As filed with the Securities and Exchange Commission on ____________, 1999
Registration Form No. 333-[ ]
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
nSTOR TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 9995 95-2094565
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
100 Century Boulevard
West Palm Beach, Florida 33417
(561) 640-3103
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Lawrence F. Steffann
100 Century Boulevard
West Palm Beach, Florida 33417
(561) 640-3103
(Name, address, including zip code, and telephone
(Address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
Donn A. Beloff Jeremy D. Glaser, Esq.
Akerman, Senterfitt & Eidson, P.A. Cooley Godward LLP
450 East Las Olas Boulevard 4365 Executive Drive, Suite 1100
Fort Lauderdale, Florida 33301 San Diego, CA 92121
954-463-2700 (619) 550-6000
------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the Merger, pursuant to the Merger Agreement described herein,
have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
<PAGE>
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the effective registration statement for
the same offering. |_|
------------------
Calculation of Registration Fee
<TABLE>
<CAPTION>
========================== ================== =========================== ======================== ==============================
Title of each class of Amount to be Proposed maximum offering Proposed maximum Amount of registration fee (2)
securities to be registered registered price per unit (1) aggregate offering price
- -------------------------- ------------------ --------------------------- ------------------------ ------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 739,000 .2188 $ 161,693.20 $352.68
$0.05 per share
========================== ================== =========================== ======================== ==============================
</TABLE>
(1) This Registration Statement relates to securities of the Registrant
issuable to holders of common stock of Andataco, Inc., a Massachusetts
corporation ("Andataco"), in the proposed merger of a wholly owned
subsidiary of Registrant with and into Andataco.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis
of the market value of the Andataco common stock to be exchanged in the
merger computed in accordance with Rule 457(f)(1) and (2) on the basis
of the average market price of the Andataco common stock as of August
24, 1999. On August 24, 1999, the average of the high and low bid prices
of Andataco common stock was $0.2188 per share. The number of shares to
be received by the Registrant in the merger was 5,959,678 and the
aggregate market value of such shares was $1,268,628.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
nSTOR TECHNOLOGIES, INC.
100 Century Boulevard
West Palm Beach, Florida 33417
------------------------
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON _____________
------------------------
The board of directors of nStor Technologies, Inc. invites you to attend
the 1999 annual meeting of stockholders of nStor to be held on ______________,
1999 at __________ _.m., local time, at _______________________, for the
following purposes:
o To consider and vote upon a proposal for the issuance of
shares of nStor common stock, $0.05 par value per share, to
stockholders of Andataco, Inc. in connection with the merger
of NTI Acquisition Corp., a Florida corporation and a wholly
owned subsidiary of nStor, with and into Andataco. The
agreement and plan of merger which describes the terms of the
merger and the issuance of nStor common stock is attached to
the accompanying joint proxy statement/prospectus as Annex A.
o To elect five persons to nStor's Board of Directors to hold
office until nStor's next annual meeting of stockholders or
until their successors are duly elected and qualified.
o To amend nStor's restated certificate of incorporation to
increase the authorized number of shares of common stock from
40,000,000 to 75,000,000.
o To amend nStor's restated certificate of incorporation to
eliminate cumulative voting for directors.
o To amend nStor's 1996 Stock Option Plan, as amended, to
increase the number of shares reserved for issuance under the
Plan from 2,500,000 to 5,000,000.
o To ratify the reappointment of BDO Seidman, LLP, certified
public accountants, as nStor's independent auditors for fiscal
1999.
o To transact any other business as may properly come before the
special meeting or any adjournment or postponement of the
annual meeting.
Only stockholders of record on September 7, 1999 will be entitled to
notice of and to vote at the annual meeting and at any adjournments or
postponements of the annual meeting.
The affirmative vote of the holders of a majority of the outstanding
shares of nStor common stock and nStor preferred stock, collectively and not as
separate classes, is necessary to approve these proposals. An abstention from
voting or a broker non-vote will have the same effect as a vote against approval
of the proposals.
<PAGE>
The board of directors has determined that each of the proposals,
including the proposal regarding the issuance of nStor's common stock to
Andataco stockholders in connection with the merger, is in the best interest of
nStor and its stockholders. Accordingly, the board of directors has unanimously
approved the proposals and recommends that you vote "FOR" each of the proposals.
By Order of the Board of Directors,
-------------------------------------
Orilla F. Floyd, Secretary
West Palm Beach, Florida
[date]
You are cordially invited to attend the annual meeting. Whether or not
you plan to attend the annual meeting, you are urged to complete, date, sign and
return the enclosed proxy card in the envelope provided. The proxy card is being
solicited on behalf of the board of directors. The proxy card shows the form in
which your shares of nStor common stock and nStor preferred stock are
registered. Your signature must be in the same form. Your shares will be voted
at the annual meeting in accordance with your instructions. You can revoke the
proxy at any time prior to voting and the giving of a proxy will not affect your
right to vote in the event you attend the annual meeting in person. We look
forward to seeing you.
<PAGE>
ANDATACO, INC.
10140 Mesa Rim Road
San Diego, California 92121
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON _____________
The board of directors of Andataco, Inc. invites you to attend a
special meeting of stockholders of Andataco to be held on __________, 1999 at__
_.m., local time, at 10140 Mesa Rim Road, San Diego, California, for the
following purposes:
o To consider and vote upon a proposal to approve and adopt the
agreement and plan of merger dated August 27, 1999, between
Andataco, nStor Technologies, Inc., a Delaware corporation and
NTI Acquisition Corp., a Florida corporation and a wholly
owned subsidiary of nStor. Pursuant to the merger agreement,
among other things, (i) NTI will be merged with and into
Andataco, with Andataco becoming a wholly owned subsidiary of
nStor, and (ii) each outstanding share of Andataco Class A
common stock, $0.01 par value per share, will be converted
into the number of shares of nStor common stock, par value
$0.05 per share, obtained by dividing thirty-one cents ($0.31)
by the average closing price of one share of nStor common
stock on The American Stock Exchange for the ten (10) trading
days immediately before the date of the special meeting, with
cash being paid in lieu of fractional shares.
o To transact any other business as may properly come before the
special meeting or any adjournment or postponement of the
special meeting.
Only stockholders of record on September 7, 1999 will be entitled to
notice of and to vote at the special meeting and at any adjournments or
postponements of the special meeting.
The affirmative vote of the holders of a majority of the outstanding
shares of Andataco common stock is necessary to approve the merger and the
merger agreement. An abstention from voting or a broker non-vote will have the
same effect as a vote against approval of the merger and the merger agreement.
Approval of the merger is assured because nStor currently owns 77.2% of
Andataco, and intends to vote for the merger. The merger cannot be completed,
however unless nStor stockholders approve: (1) the issuance of nStor common
stock to Andataco stockholders in the merger, and (2) the amendment to nStor's
restated certificate of incorporation to increase the number of authorized
shares from 40,000,000 to 75,000,000.
A special committee of independent directors of Andataco, composed of
Cornelius McMullan and Melville Straus carefully reviewed and considered the
terms and conditions of the merger, and, believing the merger to be in the best
interests of Andataco and its stockholders, unanimously recommended to the
Andataco board of directors that the merger agreement be approved. In evaluating
the merger, the Andataco board of directors considered a number of factors,
including the recommendation of the independent committee and an opinion from
the board's financial advisor, Flemming, Lessard & Shields LLC, that the
consideration to be paid in the merger to the Andataco stockholders is fair from
a financial point of view. Accordingly, the board of directors has approved the
merger and the merger agreement and recommends that you vote "FOR" the approval
of the merger and the merger agreement.
By Order of the Board of Directors,
------------------------------
San Diego, California Diane Wong, Clerk
[date]
You are cordially invited to attend the special meeting. Whether or not
you plan to attend the special meeting, you are urged to complete, date, sign
and return the enclosed proxy card in the envelope provided. The proxy card is
being solicited on behalf of the board of directors. The proxy card shows the
form in which your shares of Andataco common stock are registered. Your
signature must be in the same form.
Your shares will be voted at the special meeting in accordance with your
instructions. You can revoke the proxy at any time prior to voting and the
giving of a proxy will not affect your right to vote in the event you attend the
special meeting in person. We look forward to seeing you.
<PAGE>
[NSTOR LOGO] [ANDATACO LOGO]
JOINT PROXY STATEMENT/PROSPECTUS
MERGER PROPOSAL - YOUR VOTE IS VERY IMPORTANT
The boards of directors of nStor Technologies, Inc. and Andataco, Inc.
have agreed to a merger transaction in which a subsidiary of nStor will merge
into Andataco. nStor will continue to be a public company and Andataco will
become a wholly-owned subsidiary of nStor.
Andataco stockholders:
In the merger you will receive $.31 worth of nStor common stock for
each share of Andataco Class A common stock you hold. To determine the number of
shares of nStor common stock you will receive for each share of Andataco common
stock, we will divide $0.31 by the average closing price of one share of nStor
common stock on the American Stock Exchange for the 10 trading days immediately
before the date of the stockholder meetings. This represents .124 shares based
on the $2.50 price of nStor common stock on August 18, 1999, and 739,000 shares
in the aggregate.
Andataco and nStor will issue a joint press release announcing the
exchange ratio after the close of trading on ____________, 1999.
nStor stockholders:
In the merger each of your shares of nStor common stock will remain
outstanding as a share of nStor common stock. Based on the August 18, 1999 price
of nStor common stock of $2.50, nStor expects to issue approximately 739,000
shares of nStor common stock to Andataco stockholders in the merger. Based on
this price, nStor stockholders will own approximately 98% of the voting stock of
nStor, while Andataco stockholders will own approximately 2%.
We cannot complete the merger unless the Andataco stockholders approve
the merger and the merger agreement. Approval of the merger is assured because
nStor currently owns 77.2% of Andataco, and intends to vote for the merger.
Also, to complete the merger, stockholders of nStor must approve: (1)
the issuance of nStor common stock to Andataco stockholders in the merger, and
(2) the amendment to nStor's restated certificate of incorporation to increase
the number of authorized shares from 40,000,000 to 75,000,000.
<TABLE>
<CAPTION>
<S> <C>
The date, time and place of the The date, time and place of the
nStor annual meeting is as follows: Andataco special meeting is as follows:
10140 Mesa Rim Road
______________ San Diego, California 92121
______, 1999, ____ __.m., local time _____, 1999, ____ __.m., local time
</TABLE>
Each board recommends that its respective stockholders approve the
matters described in this document.
Please take the time to vote by completing the enclosed proxy card and
mailing it as soon as possible, even if you plan to attend the meeting. This
joint proxy statement/prospectus provides you with detailed information about
the business of nStor, the business of Andataco and the proposed merger. In
addition, you may obtain
<PAGE>
information about nStor and Andataco from documents that we have filed with the
Securities and Exchange Commission. We encourage you to read this entire
document carefully.
