall indemnify and hold
harmless Sykes from and against any Loss by reason of such settlement or
judgment and nStor shall thereupon be liable for the payment of such Loss.
13. Conditions to Closing
(a) nStor's obligation to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment, at or prior to Closing, of
each of the following conditions precedent (any or all of which may be waived in
writing, in whole or in part, by nStor):
(i) Sykes shall have performed all of the obligations and
complied with all of the covenants required to be performed or to be
complied with by them under this Agreement on or prior to the Closing
Date.
(ii) Sykes shall have delivered to nStor any and all
approvals, consents or assignments to be obtained by Sykes and
necessary for the consummation of the transactions contemplated hereby.
(iii) nStor and its accountants, attorneys and other
representatives shall have had full and complete access during normal
business hours to all offices, facilities, properties, assets, books,
agreements, files and records of Andataco, including financial and
operating data and other information regarding Sykes and Andataco.
(iv) nStor shall have received the nStor Financing on or prior
to the Closing Date.
(v) There shall not have been instituted, pending or
threatened against Andataco, Sykes, nStor or the Company any suit,
action or other proceeding by any private party or governmental agency,
commission, bureau or body seeking to restrain or prohibit any of the
transactions contemplated by this Agreement.
(vi) D. Sykes shall have entered into Employment Agreement as
provided for in Section 3(a) hereof.
(vii) Each representation and warranty of Sykes contained in
this Agreement shall be true and correct both at the date on which this
Agreement is signed and at and as of the Closing Date as if made anew
at and as of such time.
(viii) There has not been any material adverse change in the
business, operations and financial conditions of Andataco from and
after the date of the 1998 10-K until the Closing Date.
(b) The obligations of Sykes to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment, at or prior
to Closing, of each of the following
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conditions precedent (any or all of which may be waived in writing, in whole or
in part, by Sykes):
(i) nStor shall have performed all of its obligations and
complied with all of its covenants required to be performed or to be
complied with by it under this Agreement on or prior to the Closing
Date.
(ii) nStor shall have delivered to Sykes any and all
approvals, consents or assignments to be obtained by nStor and
necessary for the consummation of the transactions contemplated hereby.
(iii) There shall not have been instituted, pending or
threatened against Andataco, Sykes, nStor or the Company any suit,
action or other proceeding by any private party or governmental agency,
commission, bureau or body seeking to restrain or prohibit any of the
transactions contemplated by this Agreement.
(iii) The Company shall have entered into Employment Agreement
as provided for in Section 3(a) hereof.
(iv) Each representation and warranty of nStor contained in
this Agreement shall be true and correct both at the date on which this
Agreement is signed and at and as of the Closing Date as if made at and
as of such time.
14. Miscellaneous
(a) Entire Agreement. This Agreement and the Employment Agreement, when
executed (collectively, the ?Party Agreements"), constitute the complete and
exclusive statement of the agreement between the Parties with respect to the
subject matter of the Party Agreements. The Party Agreements replace and
supersede all prior agreements and negotiations by and between the Parties and
each of the Parties acknowledges and agrees that no agreements, representations,
warranties or collateral promises or inducements have been made by or to it or
him except as expressly set forth in the Party Agreements. These acknowledgments
and agreements are contractual and not mere recitals.
(b) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors and
permitted assigns and Sykes' personal representatives, executors, administrators
and beneficiaries; provided, however, that neither Party shall assign this
Agreement or any of its or his rights or obligations hereunder without the prior
written consent of the other Party, which consent may be withheld or delayed in
the sole discretion of Party whose consent is requested.
(c) No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person,
firm, corporation, partnership, association or other entity, other than the
Parties and their respective successors and permitted assigns, any rights or
remedies under or by reason of this Agreement, except that Andataco shall be a
third party beneficiary and entitled to enforce in its own name the provisions
of the second and third sentences of Section 2.
(d) Survivability. Notwithstanding any investigation made by or on
behalf of either Party, the representations and warranties made under and in
connection with this Agreement shall survive the Closing and consummation of all
the transactions contemplated hereby for a period of one year.
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(e) Waivers and Remedies. The waiver by either of the Parties of the
other Party's prompt and complete performance, or breach or violation, of any
provision of this Agreement shall not operate nor be construed as a waiver of
any subsequent breach or violation, and the waiver by either of the Parties to
exercise any right or remedy which it may possess hereunder shall not operate
nor be construed as a bar to the exercise of such right or remedy by such Party
upon the occurrence of any subsequent breach or violation.
(f) Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections or subsections contained in this Agreement
shall not affect the enforceability of the remaining portions of this Agreement
or any part hereof, all of which are inserted conditionally on their being valid
in law, and, in the event that any one or more of the words, phrases, sentences,
clauses, sections or subsections contained in this Agreement shall be declared
invalid by a court of competent jurisdiction, this Agreement shall be construed
as if such invalid word or words, phrase or phrases, sentence or sentences,
clause or clauses, section or sections, or subsection or subsections had not
been inserted.
(g) Descriptive Headings/Recitals. Descriptive headings contained
herein are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement. The Recitals are incorporated
into and made a part of this Agreement.
(h) Counterparts and Facsimile Signatures. This Agreement may be
executed in counterparts by the separate Parties, all of which shall be deemed
to be one and the same instrument. Facsimile signatures shall have the same
effect as original signatures.
(i) Notices. Any notice, request or other communication to either Party
by the other hereunder shall be deemed given on the earlier of the date (i)
actually received and acknowledged; (ii) three (3) days after its mailing by
certified or registered mail, return receipt requested, postage prepaid; or,
(iii) on the business day immediately following its delivery (evidenced by
receipt) to any reputable overnight carrier or transmission via facsimile in
each case addressed to the Party for which it is intended at the address (or
facsimile transmission number) set forth in this Agreement. The place to which
notices are to be given to any Party may be changed from time to time by such
Party by like notice to the other. Notices shall be addressed as follows:
If to nStor:
------------
H. Irwin Levy, Chairman
nStor Technologies, Inc.
100 Century Boulevard
West Palm Beach, FL 33417
Fax: (561) 640-3160
and
Lawrence Steffann, President
nStor Technologies, Inc.
450 Technology Park Boulevard
Lake Mary, FL 32746
Fax: (407) 829-3627
With a copy to:
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Holland & Knight LLP
One East Broward Boulevard
Suite 1300
Fort Lauderdale, FL 33301
Attn: Timothy C. Leixner, Esq.
Fax: (954) 463-2030
If to Sykes:
------------
W. David Sykes
C/o Andataco, Inc.
10140 Mesa Rim Road
San Diego, CA 92121
Fax: (619) 453-2676
With a copy to:
Luce, Forward, Hamilton & Scripps LLP
600 West Broadway, Suite 2600
San Diego, California 92101
Attn: Dennis J. Doucette, Esq.
Fax: (619) 232-8311
(j) Applicable Law. This Agreement shall be governed by, and shall be
construed, interpreted and enforced in accordance with, the laws of the State of
Florida, without regard to principles of conflict of laws.
(k) Brokers and Agents. nStor represents to Sykes that no broker,
finder or agent has acted on behalf of nStor with respect to the transactions
provided in the Party Agreements, and agrees to indemnify and hold Sykes
harmless in the event of any loss, claim, demand or expense asserted against or
incurred by Sykes relating to the payment of any fees or commissions by any such
broker, finder or agent acting on behalf of nStor. Other than as provided in
Section 10(a) hereof, Sykes agrees that Sykes will pay or cause to be paid any
broker, finder or agent that has acted on Sykes' behalf with respect to the
transactions provided in the Party Agreements, and agrees to indemnify and hold
nStor harmless in the event of any loss, claim, demand or expense asserted
against or incurred by nStor relating to the payment of any fees or commissions
by any such broker, finder or agent acting on behalf of Sykes.
(l) Modifications. This Agreement may not be altered, modified or
amended except by a writing signed by the Parties.
(m) Further Assurances. The Parties agree to execute and deliver, or
cause to be executed and delivered, such further instruments or documents and
take such other action as may be reasonably required effectively to carry out
the transactions contemplated herein.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
the date first above written.
nStor Technologies, Inc.
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By: /s/ H. Irwin Levy
------------------
Name: H. Irwin Levy
--------------
Title: Chairman of the Board, CEO
--------------------------
/s/ W. David Sykes
-----------------------------
W. David Sykes, individually
Sykes Children's Trust of 1993
By:/s/ James Harlan, III
--------------------------
James Harlan, III, Trustee
14
AMENDMENT NO. 1 TO
------------------
PURCHASE AGREEMENT
------------------
This AMENDMENT NO. 1 TO PURCHASE AGREEMENT (the "Agreement") is entered
into as of the 26th day of April, 1999 by and between nSTOR TECHNOLOGIES, INC.,
a Delaware corporation ("nStor"), and W. DAVID SYKES, an individual ("D.
Sykes"), the SYKES FAMILY TRUST and the SYKES CHILDREN'S TRUST OF 1993 dated
November 22, 1993 (collectively, the "Trusts"). D. Sykes and the Trusts are
referred to herein together as "Sykes," and Sykes, D. Sykes, the Trusts and
nStor are sometimes referred to herein individually as a "Party," and together
as the "Parties".
RECITALS
Sykes is collectively the owner of 18,021,281 shares of the common
stock (the "Shares") of Andataco, Inc., a Massachusetts corporation
("Andataco"), and D. Sykes is the owner of a certain promissory note of Andataco
owned by and payable to D. Sykes in the face amount of $5,196,000 (the "Note").
On March 2, 1999, nStor, Sykes and the Trusts entered into an agreement
for the sale of the Shares and the Note to nStor (the "Agreement").