Be sure to read the "Risk Factors" beginning on page ___ of this joint proxy
statement/prospectus for a description of certain risks associated with nStor,
Andataco and the merger.
nStor common stock is listed on The American Stock Exchange under the
trading symbol "NSO." Andataco is traded on the NASDAQ Over-the-Counter Bulletin
Board under the trading symbol "ANDA."
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued under this
joint proxy statement/prospectus or determined if this joint proxy
statement/prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
- --------------------------------------------------------------------------------
Joint proxy statement/prospectus dated [ ] was first
mailed to stockholders on [ ].
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS.......................................................................i
WHERE YOU CAN FIND MORE INFORMATION...............................................................................i
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS..............................................................................................ii
QUESTIONS AND ANSWERS ABOUT THE MERGER............................................................................1
SUMMARY .........................................................................................................2
NSTOR TECHNOLOGIES, INC. - SUMMARY SELECTED HISTORICAL FINANCIAL DATA.............................................8
ANDATACO, INC. - SUMMARY SELECTED HISTORICAL FINANCIAL DATA.......................................................9
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA...................................................................10
MARKET PRICE AND DIVIDEND INFORMATION............................................................................11
RISK FACTORS.....................................................................................................12
THE MEETINGS.....................................................................................................23
PROPOSAL ONE: MERGER/ISSUANCE OF NSTOR COMMON STOCK -
THE MERGER..............................................................................................28
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER......................................................44
MATERIAL TERMS OF THE MERGER AGREEMENT...........................................................................46
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS..................................................52
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999...........................................................................................53
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS...............................................54
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS...............................................55
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.......................................................................56
DESCRIPTION OF nSTOR'S CAPITAL STOCK.............................................................................58
DESCRIPTION OF ANDATACO COMMON STOCK.............................................................................60
COMPARISON OF RIGHTS.............................................................................................61
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF nSTOR..........................................72
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ANDATACO.......................................74
PROPOSAL TWO: ELECTION OF nSTOR DIRECTORS.......................................................................75
PROPOSAL THREE: APPROVAL OF AN AMENDMENT TO nSTOR'S
CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED NUMBER OF SHARES OF ITS COMMON STOCK.........................................................77
PROPOSAL FOUR: APPROVAL OF AN AMENDMENT TO nSTOR'S CERTIFICATE OF
INCORPORATION TO ELIMINATE CUMULATIVE VOTING FOR DIRECTORS..............................................78
PROPOSAL FIVE: AMENDMENT OF nSTOR'S 1996 STOCK OPTION PLAN......................................................79
PROPOSAL SIX: RATIFICATION OF THE REAPPOINTMENT OF
nSTOR'S INDEPENDENT AUDITORS............................................................................84
PROXY SOLICITATION...............................................................................................85
LEGAL MATTERS....................................................................................................85
EXPERTS ........................................................................................................85
FUTURE STOCKHOLDER PROPOSALS.....................................................................................85
</TABLE>
Annex A - Agreement and Plan of Merger
Annex B - Opinion of Flemming, Lessard and Shields LLC
Annex C - Opinion of Marshall & Stevens
Annex D - Massachusetts Law Regarding Dissenters' Rights
Annex E - California Law Regarding Dissenters' Rights
<PAGE>
ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS
This joint proxy statement/prospectus incorporates important business
and financial information about Andataco and nStor from documents that are not
included in this document. This information is, however, contained in the Forms
10-K, as amended, and 10-Q that are being delivered with the joint proxy
statement/prospectus. You should rely only on the information contained in this
joint proxy statement/prospectus. We have not authorized anyone to provide you
with information different from that contained in these documents. The
information contained in these documents is accurate only as of the date of this
joint proxy statement/prospectus, regardless of the time of delivery or of any
issuance of common stock pursuant to this joint proxy statement/prospectus.
All trademarks and trade names appearing in this joint proxy
statement/prospectus are the property of their respective holders.
nStor conducts its business through one operating subsidiary. When we
refer to "nStor", we are referring to nStor and all of its direct and indirect
subsidiaries as a whole. Andataco conducts its business through one operating
subsidiary. When we refer to "Andataco", we are referring to Andataco and all of
its direct and indirect subsidiaries as a whole. When we refer to "we", "us" or
"our", we are referring to nStor and Andataco, collectively.
WHERE YOU CAN FIND MORE INFORMATION
nStor has filed with the Securities and Exchange Commission a
registration statement under the Securities Act that registers the nStor common
stock to be issued in connection with the merger. The registration statement,
including the attached exhibits and schedules, contains additional relevant
information about nStor and its common stock. The rules and regulations of the
SEC allow nStor to omit some information included in the registration statement
from this document.
nStor and Andataco file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document nStor and Andataco file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. SEC
filings are also available to the public at the SEC's web site at
http://www.sec.gov.
The SEC allows Andataco and nStor to "incorporate by reference"
information into this joint proxy statement/prospectus. This means that we can
disclose important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is considered
to be a part of this joint proxy statement/prospectus, except for any
information that is superseded by information that is included directly in this
document.
This joint proxy statement/prospectus incorporates by reference the
documents listed below that nStor and Andataco have previously filed with the
SEC. They contain important information about these companies and their
financial condition. We are delivering the annual reports on Form 10-K, as
amended, and the most recent Forms 10-Q for both companies with this joint proxy
statement/prospectus. You can obtain the other documents that we have
incorporated by reference by requesting them in writing or by telephone at the
following addresses:
nStor
- -----
Orilla Floyd
nStor Technologies, Inc.
100 Century Boulevard
West Palm Beach, Florida 33417
(561) 640-3103
Andataco
- --------
David Wright
Andataco, Inc.
10140 Mesa Rim Road
San Diego, California 92121
(619) 453-9191
i
<PAGE>
nStor SEC Filings
- -----------------
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
as amended by a Form 10-K/A filed on April 28, 1999.
2. Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1999.
3. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1999.
4. Current Report on Form 8-K filed on June 23, 1999, as amended by a Form 8-K/A
filed on July 2, 1999.
Andataco SEC Filings
- --------------------
1. Annual Report on Form 10-K for the fiscal year ended October 31, 1998.
2. Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 1999.
3. Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1999.
4. Current Report on Form 8-K filed on June 23, 1999.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have each made forward-looking statements in this document that are
subject to risks and uncertainties. Forward-looking statements include the
information concerning possible or assumed future benefits of the merger to
either company, including future results of operations of nStor, Andataco or the
combined company. When we use such words as "believes," "expects," "anticipates"
or similar expressions, we are making forward-looking statements. You should
understand that the following important factors, in addition to those discussed
elsewhere in this document and in the documents which are incorporated by
reference, and in our other public filings and press releases, could affect the
future results of nStor and the combined company, and could cause actual results
to differ materially from those expressed in our forward-looking statements.
Note that the merger and an investment in securities of nStor involves risks and
uncertainties that could affect the future financial results of nStor. Some of
these risks include:
- risks relating to the respective businesses of nStor and
Andataco;
- risks related to the integration of nStor and Andataco; and
- other risks and uncertainties discussed under "Risk Factors"
and elsewhere in this document.
Neither nStor nor Andataco intends to update these forward-looking
statements.
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as
soon as possible, so that your shares may be represented at your
meeting. In order to assure that your vote is counted, please give
your proxy even if you currently plan to attend a meeting in person.
The board of directors of each of nStor and Andataco recommends that
its stockholders vote in favor of the current proposals.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. There are three ways in which you may revoke your proxy and change
your vote. First, you may send a written notice to the party to whom
you submitted your proxy stating that you would like to revoke your
proxy. Second, you may complete and submit a new proxy card. Third, you
may attend the meeting and vote in person. Simply attending the
meeting, however, will not revoke your proxy.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker will not be permitted to vote them on
the merger. You should, therefore, be sure to provide your broker with
instructions on how to vote your shares.
If you do not give voting instructions to your broker, you will not be
counted as voting for purposes of the merger unless you appear in
person at your meeting.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send Andataco stockholders
written instructions for exchanging their stock certificates. nStor
stockholders will keep their current certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working towards completing the merger as quickly as possible
after the conditions to the merger, including stockholder approval,
have been satisfied. We expect to complete the merger in the fourth
quarter of 1999.
Q: WHOM SHOULD STOCKHOLDERS CALL WITH ADDITIONAL QUESTIONS?
A: If you are an nStor stockholder and you have questions about the
merger, you may contact Jack Jaiven at (561) 640-3103. If you are an
Andataco stockholder and you have questions about the merger you may
contact David Wright at (619) 453-9191.
1
<PAGE>
SUMMARY
This summary highlights selected information from this document. It
does not contain all of the information that is important to you. You should
carefully read this entire document and the other documents to which this
document refers to fully understand the merger and the other matters on which
you are being asked to vote. See "Where You Can Find More Information." Each
item in this summary includes a page reference directing you to a more complete
description of that item in this document.
THE MERGER (see page __)
In the merger, NTI will merge with and into Andataco, and Andataco will
become a wholly owned subsidiary of nStor. After the merger, Andataco
stockholders will be stockholders of nStor.
MERGER CONSIDERATION (see page ___)
Andataco stockholders:
When the merger is complete, you will receive $.31 worth of nStor
common stock for each share of Andataco Class A common stock you hold. As used
in this joint proxy statement/prospectus, Andataco common stock means the Class
A common stock issued and outstanding. To determine the number of shares of
nStor common stock you will receive for each share of Andataco common stock, we
will divide $0.31 by the average closing price of one share of nStor common
stock on the American Stock Exchange (AMEX) for the 10 trading days immediately
before the date of the stockholders meetings. This represents .124 shares of
nStor common stock for each share of Andataco common stock based on the $2.50
closing price of nStor common stock on August 18, 1999. This number is referred
to as the "exchange ratio". Andataco stockholders will receive cash instead of
any fractional shares.
For example, if on the date of the stockholder meetings, the average
closing price of nStor common stock for the previous ten trading days was $2.50,
a holder of 100 shares of Andataco common stock will receive 12 shares of nStor
common stock, plus a cash payment of $1.00 in exchange for the .4 fractional
share of nStor common stock.
Andataco and nStor will issue a joint press release announcing the
exchange ratio after the close of trading on ______________, 1999.
nStor stockholders:
In the merger each of your shares of nStor common stock will remain
outstanding as shares of nStor common stock.
RECENT CLOSING PRICES (see page ______)
The following table sets forth the closing sales price per share of
nStor common stock on the AMEX and the closing bid price per share of Andataco
common stock on the NASDAQ Over-the-Counter Bulletin Board (Bulletin Board) on
March 2, 1999, the last trading day before the announcement of the proposed
merger and on _______, 1999, the last trading day before the date of this joint
proxy statement/prospectus. Also, set forth below for each of those dates is the
equivalent pro forma price of Andataco common stock (determined by multiplying
the applicable price of nStor common stock by the .124 assumed exchange ratio).
The .124 exchange ratio assumes an average market price of $2.50 per share of
nStor common stock.
<TABLE>
<CAPTION>
nStor Andataco
Common Common Andataco Equivalent
Stock Stock Pro Forma
------------------ -------------------- ----------------------------------
<S> <C> <C> <C> <C>
March 2, 1999.......... $ 3.563. $ .563 $ .44
________, 1999............ $ $ $
</TABLE>
2
<PAGE>
Because the market price of nStor common stock is subject to
fluctuation, the number of shares of nStor common stock that Andataco
stockholders will receive in the merger may change before the date of the
stockholder meetings. You should obtain current market quotations for each
company. We cannot assure the future prices or markets for nStor or Andataco
common stock.
ANDATACO STOCK OPTIONS (see page ____)
At the time of the merger, each outstanding and unexercised option to
purchase Andataco common stock will be cancelled. Unless you make a request to
the Secretary of Andataco to exercise your option before the effective time of
the merger, your options will be cancelled. At its discretion, nStor may issue
options to continuing employees of Andataco pursuant to nStor's 1996 Stock
Option Plan.
THE MERGER IS A TAXABLE TRANSACTION FOR ANDATACO STOCKHOLDERS (see page _____)
If you are an Andataco stockholder and hold Andataco common stock as a
capital asset, you will generally recognize capital gain or loss as a result of
the merger. To measure your capital gain or loss, subtract the value of nStor
common stock you receive and any cash payment you receive for a fractional share
of nStor common stock from your tax basis in the Andataco common stock. The
capital gain or loss will be long-term capital gain or loss if you held the
Andataco common stock for more than one year, and short-term capital gain or
loss if you held that stock for one year or less. You may generally only deduct
a capital loss against your capital gain.
Tax matters are very complicated. The tax consequences to Andataco
stockholders will depend on the facts of their own situation. Andataco
stockholders are urged to consult their own tax advisors to understand the tax
consequences of the merger to them.
THE MERGER IS TAX-FREE FOR nSTOR STOCKHOLDERS, nSTOR, NTI, AND ANDATACO (see
page ----)
Neither nStor, NTI, Andataco nor the existing nStor stockholders will
recognize gain, loss or any other income for federal income tax purposes as a
result of the merger.
STOCKHOLDER RIGHTS (see page ____)
Currently, nStor's stockholders' rights are governed by Delaware law
and by nStor's certificate of incorporation and bylaws. The rights of Andataco's
stockholders are governed by Massachusetts law, and under certain circumstances,
California law, and Andataco's certificate of incorporation and bylaws. Andataco
common stockholders can, at their option, avail themselves of both
Massachusetts and certain provisions of California law. After the merger, the
rights of all stockholders will be governed by Delaware law and by nStor's
certificate of incorporation and bylaws.
DISSENTERS' APPRAISAL RIGHTS (see page ____)
Massachusetts and California law provide Andataco common stockholders
with dissenters' appraisal rights in the merger. Andataco common stockholders
can, at their option, avail themselves of either Massachusetts or California law
in exercising their dissenters appraisal rights.
Under Delaware law, nStor stockholders do not have dissenters'
appraisal rights in connection with the issuance of nStor common stock in the
merger.
RISK FACTORS MERITING SPECIAL ATTENTION (see page ____ )
Before you decide to vote for the adoption of the merger or for the
approval of the nStor proposals, you should consider the following risk factors,
which are more fully described in the "Risk Factors" section beginning on page
__ of this document, and the other risk factors described in that section. YOU
SHOULD READ ALL THE RISK FACTORS CAREFULLY AND IN THEIR ENTIRETY.
o the degree to which nStor is able to successfully
integrate Andataco and realize the anticipated
synergies for the merged companies may affect the
operating results of the combined company;
3
<PAGE>
o customers may seek alternative sources of
product supply or service due to, among
other reasons, a desire not to do business
with the new combined company; and
o following the merger, the directors and officers of
nStor are expected to own approximately 36.2% of the
outstanding nStor voting stock, and such ownership
may have a significant effect on matters submitted to
a vote of nStor stockholders.
OUR REASONS FOR THE MERGER (see page ___ )
We believe that the combined companies can be run more efficiently and
more profitably than either company on its own. Achieving these benefits depends
on our ability to obtain the necessary approvals for the merger, to integrate
the businesses of nStor and Andataco successfully after the merger, and to deal
with the other risks and uncertainties described on pages__ through ___. To
review the reasons for the merger in greater detail, see pages__ through __.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF nSTOR AND ANDATACO (see page ___)
The board of directors of Andataco believes that the merger is fair to
and in the best interests of Andataco and its stockholders. An independent
committee of the Andataco board of directors, and the Andataco board of
directors recommends that you vote "FOR" the approval of the merger agreement
and the merger. Harris Ravine and W. David Sykes abstained from voting on the
approval of the merger and the merger agreement due to their interests in the
merger as described below and in greater detail under "Interests of Executive
Officers and Directors in the Merger" on page ____. The nStor board further
unanimously recommends that you vote "FOR" the proposals, including the issuance
of the nStor common stock in the merger.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER (see page ___ )
In considering the recommendation of the board of directors of Andataco
that you vote in favor of the merger, you should be aware that some of the
executive officers and directors of Andataco have interests in the merger in
addition to their interests as stockholders of Andataco generally. Following the
merger:
o nStor will maintain indemnification and insurance arrangements
for the Andataco directors and officers;
o W. David Sykes, President and Vice Chairman of the Board of
Andataco will enter into a three year employment agreement
with nStor subject to completion of the merger; and
o Harris Ravine, CEO and Chairman of the Board of Andataco, has
an employment agreement with Andataco which provides severance
benefits if Mr. Ravine, is terminated without cause.
OPINION OF ANDATACO'S FINANCIAL ADVISOR(see page ___ )
In deciding to approve the merger, the Andataco board of directors
considered the opinion of its financial advisor. Andataco received an opinion
from Flemming, Lessard and Shields LLC (FLS), that the consideration to be
received by holders of Andataco's common stock was fair from a financial point
of view, to the Andataco stockholders. The full text of the FLS opinion is
attached as Annex B to this document. We encourage you to read this opinion
carefully and in its entirety.
MEETINGS (see page ____)
nStor. The nStor annual meeting will be held on __________, 1999 at ____ __.m.,
local time, at _____________ in ______________.
At the nStor annual meeting, you will be asked to:
o consider and vote upon a proposal for the issuance of shares of nStor
common stock to Andataco stockholders in the merger. The agreement and
plan of merger which describes the terms of the merger and the issuance of
nStor's common stock is attached as Annex A to this joint proxy
statement/prospectus;
4
<PAGE>
o elect five persons to nStor's board of directors to hold office until
nStor's next annual meeting of stockholders, or until their successors are
duly elected and qualified;
o amend nStor's restated certificate of incorporation to increase the
authorized number of shares of common stock from 40,000,000 to 75,000,000;
o amend nStor's restated certificate of incorporation to eliminate
cumulative voting for directors;
o amend nStor's 1996 Stock Option Plan, as amended, to increase the number
of shares reserved for issuance under the Plan from 2,500,000 to
5,000,000; and
o ratify the reappointment of BDO Seidman, LLP, certified public
accountants, as nStor's independent auditors for fiscal 1999.
Andataco. The Andataco special meeting will be held on ____________, 1999
at_______ __.m., local time, at 10140 Mesa Rim Road in San Diego, California.
At the Andataco special meeting, you will be asked to:
o consider and vote to approve the merger agreement which provides for the
merger of a subsidiary of nStor with and into Andataco.
RECORD DATES (see page __ )
nStor. You can vote at the annual meeting if you owned nStor common stock or
nStor preferred stock at the close of business on September 7, 1999. This date
is the record date. On the record date, there were 22,715,061 shares of nStor
common stock issued and outstanding and 15,521 shares of nStor preferred stock
(which were convertible into 10,084,667 shares of nStor common stock) issued and
outstanding. nStor common stockholders are entitled to cast one vote for each
share of nStor common stock they own on that date. nStor preferred stockholders
are entitled to cast one vote for each share of nStor common stock into which
their shares of preferred stock could be converted on the record date.
On the record date, nStor directors and executive officers and their
affiliates beneficially owned 10,044,410 shares of nStor common stock. This
represents approximately 37.2% of nStor's voting stock. Of these shares, H.
Irwin Levy, the Chairman of the Board of Directors of nStor and related parties,
own in the aggregate 7,570,099 shares of nStor common stock and all of the 4,500
shares of nStor preferred stock owned by nStor directors and executive officers.
This represents approximately 28.7% of nStor's voting stock. H. Irwin Levy and
related parties have indicated that they intend to vote their shares to approve
the issuance of nStor's common stock to Andataco stockholders in the merger.
Andataco. You can vote at the special meeting if you owned Andataco common stock
at the close of business on September 7, 1999. This date is the record date. On
the record date, there were 25,432,303 shares of Andataco common stock issued
and outstanding. You are entitled to cast one vote for each share of Andataco
common stock you own on that date.
On the record date, Andataco directors and executive officers and their
affiliates beneficially owned 40,000 shares of Andataco common stock, excluding
shares that may be acquired upon the exercise of options and warrants. This
represents less than 1% of Andataco common stock.
REQUIRED VOTE (see page ____)
A majority of the shares of nStor common stock and preferred stock, voting
as a single class, is required to approve the proposals.
A majority of the shares of Andataco common stock outstanding as of the
record date is required to approve and adopt the merger agreement and approve
the merger.
nSTOR CONTROLS ANDATACO AND APPROVAL OF THE MERGER IS ASSURED (see page ____)
5
<PAGE>
nStor currently owns 19,634,185 shares of Andataco common stock
representing approximately 77.2% of the total issued and outstanding common
stock of Andataco. As a result of nStor's control of Andataco, nStor has an
interest in making the transaction as beneficial to nStor as possible. nStor
plans to vote all of its Andataco shares in favor of the approval and adoption
of the merger agreement and the merger.
OWNERSHIP OF nSTOR FOLLOWING THE MERGER (see page ____)
It is impossible to know, until the end of business on the day before the
date of the stockholder meetings, the exact number of shares of stock that nStor
will issue to Andataco stockholders. The number of nStor shares to be issued to
Andataco stockholders is dependent on the average closing price of nStor common
stock over the ten trading days before the date of the stockholder meetings. For
example, assuming an average closing price of $2.50 for nStor common stock,
nStor expects to issue approximately 739,000 of shares of nStor common stock to
Andataco stockholders in the merger. nStor stockholders would then own
approximately 98% and Andataco stockholders would then own approximately 2%,
respectively of the voting stock of nStor.