Sykes wishes to sell the Shares and D. Sykes wishes to sell the Note to
nStor and D. Sykes wishes to enter into an employment agreement with nStor, and
nStor wishes to purchase the Shares and the Note from Sykes and D. Sykes and
enter into an employment agreement with D. Sykes, all upon the terms and subject
to the conditions provided in the Agreement, as amended by this Amendment No. 1.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
and the payment of valuable consideration as provided herein, and intending to
be legally bound, the Parties agree as follows:
1. Purchase of the Shares by nStor
Sykes agrees to sell, assign, transfer and convey the Shares to nStor,
and nStor agrees to purchase the Shares from Sykes, for a purchase price of
$3,500,000 (the "Stock Purchase Price"), payable on the Closing (as hereinafter
defined) by delivery to the Trusts and D. Sykes, in proportion to their
ownership of the Shares, of three subordinated, convertible promissory notes of
nStor in the form attached hereto as EXHIBIT A (the "Convertible Notes") in the
aggregate principal amount of $3,500,000, subject to the terms and conditions of
this Agreement. Of the total $3,500,000 aggregate principal amount of the
Convertible Notes, $3,000,000 will be convertible into common stock of nStor.
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2. Purchase of the Note by nStor
(a) D. Sykes agrees to sell, assign, transfer and convey the Note to
nStor, and nStor agrees to purchase the Note from D. Sykes, for a cash purchase
price of $3,500,000 and a subordinated promissory note of nStor in the form
attached hereto as EXHIBIT B (the "Subordinated Note") in the principal amount
of $1,500,000 (collectively, the "Note Purchase Price"), payable on the Closing
by wire transfer or certified check and the delivery of the Subordinated Note,
subject to the terms and conditions of this Agreement. D. Sykes agrees to accept
the Note Purchase Price in full payment for the assignment, transfer and
conveyance of the Note and full payment and satisfaction of any and all other
indebtedness, obligations and liabilities of Andataco to D. Sykes, whether due,
accrued or contingent, including, without limitation, payments by Andataco to D.
Sykes for retirement benefits (collectively, the "Indebtedness"). Nothing in
this Section 2(a) shall affect in any manner any vested rights of D. Sykes in
any Andataco retirement plans and D. Sykes shall be entitled to control all
investments in such Andataco retirement plans.
(b) The Indebtedness shall not include the Convertible Notes or the
Subordinated Note, the Employment Agreement between D. Sykes and Andataco dated
as of May 1, 1997 (the "Andataco Employment Agreement"), the Noncompetition
Agreement between Andataco and D. Sykes dated as of June 3, 1997 (the
"Noncompetition Agreement"), or any participation by Andataco in the Employment
Agreement described in Section 3 hereof. If requested by nStor or Andataco, at
any time on or after the Closing Date (as hereinafter defined), D. Sykes shall
execute and deliver to Andataco an unconditional general release and all
original instruments evidencing the Indebtedness marked "paid in full," subject
only to the exceptions provided in the immediately preceding sentence, and D.
Sykes shall execute and deliver such other agreements, instruments and documents
as counsel to nStor or Andataco may reasonably request to further evidence the
payment, discharge and satisfaction of the Indebtedness. In the event that nStor
or any of its subsidiaries or affiliates acquires all outstanding shares of
voting stock of Andataco in addition to the Shares, D. Sykes shall immediately
enter into a written agreement with Andataco terminating, and execute and
deliver to Andataco an unconditional general release as to, the Noncompetition
Agreement. Nothing contained in this Section 2 shall affect in any manner the
right of D. Sykes, as an officer and director of Andataco, to indemnification by
Andataco as presently provided or to coverage under the current Andataco
director and officer insurance policy.
3. Employment of D. Sykes.
(a) Sykes and nStor's wholly owned subsidiary, nStor Corporation (the
"Company") shall enter into an employment agreement in the form attached hereto
as EXHIBIT C (the "Employment Agreement"), effective on the date on which nStor
or any of its subsidiaries or affiliates acquires all outstanding voting stock
of Andataco in addition to the Shares. nStor shall cause the Company to execute
and deliver the Employment Agreement. The Employment Agreement shall be executed
on the Closing Date by D. Sykes and the Company and delivered to counsel for
nStor and D. Sykes to jointly hold in escrow on behalf
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of nStor and D. Sykes, respectively, and to date and deliver to D. Sykes and the
Company upon the occurrence of the condition set forth in the first sentence of
this Section 3(a).
(b) D. Sykes shall also continue to be employed by Andataco in his
present capacity pursuant to the Andataco Employment Agreement as provided in
Section 1(b) of the Employment Agreement. In addition, so long as the Andataco
Board of Directors determines that it does not constitute a breach of the
Noncompetition Agreement, D. Sykes agrees that, commencing on the Closing Date
and during the time that he continues to be employed by Andataco before the
Employment Agreement is executed and delivered, he will perform services for the
Company on a "loaned executive" basis, substantially the same as his
responsibilities and duties as described in the Employment Agreement and in
consideration of the "Compensation" as defined and provided in Section 1(b)(ii)
of the Employment Agreement; provided, however, that (a) in the event Sykes
receives total compensation from the Company and Andataco in excess of the
Compensation payable to Sykes during such period of time (including, without
limitation, payments under the Noncompetition Agreement prior to its termination
as provided in Section 2 hereof), such excess shall be repaid by deductions from
any bonus compensation due D. Sykes for the period ended December 31, 1999
pursuant to Section 3(b) of the Employment Agreement; provided further, however,
that if the excess exceeds the bonus compensation payable for that period, it
shall not carryover in the next bonus period and D. Sykes shall keep such
excess, and (b) the grant of the Option pursuant to Section 4 of the Employment
Agreement shall be retroactive to the Closing Date. Further, D. Sykes agrees to
enter into an Amended and Restated Andataco Employment Agreement as provided in
Section 1(b)(iii) of the Employment Agreement.
4. Agreement Not to Compete
D. Sykes recognizes that (i) Andataco has spent substantial money, time
and effort in developing and solidifying its relationships with its suppliers
and customers, (ii) long-term supplier and customer relationships often can be
difficult to develop, (iii) Andataco paid and pays its employees to, among other
things, develop and preserve business information, supplier and customer
goodwill, loyalty and contacts for and on behalf of Andataco, and (iv) nStor is
hereby agreeing to purchase the Shares from Sykes based upon D. Sykes'
assurances and promises contained herein not to take or divert Andataco's
suppliers' and customers' goodwill, including such suppliers' and customer's
goodwill as part of the combined businesses of Andataco and the Company as
contemplated by this Agreement and the Employment Agreement (for the purpose of
this Section 4, all references to the Company shall be deemed to be references
to the Company and Andataco). Accordingly, D. Sykes covenants and agrees that
for lesser of a period of three years following the Closing Date or a period of
one year following the termination for any reason of his employment by the
Company (or any successor to the business of the Company), he will not, directly
or indirectly:
(a) engage, either as principal, agent or consultant, or through any
corporation, firm, organization or other entity (a "Competitive Entity") in
which he may be an officer, director, employee, stockholder, partner, member, or
with which he is otherwise affiliated, in any activity or business that is in
competition with the business of the Company in any
3
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geographic area in the United States or in any other country where the Company
is doing business;
(b) on behalf of any Competitive Entity, solicit, call on, or in any
manner cause or attempt to cause or provide any Confidential Information (as
defined in the Employment Agreement) to any customer or active prospective
customer of the Company, or divert, terminate, limit, modify or fail to enter
into any existing or potential relationship between the Company and any customer
or active prospective customer of the Company; or
(c) induce or attempt to induce any employee, consultant or advisor of
the Company to accept employment or an affiliation with any Competitive Entity.
D. Sykes agrees that if he violates any of the provisions of this Section 4, the
Company would sustain irreparable harm and, therefore, in addition to any other
remedies that might be available to it, the Company shall be entitled to an
injunction restraining D. Sykes from committing or continuing any such violation
without the requirement to post a bond or other security. The Company and D.
Sykes agree that in the event any of the provisions of this Section 4 shall be
held to be in any way an unreasonable restriction on D. Sykes, the court so
holding may reduce the geographical area and/or period of time in which such
provision operates, or modify or eliminate any such restriction to the extent
necessary to render such provisions enforceable. Nothing in this Section 4 shall
be deemed to negate or limit in any manner the covenants and agreements of D.
Sykes pursuant to Section 6 of the Employment Agreement, but shall be in
addition thereto.
5. Representations and Warranties of Sykes
In order to induce nStor into entering into this Agreement and to
purchase the Shares and the Note, Sykes hereby represent and warrant to nStor,
which representations and warranties shall remain true and correct on the
Closing Date, and covenant and agree with nStor, as follows:
(a) Sykes is, and on the Closing Date will be, the owner of the Shares,
free and clear of any and all liens, claims, encumbrances and restrictions, and
the Shares may be sold, assigned, transferred and conveyed to nStor without the
requirement of any consent or approval by Andataco or any other party,
including, without limitation, the consent or approval of any party whose
failure to give such consent or approval would have an adverse effect on
Andataco, other than consents or approvals that shall be obtained by Sykes and
delivered to nStor on or before the Closing.
(b) The Note is assignable by D. Sykes to nStor without the requirement
of any consent or approval by Andataco or any other party, and upon the purchase
of the Note by nStor shall be the valid and binding obligation of Andataco and
enforceable by nStor in accordance with its terms in the same manner as if owned
by D. Sykes.
(c) When executed and delivered by Sykes, this Agreement will
constitute a valid and legally binding obligation of Sykes enforceable in
accordance with its terms, except as may
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be limited by (i) judicial principles respecting election of remedies or
limiting the availability of specific performance, injunctive relief and other
equitable remedies, (ii) judicial principles with respect to provisions contrary
to public policy, and (iii) bankruptcy, insolvency, reorganization, moratorium
or other similar laws, now or hereafter in effect, generally relating to
creditors' rights.