INFORMATION REGARDING nSTOR AND ANDATACO (see page ____)
nStor Technologies, Inc. (page)
100 Century Boulevard
West Palm Beach, Florida 33417
(561) 640-3103
nStor is a manufacturer and supplier of high-performance information
storage solutions. These systems include external RAID (redundant array of
independent disks) subsystems, network attached storage, data storage
enclosures, storage management software solutions and adaptive RAID technology.
Andataco, Inc. (page __)
10140 Mesa Rim Road
San Diego, California 92121
(619) 453-9191
Andataco designs, develops, manufactures, markets and supports
high-performance, high availability information storage solutions for the open
systems markets in the Windows NT and UNIX environments including Sun
Microsystems, Hewlett-Packard, Silicon Graphics, and NT-based computing systems.
Andataco's fully integrated hierarchy of data storage solutions includes fault
tolerant RAID and RAID-ready disk storage, tape backup and restore products and
data storage management software. . CONDITIONS TO THE MERGER (see page ____)
nStor and Andataco will complete the merger only if a number of conditions
are either satisfied or waived. These conditions include:
o approval of the issuance of nStor common stock to Andataco stockholders in
the merger by the nStor stockholders;
o approval of the merger by the Andataco stockholders;
o the absence of any legal prohibitions against the merger;
o receipt by Andataco of a fairness opinion from FLS;
o effectiveness of the registration statement;
o listing of the nStor common stock to be issued to Andataco stockholders on
the AMEX; and
6
<PAGE>
o material compliance by nStor and Andataco with their obligations under the
merger agreement.
TERMINATION OF THE MERGER AGREEMENT (see page ____)
The boards of directors of both companies can jointly agree to terminate
the merger agreement at any time without completing the merger, even after
stockholder approval. In addition, either company can terminate the merger
agreement if:
o the merger is not completed by December 31, 1999, unless both companies
agree to an extension;
o a governmental authority issues an order or decree permanently
enjoining the merger; and
o the other company breaches the merger agreement in a material way.
In addition, Andataco can terminate the merger if it enters into a
definitive agreement with a third party to effect a transaction that is
considered superior under the terms of the merger agreement.
AMENDMENT AND WAIVER (see page ____)
nStor and Andataco may amend the merger agreement before the merger is
completed. They cannot, however, make any amendments to the merger agreement
that would materially adversely affect the stockholders of either nStor or
Andataco. For example, they cannot change the amount of nStor common stock
Andataco stockholders receive in the merger unless Andataco stockholders approve
the change. nStor and Andataco may also waive their respective rights to require
the other party to follow the terms of the merger agreement.
ACCOUNTING TREATMENT (see page __)
nStor will account for the merger as a purchase, meaning that nStor
will allocate the purchase price of Andataco to the assets acquired and
liabilities assumed based on their estimated fair values. Any excess purchase
consideration will be allocated to goodwill.
LISTING OF nSTOR COMMON STOCK (see page __)
nStor has agreed to list the shares of nStor common stock to be issued
in connection with the merger on the AMEX.
7
<PAGE>
nSTOR TECHNOLOGIES, INC.
Summary Selected Historical Financial Data(1)
(dollars in thousands, except per share data)
The following table summarizes selected financial data of nStor derived
from the audited consolidated financial statements of nStor as of and for each
of the two years ended December 31, 1998, as of and for the two month transition
period ended December 31, 1996 and as of and for each of the three years ended
October 31, 1996, and from the unaudited consolidated financial statements of
nStor as of and for the six months ended June 30, 1999. In November, 1996, nStor
changed its fiscal year from October 31 to December 31, effective with the
calendar year beginning January 1, 1997. The information set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations - nStor", nStor's consolidated financial
statements and the related notes and other financial information of nStor
included in this joint proxy statement/prospectus and incorporated by reference
to nStor's Form 10-K for the fiscal year ended December 31, 1998 and Form 10-Q
for the quarter ended June 30, 1999.
<TABLE>
<CAPTION>
Two
Months
Six Months Ended
Ended June Year Ended December Year Ended October 31,
30, December 31, 31, ---------------------------------------
1999(3)(4) 1998 1997 1996 1996 1995 1994
---------- ---------- --------- ---------- ----------- ---------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 10,809 $ 18,026 $ 26,244 $ 4,739 $ 5,619 $ - $ -
Gross profit 1,320 2,768 4,783 1,348 2,072 - -
Net (loss) income (6,415) (10,407) (7,886) (43) 12,798(2) (61) (272)
Net (loss) income
applicable to
common stock (7,048) (11,888) (7,886) (43) 12,798(2) (61) (272)
Basic and diluted net
(loss) income per
common share (0.32) (.63) (.42) (.00) .73(2) (.00) (.02)
Average number of
common shares
outstanding 21,838,532 18,888,911 18,670,477 18,670,477 17,606,477 17,600,477 17,600,477
At end of period:
Working capital
(deficit) $8,556 $ 2,087 $ (1,434) $ 5,852 $ 11,045 $ 11,408 $ (586)
Total assets 43,547 14,128 16,762 20,067 15,677 12,054 26
Long-term
debt 19,943 7,043 1,504 516 510 476 444
Stockholders' equity (deficit) 9,736 3,150 5,037 12,817 12,390 10,932 (1,030)
- --------------------
</TABLE>
(1) Prior to June 1996, our only assets were securities issued by IMNET
Systems, Inc. ("IMNET") which we acquired in October 1992 in exchange for
substantially all of our operating assets. During the time in which we
owned the IMNET securities, our only activities consisted of monitoring
our investment in IMNET and evaluating potential business opportunities.
(2) Principally consists of $11,955 gain from the sale of IMNET stock. Also
includes extraordinary gain from debt extinguishment of $566 ($.03 per
basic and diluted share).
(3) Includes the acquisition of approximately 76% of Andataco, effective June
1, 1999.
(4) The unaudited consolidated financial statements furnished herein include
all adjustments, consisting only of recurring adjustments necessary for a
fair presentation of the results of operations for the interim period
presented. These interim results of operations are not necessarily
indicative of results for the entire year.
8
<PAGE>
ANDATACO, INC.
Summary Selected Historical Financial Data
(In Thousands, Except Per Share Amounts)
The following table summarizes selected financial data of Andataco derived
from the audited consolidated financial statements of Andataco as of and for the
five years ended October 31, 1998 and from the unaudited consolidated financial
statements of Andataco as of and for the six months ended April 30, 1999. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Andataco", Andataco's consolidated financial statements and the related notes
and other financial information of Andataco included in this joint proxy
statement/prospectus and incorporated by reference to Andataco's Form 10-K for
the fiscal year ended October 31, 1998 and Form 10-Q for the quarter ended April
30, 1999.
<TABLE>
<CAPTION>
Six Months
Ended Year ended October 31,
April 30, ------------------------------------------------------
1999(1) 1998 1997 1996 1995 1994
------------- --------- --------- --------- --------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Selected Income Statement Data:
Total revenue.............................$ 31,370 $ 77,519 $ 93,259 $ 99,733 $ 100,048 $ 83,559
Operating income (loss)................... (1,109) (1,413) (5,098) 811 2,838 184
Net income (loss) ........................ (1,591) (2,434) (6,209) 39 2,106 (202)
Basic and diluted earnings (loss) per (0.07) (0.10) (0.30) 0.00 0.12 (0.01)
share..................................
Weighted average common shares
outstanding:
Basic..................................... 23,819 23,819 20,464 18,078 18,078 18,078
Diluted................................... 23,819 23,819 20,464 18,168 18,184 18,078
October 31,
April 30, ------------------------------------------------------
1999 1998 1997 1996 1995 1994
------------- --------- --------- --------- --------- -----------
Selected Balance Sheet Data:
Working capital........................... $2,750 $3,486 $5,169 $8,932 $3,639 $2,069
Intangible assets, net.................... 5,156 5,993 7,665 - - -
Total assets.............................. 21,986 25,682 29,989 23,667 26,481 18,285
Long-term debt, less current maturities... 10,196 10,658 11,724 12,289 3,758 3,519
Total liabilities......................... 21,233 23,380 25,253 24,465 24,363 18,273
Stockholders' equity (deficit)............ 753 2,302 4,736 (798) 2,118 12
</TABLE>
- ---------------------
(1) The unaudited consolidated financial statements furnished herein
include all adjustments, consisting only of recurring adjustments
necessary for a fair presentation of the results of operations for the
interim period presented. The interim results of operations are not
necessarily indicative of results for the entire year.
9
<PAGE>
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following table shows information about our net loss per common share
and book value per common share, and similar information after giving effect to
the acquisition of approximately 77% of the outstanding common stock of
Andataco, which was principally completed in June 1999, and to the merger, as if
they had both occurred as of January 1, 1998 (which is called "pro forma"
information).
The pro forma information gives effect to the merger under the purchase
method of accounting in accordance with generally accepted accounting
principles, or GAAP.
We used a market price of $2.50 per nStor common share in computing the
number of nStor shares assumed to be issued in the merger for purposes of
presenting the pro forma per share data. The per share equivalent pro forma
combined data for shares of Andataco common stock is based on the assumed
conversion of each share of Andataco common stock into .124 of a share of nStor
based upon an average market price of $2.50 per nStor common share.
We expect that we will incur merger and integration charges as a result of
combining our companies. The pro forma information is helpful in illustrating
the financial characteristics of the combined company under one set of
assumptions. However, it does not reflect these expenses and, accordingly, does
not attempt to predict or suggest future results. Also, it does not necessarily
reflect what the historical results of the combined company would have been had
our companies been combined.
You should read the information in the following table together with the
historical financial information that nStor and Andataco have presented in their
prior Securities and Exchange Commission filings. nStor and Andataco have
incorporated this material into this document by reference to those other
filings. See "Where You Can Find More Information" on page___ on how to obtain
this information.
<TABLE>
<CAPTION>
Andataco
nStor Andataco ProForma Equivalent per
Historical Historical Consolidated Share
---------- ---------- ------------ -----
<S> <C> <C> <C> <C>
Book value per common share
June 30, 1999/April 30, 1999 0.43 0.03 0.49 0.06
December 31, 1998/October 31, 1998 0.15 0.10
Net (loss) per common share -- basic and
diluted
Six months ended June 30, 1999/April 30, (0.32) (0.07) (0.39) (0.05)
1999
Twelve months ended December 31,
1998/October 31, 1998 (0.63) (0.10) (0.76) (0.09)
</TABLE>
10
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
nStor's common stock is listed on the AMEX under the symbol "NSO."
Andataco's common stock is traded on the Bulletin Board under the symbol "ANDA."