(d) To Sykes' knowledge, Andataco is duly organized, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts and is
qualified to do business and in good standing in each other jurisdiction where
the business of Andataco requires it to be so qualified, including, without
limitation, the State of California. To Sykes' knowledge, Andataco has all
requisite corporate power and authority to own its assets and to carry on its
business as presently conducted in each jurisdiction where such assets is
located and such business is conducted.
(e) Attached hereto as EXHIBIT D is a copy of Andataco's Form 10-K for
the fiscal year ended October 31, 1998 (the "1998 10-K") and its Form 10-Q for
the quarter ended January 31, 1999. The 1998 10-K does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make each statement contained therein not misleading. From and after
January 31, 1999, to D. Sykes' knowledge, no events have occurred or are
threatened that would materially affect the financial condition, assets or
business of Andataco.
(f) As of the date of this Agreement, Andataco's only authorized
capital stock consists of the common and preferred stock as described in the
1998 10-K, and there are no issued shares of any class of voting stock of
Andataco other than the class of which the Shares are a part. Of the authorized
common stock, 23,819,399 shares are issued and outstanding and of these
18,021,281 shares are owned by Sykes and constitute the Shares. The Shares
constitute the only common stock of Andataco in which Sykes has a direct or
beneficial interest. The 1998 10-K accurately and fairly describes Andataco's
1997 Equity Incentive Plan, as amended (the "Plan"). The Plan, the Andataco 1996
Stock Option Plan, the Andataco 1993/1991 Stock Option Plan, the Andataco
Director Stock Option Plan and the 180,000 warrants issued to Imperial Bank, are
the only plans, agreements or commitments of Andataco to issue additional
authorized capital stock.
(g) Sykes shall not, between the date hereof and the Closing Date,
accept from Andataco any compensation or other payments or benefits from
Andataco, including, without limitation, accrued but unpaid compensation, other
than compensation for services on a current basis.
(h) Sykes shall, between the date hereof and the Closing Date: (i)
cause the business of Andataco to be conducted in the ordinary course, (ii) not
cause Andataco to have any material change in its business, financial condition
or assets, (iii) not cause, by request to the Andataco Board of Directors or
otherwise, Andataco to grant any options or other rights to acquire any capital
stock of Andataco, or issue any capital stock of Andataco to any person, or
enter into any employment agreements with any persons.
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6. Representations and Warranties of nStor
In order to induce Sykes to enter into this Agreement and to sell the
Shares and the Note, nStor represents and warrants to Sykes as of the date
hereof, and as of the Closing Date, and covenants and agrees with Sykes, as
follows:
(a) nStor is a corporation duly organized, validly existing and in good
standing within the laws of the State of Delaware and has all requisite and
corporate authority to carry on business as it is now carried on and conducted.
When executed and delivered by nStor, this Agreement will constitute a valid and
legally binding obligation of nStor enforceable in accordance with its terms,
except as may be limited by (i) judicial principles respecting election of
remedies or limiting the availability of specific performance, injunctive relief
and other equitable remedies, (ii) judicial principles with respect to
provisions contrary to public policy, and (iii) bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
generally relating to creditors' rights.
(b) nStor expressly represents and warrants as of the Closing Date
that: (i) it is acquiring the Shares and the Note for investment purposes only,
for its own account, and not with the view to, or for resale in connection with,
any distribution thereof, (ii) it has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
this investment and is able to bear the economic risk of this investment, (iii)
its purchase of the Shares and the Note has not been accompanied by the
publication of any advertisement, (iv) its purchase of the Shares and the Note
has not been effected by or through a broker-dealer in a public offering. On the
Closing Date, nStor will separately represent and warrant in writing to Sykes,
if then true, that: (v) it has had the opportunity to ask questions of the
directors, officers and employees of Andataco and has obtained and carefully
reviewed and considered all the information regarding Andataco that nSTOR
considers necessary or appropriate to decide whether to purchase the Shares and
the Note, and (vi) Sykes and Andataco have provided nSTOR with access to all
financial information, records, documents, contracts, agreements, court filings,
case records and ledgers relating to Andataco.
(c) nStor (i) has adequate means of providing for its current needs and
possible contingencies, and has no need now, and anticipates no need in the
foreseeable future, to sell the Shares or the Note which it is hereby purchasing
and (ii) is able to bear the economic risks of this investment, and,
consequently, without limiting the generality of the foregoing, is able to hold
its Shares and the Note indefinitely and has a sufficient net worth to sustain a
loss of its entire investment in Andataco in the event such loss should occur.
(d) nStor acknowledges and agrees that neither the Shares nor the Note
have been registered under the Securities Act of 1933, as amended (the "Act") or
under the California Corporate Securities Law of 1968, as amended (the
"California Law") or other applicable law, and that accordingly the Shares and
the Note will not be fully transferable except as permitted under various
exemptions contained in the Act, California Law or other applicable state law,
or upon satisfaction of the registration requirements of the Act, the
qualification requirements of California Law or other applicable state law, or
the registration requirements of other applicable state securities laws. nStor
hereby acknowledges and agrees that the certificates
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representing the Shares and the Note will bear any legends required under the
Act, California Law or other applicable state law.
(e) If nStor acquires the common stock of Andataco held by shareholders
other than Sykes, it will do so for consideration no less than the greater of
the price per share received by Sykes for the Shares or the fair market value of
such stock valued as of the day immediately prior to the date of execution of
this Agreement as stated in an opinion obtained prior to such acquisition from a
recognized investment banking firm. nStor agrees that the shareholders of
Andataco other than Sykes shall be given and advised of their "dissenter's"
rights, as provided under Massachusetts law and all other applicable law, in
connection with any acquisition by nStor of their shares of Andataco stock.
(f) nStor acknowledges that the Shares are subject to the terms and
conditions of that certain Lock-Up Agreement, dated June 3, 1997, a copy of
which is attached hereto as EXHIBIT E and that, upon the purchase of the Shares,
it will be bound by the terms and conditions of that Agreement.
7. Financing; Standstill; Confidentiality; Disclosure
(a) nStor agrees to use its best efforts to obtain the financing
necessary to consummate the transactions contemplated by this Agreement (the
"nStor Financing") on or before May 17, 1999.
(b) Sykes hereby agrees not to solicit or accept offers from, or
negotiate for or enter into any agreements with, any other parties for any of
the transactions or agreements contemplated by this Agreement during the period
ending June 9, 1999.
(c) The existence and contents of this Agreement, the existence of
negotiations between the Parties and all documents and information obtained by
either Party from the other Party, regardless of identifying mark or label and
whether written, oral or in electronic form, shall remain strictly confidential
(the "Confidential Information"), and neither of the Parties shall reveal any of
the Confidential Information or provide any copies of any documents or other
materials relating to the Confidential Information to any person, corporation or
other entity, other than the Board of Directors and senior officers of and the
attorneys and financial advisors for Andataco, without the prior written consent
of the providing Party.
(d) The Parties understand that the transactions contemplated herein
will require, pursuant to applicable securities and other laws, a public
announcement by nStor upon the receipt of a firm commitment for the nStor
Financing. Such a press release, describing all of the relevant terms and
conditions of the transactions contemplated by this Agreement, may be issued by
nStor upon the receipt of such a commitment. Sykes also acknowledges that nStor
will be required to file a Schedule 13D pursuant to Rule 13d-1 of the Securities
Exchange Act of 1934 upon obtaining the nStor Financing. In addition, attached
hereto as EXHIBIT F is a press release prepared by the Parties for publication
upon a termination of this Agreement and the transactions contemplated hereby.
This press release shall be issued by nStor immediately upon termination of this
Agreement according to its terms. The Parties agree that no deviation
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shall be made from such press release unless mutually agreed by the Parties. The
Parties agree that no other public disclosure shall be made by the Parties until
the Closing except upon the mutual consent of the Parties, unless counsel to
nStor advises nStor that it is legally required to make such disclosure or to
respond to requests for such disclosure and in either such event the Parties
agree to use their reasonable best efforts to mutually agree upon the wording of
such disclosure. Nothing in any public disclosure, shall be deemed in any way to
modify or limit in any way the provisions of Section 7(c).
(e) nStor shall maintain Andataco's current director and officer
insurance policy or equivalent for a period of two years after the Closing.
nStor shall not alter the current indemnification rights of Andataco officers
and directors until the sooner of (i) two years after the Closing or (ii) the
termination of the separate existence of Andataco.
8. Lease Guaranty
At the Closing, nStor agrees to execute a written guaranty, in form and
substance as nStor may reasonably agree, of Andataco's performance under the
real property lease between Syko Properties, Inc., a corporation owned and/or
controlled by D. Sykes, as lessor, and Andataco, as lessee, dated as of January
1, 1993, as amended, pursuant to which Andataco leases the premises in which it
conduct business in San Diego, California (the "Lease"); provided, however, that
nStor's obligation under this Section 8 is conditioned upon the Lease being
terminable by Andataco in its sole discretion at any time upon nine months
notice to the lessor.
9. Closing
The closing and consummation of all transactions provided in this
Agreement (the "Closing") shall take place at 10:00 A.M. on May 17, 1999 (the
"Closing Date"), at the offices of Akerman, Senterfitt & Eidson, P.A., counsel
to nStor, 450 East Las Olas Boulevard, Suite 950, Fort Lauderdale, Florida
33301, or on such other day and at such other time and place as the Parties may
mutually agree. In the event that the completion of the nStor Financing requires
the approval of the stockholders of nStor, the closing shall be extended to June
9, 1999, the day following the nStor 1999 Annual Meeting of Stockholders.
10. Deposits
(a) Upon the signing of this Agreement, nStor will pay to Sykes a
non-refundable deposit of $100,000, by wire transfer or certified check. In the
event that the Closing takes places as contemplated by Section 9 hereof, the
$100,000 deposit will be credited against the Note Purchase Price.