The table below sets forth, for the fiscal quarters indicated, the high and low
closing sales prices per share of nStor common stock and the high and low bid
prices per share of Andataco common stock. nStor's fiscal quarters end on March
31, June 30, September 30 and December 31. Andataco's fiscal quarters end on
January 31, April 30, July 31 and October 31.
<TABLE>
<CAPTION>
nStor Andataco
Common Stock Common Stock
--------------------------------------- -------------------------
High Low High Low
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
1997:
First Quarter................... 2.7810 1.8750 2.1250 1.3375
Second Quarter.................. 2.9375 1.7500 2.6250 1.4175
Third Quarter................... 2.3125 1.5625 1.7500 .9375
Fourth Quarter.................. 2.6250 1.6250 2.7500 1.3125
1998:
First Quarter................... 2.0625 1.5625 2.0000 1.0938
Second Quarter.................. 1.5625 1.0000 2.5000 1.5625
Third Quarter................... .8750 .3750 2.2500 1.0625
Fourth Quarter.................. 2.7500 .4375 1.2500 .5000
1999:
First Quarter.................... 3.9375 2.0000 1.2500 .5930
Second Quarter................... 3.5000 2.0000 0.8120 .3120
Third Quarter (through
August 26, 1999/July 31, 1999).. 3.00 1.938 .6250 .2500
</TABLE>
Dividend Information
nStor has not paid cash dividends on its common stock during fiscal year
1997, fiscal year 1998 or the six month period ending June 30, 1999. nStor is
prohibited from declaring and paying dividends pursuant to the terms of its
credit agreement with its principal lender.
Andataco has not paid cash dividends on its common stock during fiscal year
1997, fiscal year 1998 or the six month period ending April 30, 1999. Andataco
has agreed in the merger agreement not to declare, set aside or pay any
dividends on its common stock without nStor's consent.
Number of Stockholders
As of July 31, 1999, nStor had approximately 1,700 stockholders of record.
As of July 31, 1999, Andataco had approximately 265 stockholders of record.
11
<PAGE>
RISK FACTORS
In addition to the other information included in this document, the risk
factors described below should be considered by nStor stockholders in
determining whether to approve the nStor proposals and by the Andataco
stockholders in determining whether to vote to adopt the merger agreement and
approve the merger. Some of these risk factors relate to the merger described in
this document. Other risks apply to both nStor and Andataco as independent
companies. Still other risks apply specifically to either nStor or Andataco.
Please bear in mind that those risks applicable to nStor or Andataco, as
separate companies, will become risks of the combined company. Also remember
that the risks described below are not the only risks facing nStor, Andataco, or
the combined company.
In addition, you should keep the following factors in mind when you read
"forward-looking" statements elsewhere in this document. Forward-looking
statements are statements that relate to future events and time periods or our
expectations of future results. Generally, the words "anticipates," "believes,"
"expects," "intends" and similar expressions identify forward-looking
statements. Forward-looking statements involve risks and uncertainties. Future
events, circumstances and results could differ materially from those anticipated
in the forward- looking statements.
RISKS ASSOCIATED WITH THE MERGER
FLUCTUATIONS IN THE MARKET PRICE OF nSTOR COMMON STOCK MAY REDUCE THE
NUMBER OF nSTOR SHARES ANDATACO STOCKHOLDERS RECEIVE IN THE MERGER OR MAY
CAUSE MORE DILUTION TO nSTOR THAN ANTICIPATED
As part of the merger, Andataco stockholders will receive $.31 worth of
nStor common stock for each share of Andataco common stock they own. We will
determine the number of shares by dividing $0.31 by the average closing price of
one share of nStor common stock on the AMEX for the 10 trading days immediately
before the date of the stockholder meetings. As a result of fluctuations in the
market price of nStor common stock, the number of shares of nStor common stock
that nStor would have issued on the date of this joint proxy
statement/prospectus may be different from the number of shares that nStor will
actually issue at the effective time of the merger. There is no minimum or
maximum number of shares that nStor will issue in the merger. nStor may have to
issue more or less shares of nStor common stock than expected. If the nStor
stock price goes up, Andataco stockholders will receive fewer shares of nStor
stock than expected. If the nStor stock price goes down, nStor will issue more
shares of common stock which would cause more dilution to current nStor
stockholders.
Market prices for nStor common stock have fluctuated since we signed the
merger agreement on August 27, 1999. On that date, the market price of nStor
common stock was ____. On _________, 1999, the market price was_____. We expect
further fluctuations through the closing date. Stock price fluctuations could be
the result of changes in the business, operations or prospects of nStor,
Andataco or the combined company, market assessments of the likelihood that the
merger will be consummated within the anticipated time, general market and
economic conditions and other factors both within and beyond the control of
nStor or Andataco. Andataco does not intend to obtain an updated fairness
opinion from its financial advisor prior to the completion of the merger. Recent
market prices of nStor common stock and Andataco common stock are set forth on
pages____. We encourage Andataco stockholders to obtain current market
quotations for nStor common stock and Andataco common stock.
ANTICIPATED PROFITABILITY FROM THE MERGER MAY BE DELAYED OR MAY NOT BE
ACHIEVED
nStor believes Andataco's marketing structure can enhance nStor's
operations, and therefore, may increase nStor's profitability. To realize these
anticipated benefits from the merger, nStor will have to integrate its
12
<PAGE>
operations with those of Andataco efficiently. If nStor is unable to accomplish
these objectives, there is a risk that the projected profitability enhancements
may be delayed or not achieved.
WE MAY NOT ACHIEVE THE EXPECTED COST SAVINGS AND OTHER BENEFITS OF THE MERGER IN
A TIMELY FASHION.
We may not be able to maintain the levels of operating efficiency that we
have achieved or may achieve separately. Because of difficulties in combining
operations, we may be delayed or not be able to achieve the cost savings and
other size related benefits that we hope to achieve after the merger. We expect
that cost savings and other benefits from the merger will exceed those which we
could achieve separately. Our cost savings estimates are based on many
assumptions, including future revenue levels and other operating results, the
availability of funds for investment, the timing of events, as well as general
industry and business conditions and other matters. Many of these factors are
beyond our control. Our actual cost savings, if any, could differ from our
estimates and these differences could be material. There may be unforeseen costs
and expenses or other factors that will offset the estimated cost savings or
other components of our plan.
WE WILL HAVE SIGNIFICANT MERGER RELATED COSTS THAT MAY HAVE A MATERIAL
NEGATIVE EFFECT ON OUR RESULTS OF OPERATIONS
We will have substantial costs in connection with the merger. The merger
will result in transaction fees and direct costs of approximately $300,000 that
will be capitalized. The costs of combining our companies will also result in
future costs which may be capitalized and charged to future results of
operations of the combined company, such as personnel related costs, system
integration costs and other costs. The actual amount of these charges cannot be
determined until the plan for combining our companies is completed. These
charges may have a material negative effect on the combined company's results of
operations. See "Unaudited Pro Forma Condensed Consolidated Financial Statements
of the Combined Company" beginning on page ______.
POTENTIAL BUSINESS DISRUPTION -- THE MERGER MAY RESULT IN A LOSS OF CUSTOMERS,
SUPPLIERS AND EMPLOYEES.
Certain customers may seek alternative sources of product, supply and/or
service after the announcement of the transaction due to, among other reasons, a
desire not to do business with the combined company. Management of nStor and
Andataco anticipate that the combined company could experience some customer
attrition after the merger. Difficulties in combining operations can also result
in the loss of key employees or suppliers. We cannot assure you that any steps
by management to counter such potential increased customer, supplier and
employee attrition will be effective. Failure by management to control attrition
would adversely affect nStor's future growth and profitability.
INTEGRATION OF PRODUCT LINES -- THE COMBINED COMPANY MAY HAVE DIFFICULTY
INTEGRATING THE PRODUCT LINES OF nSTOR AND ANDATACO.
If Andataco and nStor complete the proposed merger, the combined company
will need to integrate the two independent businesses. Key issues will be:
o the difficulty in managing Andataco's operations after the merger, given
the geographical distance between nStor and Andataco's executive offices
and operational facilities;
o the integration of Andataco and nStor's products;
o the coordination of research and development activities;
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o the combination of the technologies supporting the various products, both
on-going and under development; and
o the acceleration of the phase-out of obsolete or redundant products.
There are many risks associated with the integration of the product lines. For
example, both companies currently offer JBOD storage systems which incorporate
interfaces based on LVD standards. If the combined company determines to
continue to offer both products, the company will incur the need for duplicate
training of its sales and service organization, duplicate spare parts,
maintenance of two separate manufacturing facilities and materials inventories,
and the potential of confused customers. If however, the combined company
chooses to eliminate one product in favor of the other, the company is subject
to the risks associated with losing certain customers, accelerating inventory
write offs, and having no alternative in the event the selected product develops
technical problems.
LARGER COMPANY -- THE COMBINED COMPANY COULD FACE MANY DIFFICULTIES IN
MANAGING A LARGER COMPANY.
In deciding whether to authorize the proposed merger, you should bear in
mind that the larger, combined company will create new challenges for existing
management. If the combined company fails to meet those challenges, the market
price of nStor's shares may decline.
After the merger, the combined company will have a workforce of
approximately twice the size of the work forces of the two companies prior to
the merger. This growth could strain management control systems and resources,
including decision support, accounting and management information systems. The
combined company will need to improve financial and management controls and
reporting systems and procedures to effectively manage employees and facilities.
Further, the composition of the senior management team of nStor will change
as a result of the merger, and key employees may be rotated to new assignments
upon completion of the merger. For example, W. David Sykes, the President of
Andataco, will be the new Executive Vice President of Marketing and Sales of
nStor. The combined company's future success in the market place will be
dependent on the ability of its management team to manage the combined company,
implement its business strategies and retain key employees.
PURCHASE ACCOUNTING TREATMENT WILL CREATE THE NEED TO ACCOUNT FOR GOODWILL,
WHICH WILL NEGATIVELY IMPACT THE FUTURE EARNINGS OF THE COMBINED COMPANY.
The merger is intended to be treated for accounting purposes as a
"purchase." The combined company will have to account for goodwill arising from
the acquisition of 100% of Andataco. Purchase accounting will negatively affect
the combined company's earnings as we expect to amortize that goodwill over a
period of approximately seven years, thereby decreasing net earnings by
approximately $500,000 for each quarter during those years.
CONFLICTS OF INTEREST WERE PRESENT IN NEGOTIATING AND STRUCTURING THE INITIAL
PURCHASE OF ANDATACO SHARES BY nSTOR AND IN NEGOTIATING AND STRUCTURING THE
MERGER.
nStor's initial acquisition of Andataco shares was negotiated exclusively
with W. David Sykes, Andataco's President and principal stockholder. The
purchase agreement with Mr. Sykes provided that, after the merger, Mr.
Sykes would:
o continue to serve as Andataco's President;
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o become the Executive Vice President of Marketing and Sales of nStor;
o receive options to purchase 1.1 million shares of nStor common stock
for $2.00 per share (the closing market price of nStor common stock on
April 19, 1999, the date that the terms of the options were agreed to);
and
o receive warrants to purchase 155,133 shares of nStor common stock for
$3.30 per share.
nStor would also guarantee the lease between Andataco and an affiliate of
Mr. Sykes. The purchase agreement also contained a representation from nStor
that, if nStor acquired the remaining shares of Andataco owned by Andataco's
minority stockholders, it would pay the greater of the price paid for the Sykes'
shares, $.28 per share, or the fair market value of such shares as determined by
an independent investment banking firm.
When Andataco and nStor negotiated the terms of the merger, nStor
controlled Andataco through its ownership of approximately 77.2% of the total
issued and outstanding common stock of Andataco. As a result, nStor had an
interest in making the transaction as beneficial to nStor as possible. However,
an independent committee of Andataco's board of directors obtained an
independent fairness opinion of the proposed merger consideration.
BENEFITS TO INSIDERS -- EXECUTIVE OFFICERS AND DIRECTORS OF ANDATACO WHO ARE
ASKING STOCKHOLDERS TO APPROVE THE MERGER PROPOSAL WILL RECEIVE ADDITIONAL
BENEFITS IN THE MERGER.
As discussed below under "Interests of Executive Officers and Directors in
the Merger," a number of executive officers and directors of Andataco have
interests in the merger that may be different from, or in addition to, your
interests as stockholders. You should be aware of these conflicts of interest
and the benefits available to such persons when considering the boards'
recommendations to approve the merger proposals. Following the merger:
o nStor will maintain indemnification and insurance arrangements for the
Andataco directors and officers for three years;
o W. David Sykes, President and Vice Chairman of the Board of Andataco
will enter into a three year employment agreement with nStor subject
to completion of the merger; and
o Harris Ravine, CEO and Chairman of the Board of Andataco, has an
employment agreement with Andataco which provides severance benefits
if Mr. Ravine is terminated without cause.
BUSINESS AND INDUSTRY RISKS SPECIFIC TO EITHER ANDATACO OR nSTOR
nSTOR HAS A LIMITED HISTORY OF OPERATING AND INTEGRATING ITS ACQUIRED
BUSINESSES
nStor has acquired all of its operating assets within the last three years.
The success of nStor's recent business combinations will depend in large part on
its ability to consolidate its operations, integrate departments, systems and
procedures and obtain business efficiencies, economies of scale and related cost
savings. The significant management challenges presented by such consolidation
and integration may prevent the desired cost savings. nStor may not be able to
successfully consolidate its business operations or achieve returns that would
justify its investment in its acquired businesses. This consolidation process
will require substantial time and attention on the part of nStor's management.
nStor may not be able to successfully integrate the operations of these
companies, if at
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all. If nStor is unable to integrate or successfully manage the companies it has
acquired, nStor and Andataco could be materially and adversely affected.
nSTOR IS A PARTY TO LITIGATION WHICH COULD HAVE AN ADVERSE EFFECT ON nSTOR'S
BUSINESS
In June and August 1996, nStor and two of its directors were served with
two separate complaints filed in the Supreme Court of the State of New York,
County of Nassau, in which the plaintiffs claim to have had contractual and
proprietary interests in the prospect of a transaction to purchase certain net
assets acquired by nStor. The plaintiffs seek compensatory damages, punitive
damages, and equitable relief for alleged interference with the plaintiffs'
alleged rights and for alleged breach of contract. nStor's counsel believes that
nStor has good defenses to both claims and that it will not incur any material
liability. nStor is unaware of any facts that would support any of the
plaintiffs' claims and, accordingly, it believes that the claims are without
merit. An unfavorable outcome in such litigation could have an adverse effect on
nStor's business.
ANDATACO HAS EXPERIENCED FLUCTUATIONS IN OPERATING RESULTS
Andataco has recently experienced significant period-to-period fluctuations
in its operating results due to product design, development, manufacturing and
marketing expenditures. If significant variations were to occur between
forecasts and actual orders with respect to its products, Andataco may not be
able to reduce its expenses proportionately and operating results could be
adversely affected. Andataco revenues in any quarter are dependent on the timing
of product shipments as well as the status of competing product introductions.
Like many other high technology companies, a disproportionately large percentage
of quarterly sales occur in the closing weeks of each quarter. Any
forward-looking statements about operating results made by members of Andataco's
management will be based on assumptions about the likelihood of closing
anticipated sales and other factors management considers reasonable based in
part on knowledge of performance in prior periods. The failure to consummate any
of those sales may have a disproportionately negative impact on the operating
results of the combined company, given Andataco's relatively high fixed costs,
and may thus prevent management's projections from being realized.
THE PRICE OF nSTOR COMMON STOCK HAS BEEN, AND MAY CONTINUE TO BE, VOLATILE
nStor's common stock has experienced in the past, and could experience in
the future, substantial price volatility as a result of a number of factors,
including:
o quarter to quarter variations in actual or anticipated financial results;
o announcements by nStor, its competitors or customers;
o government regulations; and
o developments in the industry.
In addition, the stock market has experienced extreme price and volume
fluctuations which have affected the market price of many technology companies
in particular and which have at times been unrelated to the operating
performance of the specific companies whose stock is traded. Broad market
fluctuations and general economic conditions may adversely affect the market
price of our common stock.
FUTURE ACQUISITIONS COULD ADVERSELY AFFECT nSTOR'S STOCK PRICE OR DISRUPT ITS
OPERATIONS
nStor may pursue acquisitions of complementary technologies, product lines
or businesses. Future acquisitions could result in dilutive issuances of equity
securities and the incurrence of additional debt and amortization expenses
related to goodwill and intangible assets that could adversely affect nStor's
operating results. In addition, gross margins of acquired products, necessary
product or technology development expenditures and other factors that may be
involved in any such acquired business could result in dilution to its earnings.
Acquisitions also may involve numerous other risks, including:
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o difficulties in the assimilation of the operations and products of the
acquired business;
o dependence on new products and processes;
o the diversion of management's attention from other business concerns;
o risks of entering markets in which nStor has no or limited direct
prior experience; and
o the potential loss of key employees of the acquired business and
difficulties in attracting additional key employees necessary to
absorb added management responsibilities.
No assurance can be given as to the effect of any future acquisition on nStor's
business or operating results.
RISKS RELATING TO BOTH ANDATACO AND nSTOR
WE HAVE EXPERIENCED RECENT LOSSES AND MAY REQUIRE ADDITIONAL FINANCING TO
SATISFY OUR WORKING CAPITAL NEEDS
nStor has experienced net losses applicable to common stock for the
fiscal years ended December 31, 1997 ($7,886,000), December 31, 1998
($11,888,000) and for the six months ended June 30, 1999 ($7,048,000) nStor
also expects to have a net loss for the fiscal quarter ending September 30,
1999. At June 30, 1999, nStor had an accumulated deficit of ($45,332,000).
Andataco has experienced net losses for the fiscal years ended October
31, 1997 ($6,209,000), October 31, 1998 ($2,434,000) and for the six months
ended April 30, 1999 ($1,591,000). Andataco also expects to have a net loss for
the fiscal quarter ending July 31, 1999. At April 30, 1999, Andataco had an
accumulated deficit of ($9,634,000) and we expect Andataco to have an
accumulated deficit as of July 31, 1999.
If the combined company is unable to generate net income from
operations, the business of the combined company will be adversely affected, and
its stock price will suffer a decrease in value.
In late 1997, nStor determined that amounts available under its bank
line of credit would not be sufficient to satisfy its cash requirements and
that, as a result, additional debt and/or equity financing would be necessary.
During the period beginning in late 1997 and ending in June 1999, nStor has been
able to obtain approximately $22.3 million from private investors, including
$10.0 million from the sale of convertible preferred stock, $6.8 million from
subordinated loans which will mature on September 5, 2000, $3.2 million from the
exercise of warrants and options to purchase 2,428,832 shares of common stock
and $2.3 million from the private sale of common stock. Although we believe
that, as a result of the receipt of these additional funds, amounts available
from nStor's line of credit will be sufficient to satisfy its presently
contemplated working capital needs for the foreseeable future. We may require
additional capital beyond our currently forecasted needs. In addition, we cannot
assure you that any such additional required capital would be available on terms
acceptable to nStor, if at all, at such time or times as we might require such
funds.
WE HAVE, FROM TIME TO TIME, BEEN UNABLE TO COMPLY WITH THE FINANCIAL COVENANTS
OF OUR BANK LINES OF CREDIT
From time to time, we have been unable to comply with certain of the
financial covenants of our bank lines of credit and have requested that our
lenders forbear from exercising the remedies available to them under such
circumstances. In each such case, our banks agreed with our request. In the
event that such events occur in the future and we are unsuccessful in our
negotiations with our lender, we would be required to seek other sources of
capital to satisfy our obligations under our lines of credit. Any such
additional capital may not be available on terms acceptable to us, if at all, at
such time or times as we might require such funds. In such event, our business
could be materially and adversely affected.
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WE MAY BE UNABLE TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES
Our ability to provide high-quality products on a timely basis requires
that we employ an adequate number of skilled engineers and technicians.
Accordingly, our ability to increase our productivity and profitability will be
limited by our ability to attract and retain skilled personnel. We, like many of
our competitors, are currently experiencing shortages of qualified personnel. We
cannot be certain that we will be able to maintain an adequate skilled labor
force necessary to operate efficiently and to support our growth strategy or
that our labor expenses will not increase as a result of a shortage in the
supply of skilled personnel.
RAPID TECHNOLOGICAL AND CUSTOMER PREFERENCE CHANGES -- ANDATACO AND nSTOR MAY BE
UNABLE TO KEEP PACE WITH THE RAPID CHANGES IN THEIR INDUSTRY.
The open systems data storage market in which nStor and Andataco
operate is characterized by rapid technological change, frequent new product
introductions and evolving industry standards. Customer preferences in that
market are difficult to predict and changes in those preferences could render
nStor's or Andataco's current or future products unmarketable. The introduction
of products embodying new technologies by nStor's and Andataco's competitors and
the emergence of new industry standards could render existing products as well
as new products being introduced obsolete and unmarketable. For example, if
customers were to turn away from open systems computing, nStor's and Andataco's
revenue would decline dramatically.
The success of Andataco and nStor depends upon their ability to address
the increasingly sophisticated needs of customers, to enhance existing products
and to develop and introduce, on a timely basis, new competitive products
(including new software and hardware and enhancements to existing software and
hardware) that keep pace with technological developments and emerging industry
standards. If nStor and Andataco cannot successfully identify, manage, develop,
manufacture or market product enhancements or new products, their businesses
will be materially and adversely affected.