(b) Upon the receipt by nStor of a firm commitment for the nStor
Financing in an amount not less than $7,500,000, nStor will pay to Sykes an
additional non-refundable deposit of $50,000, by wire transfer or certified
check. In the event that the Closing takes places as contemplated by Section 9
hereof, the additional $50,000 deposit will be credited against the Note
Purchase Price.
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(c) In the event that the Closing Date is extended to June 9, 1999, on
May 17, 1999 nStor will pay to Sykes an additional non-refundable deposit of
$50,000, by wire transfer or certified check. In the event that the Closing
takes places as contemplated by Section 9 hereof, the additional $50,000 deposit
will be credited against the Note Purchase Price.
11. Termination
nStor may terminate this Agreement for any reason in its sole and
absolute discretion at any time prior to the Closing Date upon notice to Sykes
that it has not obtained the nStor Financing and does not wish to proceed with
the transactions contemplated by this Agreement. Upon any such termination, the
Parties shall have no further obligations under this Agreement, except that the
obligations of the Parties under Section 4(c), Section 10 and Section 12 shall
survive such termination. If the Closing has not occurred on or before June 9,
1999, either party may terminate this Agreement. Upon any termination of this
Agreement for any reason other than Sykes' material breach or default under this
Agreement, failure or inability to complete the transactions contemplated
hereby, or the material failure of any of the conditions precedent set forth in
Sections 14(a)(i)-(iii) or 14(a)(v)-(viii), Sykes shall be entitled to retain
all deposits paid pursuant to Section 10 hereof and reimbursement of expenses as
provided in Section 12 hereof.
12. Expenses
Each Party shall bear its and his own expenses, including legal and
accounting fees and costs, in connection with this Agreement and the Closing;
provided, however, that: (a) if the Closing occurs, nStor shall reimburse Sykes
for documented attorney, accountant and investment banking fees and expenses up
to the amount of $465,000, (b) if the Closing does not occur for any reason,
nStor shall reimburse Sykes for documented attorney and accountant fees and
expenses up to the amount of $20,000, (c) if the Closing does not occur through
no fault of Sykes, nStor shall reimburse Sykes for documented attorney and
accountant fees and expenses up to the additional amount of $35,000, and (d) if
the Closing does not occur as a result of Sykes willfully and knowingly
breaching any of his representations and warranties in Section 5 hereof, Sykes
shall indemnify and hold harmless, and immediately reimburse, nStor for its
costs and expenses, including reasonable attorney's and accountant's fees and
expenses, incurred in the conduct of its due diligence in connection with this
Agreement and in preparing for the Closing.
13. Indemnification
(a) Indemnification by nStor. nStor shall indemnify, defend and hold
harmless Sykes against any and all damages, losses, claims, liabilities,
charges, suits, penalties, costs and expenses, including court costs, attorneys'
fees and expenses and other costs of collection (collectively "Loss" or
"Losses"), which Sykes personally may sustain, or to which he may be subjected,
arising out of or attributable to: (i) the failure of nStor to consummate the
acquisition of the Shares and the Note for other than nStor's right to terminate
pursuant to Section 11 hereof; (ii) the failure of nStor or its officers,
directors, shareholders, affiliates,
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employees or agents to treat the minority shareholders of Andataco, Inc. fairly
or properly after the Closing; or (iii) any actions brought against Sykes by
third parties as a result of the consummation of the transactions contemplated
hereby.
(b) Notice and Resolution of Indemnity Claims. If at any time Sykes
shall claim indemnification from nStor for any Loss or, in the reasonable
judgment of Sykes, for what, in the future, may result in a Loss ("Anticipated
Loss") due to the filing, at or before the time of such claim, of an action,
claim or suit with an arbitrator, mediator, court or other governmental entity
("Claim"), then Sykes shall send written notice of the same (a "Notice of
Claim") to nStor. A Notice of Claim shall specify the basis for such Claim
supported by relevant information and documentation.
(i) If nStor shall object to such Claim, it shall give written
notice of such objection (a "Notice of Objection") to Sykes within 15
days after receipt by nStor of the Notice of Claim, specifying the
basis of the objections supported by relevant information and
documentation with respect thereto. If nStor does not give a Notice of
Objection within such 15 days, or shall have agreed to pay such Claim
in whole or in part within such 15-day period, nStor shall thereupon be
liable for the payment of such Claim.
(ii) In the event that nStor shall have timely given a Notice
of Objection in whole or in part to any Notice of Claim, during the
20-day period following that date, nStor and Sykes shall privately
attempt to resolve the Claim. If nStor and Sykes shall have failed to
resolve or compromise or agree to postpone resolution of the Claim
within the 20--day period, then the Claim shall be settled by
arbitration in San Diego, California, as determined by the three
arbitrators referred to in Section 13(b)(iii) below, in accordance with
the rules of the American Arbitration Association and the procedures
set forth below.
(iii) Each of (A) Sykes and (B) nStor shall appoint one
arbitrator, and the two arbitrators so appointed shall then together
appoint a third arbitrator ("neutral arbitrator") from a list of
persons supplied by the American Arbitration Association in San Diego,
California. If one party shall fail to appoint the arbitrator to be
appointed by it within 15 days of the end of the 20-day period provided
for in Section 13(b)(ii) above, the arbitrator appointed by the other
party shall select from a list of persons supplied by the American
Arbitration Association a person who shall serve as the single neutral
arbitrator for purposes of the arbitration. If each party shall have
appointed one arbitrator, but such designees cannot agree on the person
to act as the neutral arbitrator within a period of 15 days after the
appointment of the second arbitrator, then either party may apply to
the American Arbitration Association in San Diego, California, which
shall appoint a neutral arbitrator. As used hereafter the term
"arbitrator" shall include the singular and the plural as applicable.
The arbitrator shall conduct the arbitration with all reasonable
dispatch in accordance with the rules of the American Arbitration
Association, provided, however, that the parties to such arbitration
shall take such action and execute such instruments as shall be
necessary to cause the California Rules of Civil Procedure pertaining
to pre-trial discovery to be applicable in
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respect of such proceeding. The arbitrator shall render a written
award (the "Award") which shall be delivered to Sykes and nStor. An
Award hereunder may be used as a basis for the entry of judgment in any
jurisdiction. In the event the parties have submitted a Claim for an
Anticipated Loss to arbitration under this Section 13(b)(iii), then the
arbitrator may, in its sole discretion, postpone resolution of the
Claim until the time which it has determined, in its sole discretion,
to be the time when such Anticipated Loss shall have occurred or passed
has been reached.
(iv) Prior to making the Award, the arbitrator shall direct
Sykes and nStor to submit statements describing any element of Loss or
Anticipated Loss as to which a Claim is made that is attributable to
attorneys' fees, disbursements, and any similar costs incident to such
Loss or Anticipated Loss, supported by affidavits showing that such
costs actually have been or are likely to be incurred, and all such
attorneys' fees, disbursements and other costs shall be apportioned as
determined by the arbitrator. All fees of the arbitrator and
administrative expenses of the American Arbitration Association shall
be treated as costs for purposes of this Article. As a part of each
Award made pursuant to this Agreement, the arbitrator shall allow
interest thereon (other than on the portion of the Award representing
attorneys' fees, disbursements and costs) from the date of the Loss or
the date the Anticipated Loss becomes a Loss to the date of payment at
the rate of 10% per annum.
(v) The Award shall be a conclusive determination of the matter
and shall be binding upon Sykes and nStor, and shall not be contested
by either of them. nStor shall satisfy its obligations to pay an Award
in cash.
(vi) If a the subject of a Claim involves a third-party claim
which has not yet been determined, the arbitrator may in his discretion
make a separate determination solely as to whether the third-party
claim is one for which indemnification may be had or may defer a
determination as to whether indemnification may be had pending the
further development of information as to the nature of the third-party
claim. If the arbitrator determines that the third-party claim is not
subject to indemnification, he shall set forth the basis of his
decision in detail, which decision shall be deemed to be an "Award"
hereunder.
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(vii) Promptly after the assertion by any third party of any
claim against Sykes that, in the judgment of Sykes, may result in the
incurrence by Sykes of Loss for which Sykes would be entitled to
indemnification, Sykes shall deliver to nStor a Notice of Anticipated
Loss describing in reasonable detail such Claim. If Sykes request nStor
defend him against such Claim, then nStor may, at its option, assume
the defense of Sykes against such Claim (including the employment of
counsel, who shall be counsel satisfactory to Sykes,) and the payment
of expenses. If Sykes does not request nStor to defend him against such
Claim or nStor fails to assume the defense of such Claim within a
reasonable time after having been requested by Sykes to assume the
defense, then Sykes shall have the right to defend himself in any such
action and, if appropriate under Section 13(a) above, be indemnified
for his costs and fees of defense by nStor. nStor shall not be liable
to indemnify Sykes for any settlement of any such action or claim
effected without the consent of nStor, but if settled with the written
consent of nStor, or if there be a final judgment for the plaintiff in
any such action, nStor shall indemnify and hold harmless Sykes from and
against any Loss by reason of such settlement or judgment and nStor
shall thereupon be liable for the payment of such Loss.
14. Conditions to Closing
(a) nStor's obligation to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment, at or prior to Closing, of
each of the following conditions precedent (any or all of which may be waived in
writing, in whole or in part, by nStor):
(i) Sykes shall have performed all of the obligations and
complied with all of the covenants required to be performed or to be
complied with by them under this Agreement on or prior to the Closing
Date.
(ii) Sykes shall have delivered to nStor any and all
approvals, consents or assignments to be obtained by Sykes and
necessary for the consummation of the transactions contemplated hereby.
(iii) nStor and its accountants, attorneys and other
representatives shall have had full and complete access during normal
business hours to all offices, facilities, properties, assets, books,
agreements, files and records of Andataco, including financial and
operating data and other information regarding Sykes and Andataco.
(iv) nStor shall have received the nStor Financing on or prior
to the Closing Date.