SOLE SOURCE AND KEY SUPPLIERS -- THE LOSS OF ONE OR MORE SUPPLIERS COULD
ADVERSELY AFFECT nSTOR'S AND ANDATACO'S ABILITY TO OBTAIN KEY COMPONENTS FOR
PRODUCTS.
nStor relies on other companies to supply certain key components of its
products. nStor products are typically designed to operate with unique
components that are available from a single source. For example, certain of its
products are dependent upon controllers designed by one of its suppliers.
Although nStor can use other suppliers, the delay in receiving the product from
these other suppliers would negatively affect nStor's revenues. Other
components, while not dependent on one source, may, from time to time, be in
short supply or unavailable for a period of time while alternative sources can
be identified. Modification to the particular products, requalification of the
products with applicable regulatory agencies, and additional testing to assure
software and hardware is compatible can result in lost or deferred revenue as
well as higher product costs.
To the extent its products are continued by the combined company,
Andataco would be subject to the same risks due to the similar nature of its
products. In addition, Andataco often resells subsystems, software and services
from others. This leaves Andataco vulnerable to inadequate supply, uneven
allocation in times of shortage, delays in order fulfillment, and contract
terminations. For example, Andataco has resold Data General's Clariion Disk
Storage product line. Data General was recently acquired by EMC, a significant
acquisition in this industry. We cannot assure you that EMC will continue the
use of indirect selling channels, or that Andataco will be selected by EMC,
assuming EMC chooses to continue the Clariion selling model. The loss of
Andataco's relationship with Clariion would have a material impact on Andataco's
revenues and customer base. The percentage of Andataco's revenues attributable
to Clariion in fiscal year 1998 and the six months ended April 30, 1999 was
27.9% and 33.6%, respectively.
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CONCENTRATED CUSTOMER BASE -- AN ECONOMIC DOWNTURN OF MAJOR CUSTOMERS OR
GEOGRAPHICAL AREA IN WHICH nSTOR OR ANDATACO CONCENTRATES COULD
MATERIALLY ADVERSELY AFFECT REVENUES.
nStor operates predominantly in one business segment, information
storage solutions, including external RAID subsystems. A large percentage of
nStor's revenue comes from the sale of products to a small number of significant
clients within such industries and to customers based in the eastern region of
the United States. During 1998 and 1997, nStor had sales to two customers,
Discreet Logic (a Canadian customer) and Intergraph Corp., which accounted for
27% and 13%, respectively, of net sales for 1998 and 11% and 10%, respectively,
for 1997. During the six months ended June 30, 1999, one customer, Silicon
Graphics, Inc., ("SGI") accounted for 22% of nStor's sales.
During the second quarter, nStor entered into an original equipment
manufacturer, or OEM, agreement to supply high-performance RAID storage
enclosures to SGI, a major server manufacturer. We began shipping products under
SGI's initial purchase order in May 1999. During June 1999, nStor's sales
(exclusive of Andataco) increased to $2.5 million, representing 71% of nStor's
sales for the quarter, primarily as a result of the SGI relationship. The
initial term of the OEM agreement is for three years. A discontinuation or
significant reduction under this agreement could have a material adverse effect
on nStor's business.
An economic downturn in any industry or geographical area targeted by
nStor or Andataco, or the loss of one or more customers, particularly a
significant customer, could result in a material decrease in revenues, thereby
adversely affecting nStor or Andataco.
NARROW MARKET -- A DECLINE IN MARKET ACCEPTANCE OF UNIX SYSTEMS, WINDOWS NT
OR CHANGES IN SUN MICROSYSTEMS PRODUCTS OR POLICIES COULD MATERIALLY
ADVERSELY AFFECT nSTOR'S AND ANDATACO'S BUSINESS.
Substantially all of nStor's and Andataco's revenues to date have been
concentrated in the UNIX and Windows NT marketplace. A significant portion of
Andataco's revenues are associated with versions of UNIX and Windows NT
manufactured by Sun Microsystems, Inc. If Sun Microsystems were to change its
policy of supporting open systems computing environments and if Andataco's
products were thereby rendered incompatible with Sun Microsystems' products,
nStor's business, financial position and results of operations could be
materially and adversely affected.
INTENSE COMPETITION -- THE COMPUTER STORAGE MARKET IS HIGHLY COMPETITIVE.
The storage system market is intensely competitive. Andataco and nStor
compete with traditional suppliers of computer systems such as Hewlett-Packard,
Sun Microsystems, IBM, SGI, Compaq Corporation, Hitachi, Digital Equipment
Corporation, and Dell Computer Corp., which market storage systems as well as
other computer products, and which seem to have become more focused on storage
recently. For example, Data General was recently acquired by EMC Corporation.
EMC is the largest independent seller of data storage systems and software.
Andataco and nStor also compete against independent storage system suppliers to
the high-end market including, but not limited to, Box Hill Systems, Artecon
Inc., EMC Corporation, StorageTek, Network Appliance, Inc., LSI Logic
Corporation, Ciprico Inc., MTI Technologies, Inc., Procom Technology Inc., the
Clariion division of Data General and Storage Computer Corp. In providing tape
backup, nStor competes with value-added suppliers of tape- based storage systems
such as Datalink Corporation, MTI Technologies, Inc., Dallas Digital, Cranel,
Inc. and others.
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Many of these competitors are significantly larger than nStor and
Andataco, and have significantly greater financial, technical, marketing,
purchasing and other resources than either company, and as a result may be able
to respond more aggressively to new or emerging technologies and changes in
customer requirements, or devote greater resources to the development, promotion
and sale of products than either nStor or Andataco, or to deliver competitive
products at a lower end-user price.
Increased competition is likely to result in price reductions, reduced
operating margins and loss of market shares, any of which could have a material
adverse effect on Andataco's and nStor's businesses, operating results or
financial conditions. In fact, competitive pricing pressures have had, and may
continue to have an adverse effect on nStor's revenues and earnings.
If nStor and Andataco are unable to develop and market products to
compete with the products of competitors, the businesses of nStor and Andataco
will be materially adversely affected. In addition, if major customers who are
also competitors cease purchasing Andataco or nStor's products so that they can
concentrate on sales of their own products, Andataco's and nStor's businesses
could be adversely affected.
LACK OF LONG TERM CONTRACTS -- DELAYS OR CANCELLATIONS OF CUSTOMER ORDERS COULD
MATERIALLY ADVERSELY AFFECT nSTOR'S AND ANDATACO'S OPERATING RESULTS.
Both nStor and Andataco generally do not enter into long-term volume
purchase contracts with customers, and customers generally have certain rights
to extend or to delay the shipment of their orders, as well as the right to
return products and cancel orders under some circumstances. The cancellation or
rescheduling of orders placed by our customers, or the return of products
shipped to them, could materially and adversely affect nStor's or Andataco's
business.
PRODUCT DEFECTS -- ANDATACO'S AND nSTOR'S BUSINESSES WILL MATERIALLY SUFFER IF
EITHER COMPANY ENCOUNTERS SIGNIFICANT PRODUCT DEFECTS.
Storage system products like those offered by nStor and Andataco may
contain undetected software errors or failures when first introduced or as new
versions are released. nStor and Andataco cannot be certain that, despite
testing, errors will not be found in new products after commencement of
commercial shipments.
Both nStor's and Andataco's standard warranties provide that if a
system does not function to published specifications the companies will repair
or replace the defective component without charge. Significant warranty costs
could have a material adverse effect on Andataco's and nStor's business.
AVAILABILITY OF COMPETING PRODUCTS -- SALES OF COMPETING PRODUCTS BY
DISTRIBUTORS AND VARS COULD MATERIALLY ADVERSELY AFFECT nSTOR'S AND
ANDATACO'S SALES.
In the United States, Andataco sells its products both through a direct
sales force and through value-added resellers (VARs). Andataco's and nStor's
distributors and VARs may also carry competing product lines, and could reduce
or discontinue sales of Andataco's and nStor's products, which could have a
material adverse effect on operating results. In addition, we cannot assure you
that existing end-user customers will not purchase their storage equipment from
the manufacturer that provides their network computing systems and, as a result,
reduce or eliminate purchases from Andataco and nStor.
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LENGTHY SALES CYCLES -- BOTH ANDATACO AND nSTOR DEPEND ON LARGE ORDERS AND UPON
SALES WHICH MAY HAVE LENGTHY CYCLES.
Customer orders for both nStor and Andataco can range in value from a
few thousand dollars to over a million dollars. The length of time between
initial contact with a potential customer and sale of a product, or "sales
cycle", also can vary greatly and can be as long as three to twenty-four months.
This is particularly true for the sale and installation of complex, turnkey
solutions, which often are sold directly to end users. Revenue for nStor and
Andataco is likely to be affected by the timing of larger orders, which makes it
difficult for the companies to predict such revenue. Revenue for a quarter could
be reduced if large orders forecasted for a certain quarter are delayed or are
not realized. The factors that could delay or defer an order include:
o time needed for technical evaluations by customers;
o customers budget restrictions and changes to budgets during
the course of a sales cycle;
o customer internal review and testing procedures; and
o engineering work needed to integrate a storage solution with a
customer's system.
LACK OF PATENT PROTECTION -- nSTOR'S AND ANDATACO'S LACK OF INTELLECTUAL
PROPERTY PROTECTION MAY AFFORD COMPETITORS WITH AN OPPORTUNITY TO COMPETE
EFFECTIVELY.
nStor currently holds one patent and has one patent pending on its
products. Andataco holds no patents. In addition, nStor and Andataco rely on a
combination of trade secrets, copyrights and trademarks and employee and
third-party nondisclosure agreements to protect their intellectual property
rights. The steps taken to protect their rights may not be adequate to prevent
misappropriation of their technology or to preclude competitors from developing
products with features similar to their products. Furthermore, in the future,
third parties may assert infringement claims against nStor or Andataco with
respect to its products for which they have indemnification obligations to
certain of their customers. Asserting nStor's or Andataco's rights or defending
against third-party claims could involve substantial expense, which the combined
company may not be able to afford and which could have a material adverse effect
on its operating results. In the event a third party were successful in a claim
that one of nStor's or Andataco's products infringed the third party's
proprietary rights, the combined company may have to pay substantial damages or
royalties, remove that product from the marketplace or expend substantial
amounts in order to modify the product so that it no longer infringes such
proprietary rights, any of which could have a material adverse effect on the
combined company's operating results.
nSTOR AND ANDATACO MAY NOT HAVE ACCESS TO SUFFICIENT FUNDING TO SUPPORT
THEIR OPERATIONS
nStor and Andataco have expended and will continue to be required to
expend substantial funds to continue research and development, and for other
aspects of their business. Although they believe that they have access to
resources sufficient to fund their operations for at least the next twelve
months, they may need or elect to raise additional capital. nStor's and
Andataco's capital requirements will depend on many factors, including:
o the problems, delays, expenses and complications frequently
encountered by technology companies;
o the progress of research, development and product testing
programs;
o the success of sales and marketing programs;
o costs in filing, prosecuting, defending and enforcing
intellectual property rights;
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o the extent and terms of any collaborative research,
manufacturing, marketing or other arrangements; and
o changes in economic, regulatory or competitive conditions of the
planned business.