(v) There shall not have been instituted, pending or
threatened against Andataco, Sykes, nStor or the Company any suit,
action or other proceeding by any private party or governmental agency,
commission, bureau or body seeking to restrain or prohibit any of the
transactions contemplated by this Agreement.
(vi) D. Sykes shall have entered into Employment Agreement as
provided for in Section 3(a) hereof.
(vii) Each representation and warranty of Sykes contained in
this Agreement shall be true and correct both at the date on which this
Agreement is signed and at and as of the Closing Date as if made anew
at and as of such time.
(viii) There has not been any material adverse change in the
business, operations and financial conditions of Andataco from and
after the date of the 1998 10-K until the Closing Date.
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(b) The obligations of Sykes to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment, at or prior
to Closing, of each of the following conditions precedent (any or all of which
may be waived in writing, in whole or in part, by Sykes):
(i) nStor shall have performed all of its obligations and
complied with all of its covenants required to be performed or to be
complied with by it under this Agreement on or prior to the Closing
Date.
(ii) nStor shall have delivered to Sykes any and all
approvals, consents or assignments to be obtained by nStor and
necessary for the consummation of the transactions contemplated hereby.
(iii) There shall not have been instituted, pending or
threatened against Andataco, Sykes, nStor or the Company any suit,
action or other proceeding by any private party or governmental agency,
commission, bureau or body seeking to restrain or prohibit any of the
transactions contemplated by this Agreement.
(iii) The Company shall have entered into Employment Agreement
as provided for in Section 3(a) hereof.
(iv) Each representation and warranty of nStor contained in
this Agreement shall be true and correct both at the date on which this
Agreement is signed and at and as of the Closing Date as if made at and
as of such time.
15. Miscellaneous
(a) Entire Agreement. This Agreement and the Employment Agreement, when
executed (collectively, the "Party Agreements"), constitute the complete and
exclusive statement of the agreement between the Parties with respect to the
subject matter of the Party Agreements. The Party Agreements replace and
supersede all prior agreements and negotiations by and between the Parties and
each of the Parties acknowledges and agrees that no agreements, representations,
warranties or collateral promises or inducements have been made by or to it or
him except as expressly set forth in the Party Agreements. These acknowledgments
and agreements are contractual and not mere recitals.
(b) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors and
permitted assigns and Sykes' personal representatives, executors, administrators
and beneficiaries; provided, however, that neither Party shall assign this
Agreement or any of its or his rights or obligations hereunder without the prior
written consent of the other Party, which consent may be withheld or delayed in
the sole discretion of Party whose consent is requested.
(c) No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person,
firm, corporation, partnership, association or other entity, other than the
Parties and their respective successors and
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permitted assigns, any rights or remedies under or by reason of this Agreement,
except that Andataco shall be a third party beneficiary and entitled to enforce
in its own name the provisions of the second and third sentences of Section
2(b).
(d) Survivability. Notwithstanding any investigation made by or on
behalf of either Party, the representations and warranties made under and in
connection with this Agreement shall survive the Closing and consummation of all
the transactions contemplated hereby for a period of one year.
(e) Waivers and Remedies. The waiver by either of the Parties of the
other Party's prompt and complete performance, or breach or violation, of any
provision of this Agreement shall not operate nor be construed as a waiver of
any subsequent breach or violation, and the waiver by either of the Parties to
exercise any right or remedy which it may possess hereunder shall not operate
nor be construed as a bar to the exercise of such right or remedy by such Party
upon the occurrence of any subsequent breach or violation.
(f) Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections or subsections contained in this Agreement
shall not affect the enforceability of the remaining portions of this Agreement
or any part hereof, all of which are inserted conditionally on their being valid
in law, and, in the event that any one or more of the words, phrases, sentences,
clauses, sections or subsections contained in this Agreement shall be declared
invalid by a court of competent jurisdiction, this Agreement shall be construed
as if such invalid word or words, phrase or phrases, sentence or sentences,
clause or clauses, section or sections, or subsection or subsections had not
been inserted.
(g) Descriptive Headings/Recitals. Descriptive headings contained
herein are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement. The Recitals are incorporated
into and made a part of this Agreement.
(h) Counterparts and Facsimile Signatures. This Agreement may be
executed in counterparts by the separate Parties, all of which shall be deemed
to be one and the same instrument. Facsimile signatures shall have the same
effect as original signatures.
(i) Notices. Any notice, request or other communication to either Party
by the other hereunder shall be deemed given on the earlier of the date (i)
actually received and acknowledged; (ii) three (3) days after its mailing by
certified or registered mail, return receipt requested, postage prepaid; or,
(iii) on the business day immediately following its delivery (evidenced by
receipt) to any reputable overnight carrier or transmission via facsimile in
each case addressed to the Party for which it is intended at the address (or
facsimile transmission number) set forth in this Agreement. The place to which
notices are to be given to any Party may be changed from time to time by such
Party by like notice to the other. Notices shall be addressed as follows:
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If to nStor:
------------
H. Irwin Levy, Chairman
nStor Technologies, Inc.
100 Century Boulevard
West Palm Beach, FL 33417
Fax: (561) 640-3160
and
Lawrence Steffann, President
nStor Technologies, Inc.
450 Technology Park Boulevard
Lake Mary, FL 32746
Fax: (407) 829-3627
With a copy to:
Akerman Senterfitt & Eidson, P.A.
450 East Las Olas Boulevard
Suite 950
Fort Lauderdale, FL 33301
Attn: Donn Beloff, Esq.
Fax: (954) 463-2224
If to Sykes:
------------
W. David Sykes
C/o Andataco, Inc.
10140 Mesa Rim Road
San Diego, CA 92121
Fax: (619) 453-2676
With a copy to:
Luce, Forward, Hamilton & Scripps LLP
600 West Broadway, Suite 2600
San Diego, California 92101
Attn: Dennis J. Doucette, Esq.
Fax: (619) 232-8311
(j) Applicable Law. This Agreement shall be governed by, and shall be
construed, interpreted and enforced in accordance with, the laws of the State of
Florida, without regard to principles of conflict of laws.
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(k) Brokers and Agents. nStor represents to Sykes that no broker,
finder or agent has acted on behalf of nStor with respect to the transactions
provided in the Party Agreements, and agrees to indemnify and hold Sykes
harmless in the event of any loss, claim, demand or expense asserted against or
incurred by Sykes relating to the payment of any fees or commissions by any such
broker, finder or agent acting on behalf of nStor. Other than as provided in
Section 12(a) hereof, Sykes agrees that Sykes will pay or cause to be paid any
broker, finder or agent that has acted on Sykes' behalf with respect to the
transactions provided in the Party Agreements, and agrees to indemnify and hold
nStor harmless in the event of any loss, claim, demand or expense asserted
against or incurred by nStor relating to the payment of any fees or commissions
by any such broker, finder or agent acting on behalf of Sykes.
(l) Modifications. This Agreement may not be altered, modified or
amended except by a writing signed by the Parties.
(m) Further Assurances. The Parties agree to execute and deliver, or
cause to be executed and delivered, such further instruments or documents and
take such other action as may be reasonably required effectively to carry out
the transactions contemplated herein.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
the date first above written.
nStor Technologies, Inc.
By: /s/ Mark Levy
----------------------------
Name: Mark Levy
--------------------------
Title: Vice President
----------------------------
/s/ W. David Sykes
-----------------------------
W. David Sykes, Individually
Sykes Children's Trust of 1993
By:/s/ James Harlan, III
------------------------------
James Harlan, III, Trustee
Sykes Family Trust
By:/s/ W. David Sykes
------------------------------
W. David Sykes, Trustee
16
AMENDMENT NO. 2 TO
------------------
PURCHASE AGREEMENT
------------------
This AMENDMENT NO. 2 TO PURCHASE AGREEMENT (the "Agreement") is entered
into as of the 8th day of June, 1999 by and between nSTOR TECHNOLOGIES, INC., a
Delaware corporation ("nStor"), and W. DAVID SYKES, an individual ("D. Sykes"),
the SYKES FAMILY TRUST and the SYKES CHILDREN'S TRUST OF 1993 dated November 22,
1993 (collectively, the "Trusts"). D. Sykes and the Trusts are referred to
herein together as "Sykes," and Sykes, D. Sykes, the Trusts and nStor are
sometimes referred to herein individually as a "Party," and together as the
"Parties".
RECITALS
The Trusts are the owners of 18,021,281 shares of the common stock (the
"Shares") of Andataco, Inc., a Massachusetts corporation ("Andataco"), and D.
Sykes is the owner of a certain promissory note of Andataco owned by and payable
to D. Sykes in the face amount of $5,196,000 (the "Note").
On March 2, 1999, nStor, D. Sykes and the Trusts entered into an
agreement for the sale of the Shares and the Note to nStor (the "Agreement"),
which Agreement was amended on April 26, 1999.
The Trusts wish to sell the Shares to nStor, and nStor wishes to
purchase the Shares from the Trusts, upon the terms and subject to the
conditions provided in the Agreement, as further amended by this Amendment No.
2.
D. Sykes wishes to sell the Note to nStor and enter into an employment
agreement with nStor, and nStor wishes to purchase the Note from D. Sykes and
enter into an employment agreement with D. Sykes, all upon the terms and subject
to the conditions provided in the Agreement, as further amended by this
Amendment No. 2.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
and the payment of valuable consideration as provided herein, and intending to
be legally bound, the Parties agree as follows:
1. Purchase of the Shares by nStor
The Trusts agree to sell, assign, transfer and convey the Shares to
nStor, and nStor agrees to purchase the Shares from the Trusts, for a purchase
price of $5,100,000 (the "Stock Purchase Price"), payable on the Closing (as
hereinafter defined) by delivery to the Trusts, in proportion to their ownership
of the Shares, of two subordinated promissory notes of nStor in the form
attached hereto as EXHIBIT A (the "Notes") in the aggregate principal amount of
$5,100,000, subject to the terms and conditions of this Agreement.
<PAGE>
2. Purchase of the Note by nStor
(a) D. Sykes agrees to sell, assign, transfer and convey the Note to
nStor, and nStor agrees to purchase the Note from D. Sykes, for a cash purchase
price of $500,000, of which $150,000 has been paid previously, and $4,654,000 in
the form of 4,654 shares of nStor's Series F Convertible Preferred Stock (the
"Series F Stock")(the $500,000 cash purchase price and the Series F Stock are
collectively referred to herein as the "Note Purchase Price"), payable on the
Closing by wire transfer or certified check and the delivery of the Series F
Stock, subject to the terms and conditions of this Agreement. D. Sykes agrees to
accept the Note Purchase Price in full payment for the assignment, transfer and
conveyance of the Note and full payment and satisfaction of any and all other
indebtedness, obligations and liabilities of Andataco to D. Sykes, whether due,
accrued or contingent, including, without limitation, payments by Andataco to D.
Sykes for retirement benefits (collectively, the "Indebtedness"). Nothing in
this Section 2(a) shall affect in any manner any vested rights of D. Sykes in
any Andataco retirement plans and D. Sykes shall be entitled to control all
investments in such Andataco retirement plans.
(b) The Indebtedness shall not include the Notes, and all amounts due
and payable under the Notes, the Employment Agreement between D. Sykes and
Andataco dated as of May 1, 1997 (the "Andataco Employment Agreement"), the
Noncompetition Agreement between Andataco and D. Sykes dated as of June 3, 1997
(the "Noncompetition Agreement"), or any participation by Andataco in the
Employment Agreement described in Section 3 hereof. If requested by nStor or
Andataco, at any time on or after the Closing Date (as hereinafter defined), D.
Sykes shall execute and deliver to Andataco an unconditional general release and
all original instruments evidencing the Indebtedness marked "paid in full,"
subject only to the exceptions provided in the immediately preceding sentence,
and D. Sykes shall execute and deliver such other agreements, instruments and
documents as counsel to nStor or Andataco may reasonably request to further
evidence the payment, discharge and satisfaction of the Indebtedness. In the
event that nStor or any of its subsidiaries or affiliates acquires all
outstanding shares of voting stock of Andataco in addition to the Shares, D.
Sykes shall immediately enter into a written agreement with Andataco
terminating, and execute and deliver to Andataco an unconditional general
release as to, the Noncompetition Agreement. Nothing contained in this Section 2
shall affect in any manner the right of D. Sykes, as an officer and director of
Andataco, to indemnification by Andataco as presently provided or to coverage
under the current Andataco director and officer insurance policy.
3. Employment of D. Sykes.
(a) Sykes and nStor's wholly owned subsidiary, nStor Corporation (the
"Company") shall enter into an employment agreement in the form attached hereto
as EXHIBIT B (the "Employment Agreement"), effective on the date on which nStor
or any of its subsidiaries or affiliates acquires all outstanding voting stock
of Andataco in addition to the Shares. nStor shall cause the Company to execute
and deliver the Employment Agreement. The Employment Agreement shall be executed
on the Closing Date by D. Sykes and the Company and delivered to counsel for
nStor and D. Sykes to jointly hold in escrow on behalf
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<PAGE>
of nStor and D. Sykes, respectively, and to date and deliver to D. Sykes and the
Company upon the occurrence of the condition set forth in the first sentence of
this Section 3(a).
(b) D. Sykes shall also continue to be employed by Andataco in his
present capacity pursuant to the Andataco Employment Agreement as provided in
Section 1(b) of the Employment Agreement. In addition, so long as the Andataco
Board of Directors determines that it does not constitute a breach of the
Noncompetition Agreement, D. Sykes agrees that, commencing on the Closing Date
and during the time that he continues to be employed by Andataco before the
Employment Agreement is executed and delivered, he will perform services for the
Company on a "loaned executive" basis, substantially the same as his
responsibilities and duties as described in the Employment Agreement and in
consideration of the "Compensation" as defined and provided in Section 1(b)(ii)
of the Employment Agreement; provided, however, that (a) in the event Sykes
receives total compensation from the Company and Andataco in excess of the
Compensation payable to Sykes during such period of time (including, without
limitation, payments under the Noncompetition Agreement prior to its termination
as provided in Section 2 hereof), such excess shall be repaid by deductions from
any bonus compensation due D. Sykes for the period ended December 31, 1999
pursuant to Section 3(b) of the Employment Agreement; provided further, however,
that if the excess exceeds the bonus compensation payable for that period, it
shall not carryover in the next bonus period and D. Sykes shall keep such
excess, and (b) the grant of the Option pursuant to Section 4 of the Employment
Agreement shall be retroactive to the Closing Date. Further, D. Sykes agrees to
enter into an Amended and Restated Andataco Employment Agreement as provided in
Section 1(b)(iii) of the Employment Agreement.
4. Agreement Not to Compete
D. Sykes recognizes that (i) Andataco has spent substantial money, time
and effort in developing and solidifying its relationships with its suppliers
and customers, (ii) long-term supplier and customer relationships often can be
difficult to develop, (iii) Andataco paid and pays its employees to, among other
things, develop and preserve business information, supplier and customer
goodwill, loyalty and contacts for and on behalf of Andataco, and (iv) nStor is
hereby agreeing to purchase the Shares from Sykes based upon D. Sykes'
assurances and promises contained herein not to take or divert Andataco's
suppliers' and customers' goodwill, including such suppliers' and customer's
goodwill as part of the combined businesses of Andataco and the Company as
contemplated by this Agreement and the Employment Agreement (for the purpose of
this Section 4, all references to the Company shall be deemed to be references
to the Company and Andataco). Accordingly, D. Sykes covenants and agrees that
for lesser of a period of three years following the Closing Date or a period of
one year following the termination for any reason of his employment by the
Company (or any successor to the business of the Company), he will not, directly
or indirectly:
(a) engage, either as principal, agent or consultant, or through any
corporation, firm, organization or other entity (a "Competitive Entity") in
which he may be an officer, director, employee, stockholder, partner, member, or
with which he is otherwise affiliated, in any activity or business that is in
competition with the business of the Company in any
3
<PAGE>
geographic area in the United States or in any other country where the Company
is doing business;
(b) on behalf of any Competitive Entity, solicit, call on, or in any
manner cause or attempt to cause or provide any Confidential Information (as
defined in the Employment Agreement) to any customer or active prospective
customer of the Company, or divert, terminate, limit, modify or fail to enter
into any existing or potential relationship between the Company and any customer
or active prospective customer of the Company; or
(c) induce or attempt to induce any employee, consultant or advisor of
the Company to accept employment or an affiliation with any Competitive Entity.
D. Sykes agrees that if he violates any of the provisions of this Section 4, the
Company would sustain irreparable harm and, therefore, in addition to any other
remedies that might be available to it, the Company shall be entitled to an
injunction restraining D. Sykes from committing or continuing any such violation
without the requirement to post a bond or other security. The Company and D.
Sykes agree that in the event any of the provisions of this Section 4 shall be
held to be in any way an unreasonable restriction on D. Sykes, the court so
holding may reduce the geographical area and/or period of time in which such
provision operates, or modify or eliminate any such restriction to the extent
necessary to render such provisions enforceable. Nothing in this Section 4 shall
be deemed to negate or limit in any manner the covenants and agreements of D.
Sykes pursuant to Section 6 of the Employment Agreement, but shall be in
addition thereto.
5. Representations and Warranties of Sykes
In order to induce nStor into entering into this Agreement and to
purchase the Shares and the Note, Sykes hereby represent and warrants to nStor,
which representations and warranties shall remain true and correct on the
Closing Date, and covenant and agree with nStor, as follows:
(a) The Trusts are, and on the Closing Date will be, the owner of the
Shares, free and clear of any and all liens, claims, encumbrances and
restrictions, and the Shares may be sold, assigned, transferred and conveyed to
nStor without the requirement of any consent or approval by Andataco or any
other party, including, without limitation, the consent or approval of any party
whose failure to give such consent or approval would have an adverse effect on
Andataco, other than consents or approvals that shall be obtained by the Trusts
and delivered to nStor on or before the Closing.
(b) The Note is assignable by D. Sykes to nStor without the requirement
of any consent or approval by Andataco or any other party, and upon the purchase
of the Note by nStor shall be the valid and binding obligation of Andataco and
enforceable by nStor in accordance with its terms in the same manner as if owned
by D. Sykes.
(c) When executed and delivered by Sykes, this Agreement will
constitute a valid and legally binding obligation of Sykes enforceable in
accordance with its terms, except as may
4
<PAGE>
be limited by (i) judicial principles respecting election of remedies or
limiting the availability of specific performance, injunctive relief and other
equitable remedies, (ii) judicial principles with respect to provisions contrary
to public policy, and (iii) bankruptcy, insolvency, reorganization, moratorium
or other similar laws, now or hereafter in effect, generally relating to
creditors' rights.
(d) To Sykes' knowledge, Andataco is duly organized, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts and is
qualified to do business and in good standing in each other jurisdiction where
the business of Andataco requires it to be so qualified, including, without
limitation, the State of California. To Sykes' knowledge, Andataco has all
requisite corporate power and authority to own its assets and to carry on its
business as presently conducted in each jurisdiction where such assets is
located and such business is conducted.
(e) Attached hereto as EXHIBIT C is a copy of Andataco's Form 10-K for
the fiscal year ended October 31, 1998 (the "1998 10-K") and its Form 10-Q for
the quarter ended January 31, 1999. The 1998 10-K does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make each statement contained therein not misleading. From and after
January 31, 1999, to D. Sykes' knowledge, no events have occurred or are
threatened that would materially affect the financial condition, assets or
business of Andataco.
(f) As of the date of this Agreement, Andataco's only authorized
capital stock consists of the common and preferred stock as described in the
1998 10-K, and there are no issued shares of any class of voting stock of
Andataco other than the class of which the Shares are a part. Of the authorized
common stock, 23,819,399 shares are issued and outstanding and of these
18,021,281 shares are owned by the Trusts and constitute the Shares. The Shares
constitute the only common stock of Andataco in which Sykes has a direct or
beneficial interest. The 1998 10-K accurately and fairly describes Andataco's
1997 Equity Incentive Plan, as amended (the "Plan"). The Plan, the Andataco 1996
Stock Option Plan, the Andataco 1993/1991 Stock Option Plan, the Andataco
Director Stock Option Plan and the 180,000 warrants issued to Imperial Bank are
the only plans, agreements or commitments of Andataco to issue additional
authorized capital stock.
6. Representations and Warranties of nStor
In order to induce Sykes to enter into this Agreement and to sell the
Shares and the Note, nStor represents and warrants to Sykes as of the date
hereof, and as of the Closing Date, and covenants and agrees with Sykes, as
follows:
(a) nStor is a corporation duly organized, validly existing and in good
standing within the laws of the State of Delaware and has all requisite and
corporate authority to carry on business as it is now carried on and conducted.
When executed and delivered by nStor, this Agreement will constitute a valid and
legally binding obligation of nStor enforceable in accordance with its terms,
except as may be limited by (i) judicial principles respecting election of
remedies or limiting the availability of specific performance, injunctive relief
and
5
<PAGE>
other equitable remedies, (ii) judicial principles with respect to provisions
contrary to public policy, and (iii) bankruptcy, insolvency, reorganization,
moratorium or other similar laws, now or hereafter in effect, generally relating
to creditors' rights.
(b) nStor (i) is acquiring the Shares and the Note for investment
purposes only, for its own account, and not with the view to, or for resale in
connection with, any distribution thereof; and (ii) has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of this investment and is able to bear the economic risk of
this investment. nStor's (iii) purchase of the Shares and the Note has not been
accompanied by the publication of any advertisement, and (iv) the purchase of
the Shares and the Note has not been effected by or through a broker-dealer in a
public offering. nStor (v) has had the opportunity to ask questions of the
directors, officers and employees of Andataco and has obtained and carefully
reviewed and considered all the information regarding Andataco that nStor
considers necessary or appropriate to decide whether to purchase the Shares and
the Note, and (vi) Sykes and Andataco have provided nStor with access to all
financial information, records, documents, contracts, agreements, court filings,
case records and ledgers relating to Andataco.
(c) nStor (i) has adequate means of providing for its current needs and
possible contingencies, and has no need now, and anticipates no need in the
foreseeable future, to sell the Shares or the Note which it is hereby purchasing
and (ii) is able to bear the economic risks of this investment, and,
consequently, without limiting the generality of the foregoing, is able to hold
its Shares and the Note indefinitely and has a sufficient net worth to sustain a
loss of its entire investment in Andataco in the event such loss should occur.
(d) nStor acknowledges and agrees that neither the Shares nor the Note
have been registered under the Securities Act of 1933, as amended (the "Act") or
under the California Corporate Securities Law of 1968, as amended (the
"California Law") or other applicable law, and that accordingly the Shares and
the Note will not be fully transferable except as permitted under various
exemptions contained in the Act, California Law or other applicable state law,
or upon satisfaction of the registration requirements of the Act, the
qualification requirements of California Law or other applicable state law, or
the registration requirements of other applicable state securities laws. nStor
hereby acknowledges and agrees that the certificates representing the Shares and
the Note will bear any legends required under the Act, California Law or other
applicable state law.
(e) If nStor acquires the common stock of Andataco held by shareholders
other than the Trusts, it will do so for consideration no less than the greater
of the price per share received by the Trusts for the Shares or the fair market
value of such stock valued as of the day immediately prior to the date of
execution of this Agreement as stated in an opinion obtained prior to such
acquisition from a recognized investment banking firm. nStor agrees that the
shareholders of Andataco other than the Trusts shall be given and advised of
their "dissenter's" rights, as provided under Massachusetts law and all other
applicable law, in connection with any acquisition by nStor of their shares of
Andataco stock.
6
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(f) nStor acknowledges that the Shares are subject to the terms and
conditions of that certain Lock-Up Agreement, dated June 3, 1997, a copy of
which is attached hereto as EXHIBIT D and that, upon the purchase of the Shares,
it will be bound by the terms and conditions of that Agreement.
(g) The rights, privileges and preferences of nStor's Series E
Preferred Stock are set forth in EXHIBIT E attached hereto. nStor has received a
total of $3.5 million from the sale of Series E Preferred Stock prior to the
date hereof.
7. Confidentiality; Disclosure
(a) The existence and contents of this Agreement, the existence of
negotiations between the Parties and all documents and information obtained by
either Party from the other Party, regardless of identifying mark or label and
whether written, oral or in electronic form, shall remain strictly confidential
(the "Confidential Information"), and neither of the Parties shall reveal any of
the Confidential Information or provide any copies of any documents or other
materials relating to the Confidential Information to any person, corporation or
other entity, other than the Board of Directors and senior officers of and the
attorneys and financial advisors for Andataco, without the prior written consent
of the providing Party.
(b) The Parties understand that the transactions contemplated herein
will require, pursuant to applicable securities and other laws, a public
announcement by nStor upon the Closing. Such a press release, describing all of
the relevant terms and conditions of the transactions contemplated by this
Agreement, may be issued by nStor upon such Closing. Sykes also acknowledges
that nStor will be required to file a Schedule 13D pursuant to Rule 13d-1 of the
Securities Exchange Act of 1934 upon the Closing.
(c) nStor shall maintain Andataco's current director and officer
insurance policy or equivalent for a period of two years after the Closing.
nStor shall not alter the current indemnification rights of Andataco officers
and directors until the sooner of (i) two years after the Closing or (ii) the
termination of the separate existence of Andataco.
8. Lease Guaranty
nStor has delivered, simultaneously herewith, a written guaranty of
Andataco's performance under the real property lease between Syko Properties,
Inc., a corporation owned and/or controlled by D. Sykes, as lessor, and
Andataco, as lessee, dated as of January 1, 1993, as amended, pursuant to which
Andataco leases the premises in which it conduct business in San Diego,
California (the "Lease"). nStor's obligation under this Section 8 is conditioned
upon the Lease being terminable by Andataco in its sole discretion at any time
upon nine months notice to the lessor.
9. Closing
The closing and consummation of all transactions provided in this
Agreement (the "Closing") shall take place at 10:00 A.M. on June 8, 1999 (the
"Closing Date"), at the offices
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of Akerman, Senterfitt & Eidson, P.A., counsel to nStor, 450 East Las Olas
Boulevard, Suite 950, Fort Lauderdale, Florida 33301, or on such other day and
at such other time and place as the Parties may mutually agree.
10. Deposits
On the Closing Date, the $150,000 deposit previously delivered to Sykes
will be credited against the Note Purchase Price.
11. Expenses
Each Party shall bear its and his own expenses, including legal and
accounting fees and costs, in connection with this Agreement and the Closing;
provided, however, that, at the Closing, nStor shall reimburse Sykes for
documented attorney, accountant and investment banking fees and expenses up to
the amount of $470,000, or such lesser amount as may be due with respect to such
fees and expenses.
12. Indemnification
(a) Indemnification by nStor. nStor shall indemnify, defend and hold
harmless Sykes against any and all damages, losses, claims, liabilities,
charges, suits, penalties, costs and expenses, including court costs, attorneys'
fees and expenses and other costs of collection (collectively "Loss" or
"Losses"), which Sykes personally may sustain, or to which he may be subjected,
arising out of or attributable to: (i) the failure of nStor to consummate the
acquisition of the Shares and the Note for other than nStor's right to terminate
pursuant to Section 11 hereof; (ii) the failure of nStor or its officers,
directors, shareholders, affiliates, employees or agents to treat the minority
shareholders of Andataco, Inc. fairly or properly after the Closing; or (iii)
any actions brought against Sykes by third parties as a result of the
consummation of the transactions contemplated hereby.
(b) Notice and Resolution of Indemnity Claims. If at any time Sykes
shall claim indemnification from nStor for any Loss or, in the reasonable
judgment of Sykes, for what, in the future, may result in a Loss ("Anticipated
Loss") due to the filing, at or before the time of such claim, of an action,
claim or suit with an arbitrator, mediator, court or other governmental entity
("Claim"), then Sykes shall send written notice of the same (a "Notice of
Claim") to nStor. A Notice of Claim shall specify the basis for such Claim
supported by relevant information and documentation.
(i) If nStor shall object to such Claim, it shall give written
notice of such objection (a "Notice of Objection") to Sykes within 15
days after receipt by nStor of the Notice of Claim, specifying the
basis of the objections supported by relevant information and
documentation with respect thereto. If nStor does not give a Notice of
Objection within such 15 days, or shall have agreed to pay such Claim
in whole or in part within such 15-day period, nStor shall thereupon be
liable for the payment of such Claim.
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(ii) In the event that nStor shall have timely given a Notice
of Objection in whole or in part to any Notice of Claim, during the
20-day period following that date, nStor and Sykes shall privately
attempt to resolve the Claim. If nStor and Sykes shall have failed to
resolve or compromise or agree to postpone resolution of the Claim
within the 20--day period, then the Claim shall be settled by
arbitration in San Diego, California, as determined by the three
arbitrators referred to in Section 12(b)(iii) below, in accordance with
the rules of the American Arbitration Association and the procedures
set forth below.
(iii) Each of (A) Sykes and (B) nStor shall appoint one
arbitrator, and the two arbitrators so appointed shall then together
appoint a third arbitrator ("neutral arbitrator") from a list of
persons supplied by the American Arbitration Association in San Diego,
California. If one party shall fail to appoint the arbitrator to be
appointed by it within 15 days of the end of the 20-day period provided
for in Section 12(b)(ii) above, the arbitrator appointed by the other
party shall select from a list of persons supplied by the American
Arbitration Association a person who shall serve as the single neutral
arbitrator for purposes of the arbitration. If each party shall have
appointed one arbitrator, but such designees cannot agree on the person
to act as the neutral arbitrator within a period of 15 days after the
appointment of the second arbitrator, then either party may apply to
the American Arbitration Association in San Diego, California, which
shall appoint a neutral arbitrator. As used hereafter the term
"arbitrator" shall include the singular and the plural as applicable.
The arbitrator shall conduct the arbitration with all reasonable
dispatch in accordance with the rules of the American Arbitration
Association, provided, however, that the parties to such arbitration
shall take such action and execute such instruments as shall be
necessary to cause the California Rules of Civil Procedure pertaining
to pre-trial discovery to be applicable in respect of such proceeding.
The arbitrator shall render a written award (the "Award") which shall
be delivered to Sykes and nStor. An Award hereunder may be used as a
basis for the entry of judgment in any jurisdiction. In the event the
parties have submitted a Claim for an Anticipated Loss to arbitration
under this Section 12(b)(iii), then the arbitrator may, in its sole
discretion, postpone resolution of the Claim until the time which it
has determined, in its sole discretion, to be the time when such
Anticipated Loss shall have occurred or passed has been reached.
(iv) Prior to making the Award, the arbitrator shall direct
Sykes and nStor to submit statements describing any element of Loss or
Anticipated Loss as to which a Claim is made that is attributable to
attorneys' fees, disbursements, and any similar costs incident to such
Loss or Anticipated Loss, supported by affidavits showing that such
costs actually have been or are likely to be incurred, and all such
attorneys' fees, disbursements and other costs shall be apportioned as
determined by the arbitrator. All fees of the arbitrator and
administrative expenses of the American Arbitration Association shall
be treated as costs for purposes of this Article. As a part of each
Award made pursuant to this Agreement, the arbitrator shall allow
interest thereon (other than on the portion of the Award representing
attorneys' fees, disbursements and costs) from the date of the Loss or
the date the Anticipated Loss becomes a Loss to the date of payment at
the rate of 10% per annum.
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(v) The Award shall be a conclusive determination of the
matter and shall be binding upon Sykes and nStor, and shall not be
contested by either of them. nStor shall satisfy its obligations to pay
an Award in cash.
(vi) If a the subject of a Claim involves a third-party claim
which has not yet been determined, the arbitrator may in his discretion
make a separate determination solely as to whether the third-party
claim is one for which indemnification may be had or may defer a
determination as to whether indemnification may be had pending the
further development of information as to the nature of the third-party
claim. If the arbitrator determines that the third-party claim is not
subject to indemnification, he shall set forth the basis of his
decision in detail, which decision shall be deemed to be an "Award"
hereunder.
(vii) Promptly after the assertion by any third party of any
claim against Sykes that, in the judgment of Sykes, may result in the
incurrence by Sykes of Loss for which Sykes would be entitled to
indemnification, Sykes shall deliver to nStor a Notice of Anticipated
Loss describing in reasonable detail such Claim. If Sykes request nStor
defend him against such Claim, then nStor may, at its option, assume
the defense of Sykes against such Claim (including the employment of
counsel, who shall be counsel satisfactory to Sykes,) and the payment
of expenses. If Sykes does not request nStor to defend him against such
Claim or nStor fails to assume the defense of such Claim within a
reasonable time after having been requested by Sykes to assume the
defense, then Sykes shall have the right to defend himself in any such
action and, if appropriate under Section 12(a) above, be indemnified
for his costs and fees of defense by nStor. nStor shall not be liable
to indemnify Sykes for any settlement of any such action or claim
effected without the consent of nStor, but if settled with the written
consent of nStor, or if there be a final judgment for the plaintiff in
any such action, nStor shall indemnify and hold harmless Sykes from and
against any Loss by reason of such settlement or judgment and nStor
shall thereupon be liable for the payment of such Loss.
13. Miscellaneous
(a) Entire Agreement. This Agreement and the Employment Agreement, when
executed (collectively, the "Party Agreements"), constitute the complete and
exclusive statement of the agreement between the Parties with respect to the
subject matter of the Party Agreements. The Party Agreements replace and
supersede all prior agreements and negotiations by and between the Parties and
each of the Parties acknowledges and agrees that no agreements, representations,
warranties or collateral promises or inducements have been made by or to it or
him except as expressly set forth in the Party Agreements. These acknowledgments
and agreements are contractual and not mere recitals.
(b) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors and
permitted assigns and Sykes' personal representatives, executors, administrators
and beneficiaries; provided, however, that neither
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Party shall assign this Agreement or any of its or his rights or obligations
hereunder without the prior written consent of the other Party, which consent
may be withheld or delayed in the sole discretion of Party whose consent is
requested.
(c) No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person,
firm, corporation, partnership, association or other entity, other than the
Parties and their respective successors and permitted assigns, any rights or
remedies under or by reason of this Agreement, except that Andataco shall be a
third party beneficiary and entitled to enforce in its own name the provisions
of the second and third sentences of Section 2(b).
(d) Survivability. Notwithstanding any investigation made by or on
behalf of either Party, the representations and warranties made under and in
connection with this Agreement shall survive the Closing and consummation of all
the transactions contemplated hereby for a period of one year.
(e) Waivers and Remedies. The waiver by either of the Parties of the
other Party's prompt and complete performance, or breach or violation, of any
provision of this Agreement shall not operate nor be construed as a waiver of
any subsequent breach or violation, and the waiver by either of the Parties to
exercise any right or remedy which it may possess hereunder shall not operate
nor be construed as a bar to the exercise of such right or remedy by such Party
upon the occurrence of any subsequent breach or violation.
(f) Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections or subsections contained in this Agreement
shall not affect the enforceability of the remaining portions of this Agreement
or any part hereof, all of which are inserted conditionally on their being valid
in law, and, in the event that any one or more of the words, phrases, sentences,
clauses, sections or subsections contained in this Agreement shall be declared
invalid by a court of competent jurisdiction, this Agreement shall be construed
as if such invalid word or words, phrase or phrases, sentence or sentences,
clause or clauses, section or sections, or subsection or subsections had not
been inserted.
(g) Descriptive Headings/Recitals. Descriptive headings contained
herein are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement. The Recitals are incorporated
into and made a part of this Agreement.
(h) Counterparts and Facsimile Signatures. This Agreement may be
executed in counterparts by the separate Parties, all of which shall be deemed
to be one and the same instrument. Facsimile signatures shall have the same
effect as original signatures.
(i) Notices. Any notice, request or other communication to either Party
by the other hereunder shall be deemed given on the earlier of the date (i)
actually received and acknowledged; (ii) three (3) days after its mailing by
certified or registered mail, return receipt requested, postage prepaid; or,
(iii) on the business day immediately following its delivery (evidenced by
receipt) to any reputable overnight carrier or transmission via facsimile in
each case addressed to the Party for which it is intended at the address (or
facsimile transmission
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number) set forth in this Agreement. The place to which notices are to be given
to any Party may be changed from time to time by such Party by like notice to
the other. Notices shall be addressed as follows:
If to nStor:
------------
H. Irwin Levy, Chairman
nStor Technologies, Inc.
100 Century Boulevard
West Palm Beach, FL 33417
Fax: (561) 640-3160
and
Lawrence Steffann, President
nStor Technologies, Inc.
450 Technology Park Boulevard
Lake Mary, FL 32746
Fax: (407) 829-3627
With a copy to:
Akerman Senterfitt & Eidson, P.A.
450 East Las Olas Boulevard
Suite 950
Fort Lauderdale, FL 33301
Attn: Donn Beloff, Esq.
Fax: (954) 463-2224
If to Sykes:
------------
W. David Sykes
c/o Andataco, Inc.
10140 Mesa Rim Road
San Diego, CA 92121
Fax: (619) 453-2676
With a copy to:
Luce, Forward, Hamilton & Scripps LLP
600 West Broadway, Suite 2600
San Diego, California 92101
Attn: Dennis J. Doucette, Esq.
Fax: (619) 232-8311
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(j) Applicable Law. This Agreement shall be governed by, and shall be
construed, interpreted and enforced in accordance with, the laws of the State of
Florida, without regard to principles of conflict of laws.
(k) Brokers and Agents. nStor represents to Sykes that no broker,
finder or agent has acted on behalf of nStor with respect to the transactions
provided in the Party Agreements, and agrees to indemnify and hold Sykes
harmless in the event of any loss, claim, demand or expense asserted against or
incurred by Sykes relating to the payment of any fees or commissions by any such
broker, finder or agent acting on behalf of nStor. Other than as provided in
Section 11(a) hereof, Sykes agrees that Sykes will pay or cause to be paid any
broker, finder or agent that has acted on Sykes' behalf with respect to the
transactions provided in the Party Agreements, and agrees to indemnify and hold
nStor harmless in the event of any loss, claim, demand or expense asserted
against or incurred by nStor relating to the payment of any fees or commissions
by any such broker, finder or agent acting on behalf of Sykes.
(l) Modifications. This Agreement may not be altered, modified or
amended except by a writing signed by the Parties.
(m) Further Assurances. The Parties agree to execute and deliver, or
cause to be executed and delivered, such further instruments or documents and
take such other action as may be reasonably required effectively to carry out
the transactions contemplated herein.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
the date first above written.
nStor Technologies, Inc.
By: /s/ Mark Levy
-------------------------------
Name: Mark Levy
-----------------------------
Title: Vice President
----------------------------
/s/ W. David Sykes
-----------------------------
W. David Sykes, Individually
Sykes Children's Trust of 1993
By: /s/ James Harlan, III
-------------------------------
James Harlan, III, Trustee
Sykes Family Trust
By: /s/ W. David Sykes
-------------------------------
W. David Sykes, Trustee
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