Estimates about the adequacy of funding for their activities are based on
certain assumptions, including the assumption that research, development and
testing relating to its products under development can be conducted at projected
costs and within projected time frames and that such products can be
successfully marketed.
To satisfy nStor's capital requirements, it may seek to raise funds in
the public or private capital markets. nStor's ability to raise additional funds
in the public or private markets will be adversely affected if the results of
its ongoing or future research and development programs are not favorable. nStor
may seek additional funding through corporate collaborations and other financing
vehicles. Such funding may not be available, or if available, it may not be
available on acceptable terms. If adequate funds are not available, nStor may be
required to curtail its operations significantly, or it may be required to
obtain funds through arrangements with future collaborative partners or others
that may require it to relinquish rights to some or all of its technologies or
products under development. If nStor is successful in obtaining additional
financing, the terms of the financing may have the effect of diluting or
adversely affecting the holdings or the rights of the holders of nStor's common
stock.
THE YEAR 2000 ISSUE COULD DISRUPT OUR BUSINESS
Many computer systems, software programs and other equipment with
embedded chips or processors use only two digits to define the applicable year.
As a result, they may be unable to process accurately certain data, during or
after the year 2000. As a result, business and governmental entities are at risk
for possible miscalculations or systems failures causing disruptions in their
business operations. This is commonly known as the Year 2000 ("Y2K") issue. The
Y2K issue concerns not only information systems used solely within a company,
but also concerns third parties, such as customers, vendors and creditors, using
information systems that may interact with or affect a company's operations.
If needed remediations and conversions to our information systems are
not made on a timely basis by our materially-significant customers or vendors,
we could be affected by business disruption, operational problems, financial
loss, legal liability to third parties and similar risks, any of which could
have a material adverse effect on our operations, liquidity or financial
condition. Factors which could cause material differences in results, many of
which are outside of our control, include, but are not limited to, the accuracy
of representations by manufacturers of our information systems that their
products are Y2K compliant, the ability of our customers and vendors to identify
and resolve their own Y2K issues, and our ability to respond to unforeseen Y2K
complications.
nStor has implemented a Y2K readiness program with the objective of
having all of its significant information systems functioning properly with
respect to Y2K before January 1, 2000. The first component of nStor's readiness
program was to identify the internal information systems that are susceptible to
system failures or processing errors as a result of the Y2K issue. This effort
is substantially complete and no significant issues requiring remediation or
replacement have been identified.
As the second component of its Y2K readiness program, nStor has
identified its significant customers, vendors and creditors that are believed,
at this time, to be critical to business operations subsequent to January 1,
2000. Through the use of questionnaires, interviews and other available means,
nStor has ascertained that it has no significant exposure to Y2K problems at
this time. However, the representations made to nStor by third parties may not
be accurate or complete and there is a possibility that normal business
operations could be disrupted.
The third component of nStor's Y2K readiness program was the evaluation
of its existing products', and planned future products', Y2K functionality. All
of the date dependent software which nStor has developed has
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been validated as being Y2K compliant using commercially acceptable methods,
including: expanding year fields to four digits; windowing; and date encoding
techniques. nStor's other products have been verified as Y2K compliant based on
the absence of date dependencies in hardware, software and firmware code.
The total cost of nStor's Y2K compliance activities is not expected to
exceed $50,000. The costs and time necessary to complete the Y2K modification
and testing processes are based on nStor's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, these estimates may not be achieved and actual results could
differ from the estimates. nStor's Y2K readiness program is an ongoing process
and the estimates of costs and completion dates for various components of the
Y2K readiness program described above are subject to change.
In mid-1997, Andataco formed an internal task force to evaluate those
areas of Andataco that may be affected by the Y2K problem and devised a plan for
Andataco to become Y2K compliant in a timely manner. The plan focuses on three
major areas: Andataco's mission critical business transaction systems; the
products Andataco sells; and issues associated with Andataco's business
partners, including suppliers, customers, and bankers. To date, Andataco has
executed approximately 95% of its plan and anticipates completing the remaining
portions of the plan by the end of the third calendar quarter of 1999 while the
evaluation and testing of certain ancillary PC office and specialized PC
applications will continue through 1999. However, if Andataco's plan cannot be
completed on a timely basis, the Y2K issue could have a material adverse impact
on Andataco's business, financial condition and results of operations. Because
of the many uncertainties associated with Y2K compliance issues, and because
Andataco's assessment is necessarily based on information from third-party
vendors and suppliers, there can be no assurance that Andataco's assessment is
correct. If Andataco's assessment is incorrect, it could have a material adverse
effect on Andataco's business.
THE MEETINGS
General; Dates, Times and Places
nStor. This joint proxy statement/prospectus was mailed to nStor
stockholders, on or about ________, 1999, and includes the Notice of 1999 Annual
Meeting. We also have included a form of proxy that nStor's board of directors
is soliciting for use at the nStor annual meeting to be held on ________ at
_____ __.m., local time, at _____________, and at any adjournments or
postponements of the annual meeting.
Andataco. This joint proxy statement/prospectus was mailed to Andataco
stockholders, on or about ________, 1999, and includes the Notice of Special
Meeting. We also have included a form of proxy that Andataco's board of
directors is soliciting for use at the Andataco special meeting to be held on
___________ at ________ _.m., local time, at 10140 Mesa Rim Road, San Diego,
California, and at any adjournments or postponements of the special meeting.
This joint proxy statement/prospectus is also furnished to Andataco stockholders
as a prospectus in connection with nStor's issuance of shares of nStor common
stock to Andataco stockholders in connection with the merger.
Purpose of the Meetings
nStor. At the nStor annual meeting, nStor stockholders will be asked to
consider and vote on the following proposals:
o to issue shares of nStor common stock, $0.05 par value per share,
to Andataco stockholders in connection with the merger of NTI
with and into Andataco;
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o to elect five persons to nStor's board of directors to hold
office until nStor's next annual meeting of stockholders or until
their successors are duly elected and qualified;
o to amend nStor's restated certificate of incorporation to
increase the authorized number of shares of common stock from
40,000,000 to 75,000,000;
o to amend nStor's restated certificate of incorporation to
eliminate cumulative voting for directors;
o to amend nStor's 1996 Stock Option Plan, as amended, to increase
the number of shares reserved for issuance under the Plan from
2,500,000 to 5,000,000; and
o to ratify the reappointment of BDO Seidman, LLP as nStor's
independent auditors for fiscal 1999.
nStor's board of directors is not aware of any matter to be presented
for action at the nStor annual meeting other than the matters described above.
Should any other matter requiring the vote of nStor stockholders arise, the
proxies on the enclosed form give the holders of the proxy discretionary
authority to vote their shares in their best judgment in nStor's interest.
The nStor board of directors has unanimously approved all of the
proposals, including the issuance of nStor's common stock to Andataco
stockholders and has determined that the issuance of nStor's common stock to
Andataco stockholders in the merger is in the best interest of nStor and its
stockholders and unanimously recommends that nStor stockholders vote "FOR"
approval of the proposals including the issuance of nStor's common stock to
Andataco stockholders in the merger.
Andataco. At the Andataco special meeting, Andataco stockholders will
be asked to consider and vote on a proposal to approve and adopt the agreement
and plan of merger dated August 27, 1999, between Andataco, nStor and NTI.
Andataco's board of directors is not aware of any matter to be
presented for action at the Andataco special meeting other than the matter
described above. Only business within the purpose or purposes described in the
Notice of Special Meeting included in this document may be conducted at the
Andataco special meeting. Should any other matter requiring the vote of Andataco
stockholders arise, the proxies on the enclosed form give the holders of the
proxy discretionary authority to vote their shares in their best judgment in
Andataco's interest.
An independent committee of the Andataco board of directors and the
full Andataco board of directors have approved the merger and have determined
that the merger and the merger agreement are in the best interest of Andataco
and its stockholders. Harris Ravine and W. David Sykes abstained from voting on
the approval of the merger and the merger agreement due to their interests in
the merger as described under "Interests of Executive Officers and Directors in
the Merger" on page ___. The Andataco board of directors recommends that
Andataco stockholders vote "FOR" approval of the merger and the merger
agreement.
Record Dates; Quorum; Vote Required
nStor. Holders of record of nStor common stock and preferred stock at
the close of business on September 7, 1999 are entitled to receive notice of and
vote at the nStor annual meeting. On that date, nStor had issued and outstanding
22,715,061 shares of nStor common stock and 15,521 shares of nStor preferred
stock which was convertible into 10,084,667 shares of nStor common stock.
Holders of a majority of the outstanding nStor common and preferred stock
entitled to vote on the record date, present in person or by proxy, will
constitute a quorum for the transaction of business at the nStor annual meeting.
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The affirmative vote of the holders of a majority of the nStor common
stock and preferred stock represented in person or by proxy at the nStor annual
meeting, assuming a quorum is present and assuming the number of votes cast on
the proposals represent at least a majority of the outstanding nStor common
stock and preferred stock, collectively and not as separate classes, is required
to approve the proposals including the proposal for the issuance of nStor's
common stock to Andataco stockholders in the merger. nStor common stockholders
are only allowed one vote for each share of nStor common stock held by them on
the record date. Holders of nStor preferred stock are entitled to the number of
votes equal to the largest number of shares of nStor common stock into which the
holder's share of preferred stock could be converted on the record date
On the record date, nStor directors and executive officers and their
affiliates beneficially owned 10,044,410 shares of nStor common stock,
representing in the aggregate approximately 36.2% of nStor's voting stock. Of
these shares, H. Irwin Levy, the Chairman of the Board of Directors of nStor and
related parties, own in the aggregate 7,570,099 shares of nStor common stock and
4,500 shares of nStor preferred stock which are convertible into 3,500,000
shares of nStor common stock, representing in the aggregate approximately 28.7%
of nStor's voting stock. H. Irwin Levy and related parties have indicated that
they intend to vote their shares to approve the issuance of nStor's common stock
to Andataco stockholders in the merger.
A list of stockholders entitled to notice of the nStor annual meeting
shall be available for inspection by any stockholder, during regular business
hours, for a period of ten days prior to the annual meeting at the principal
executive office of nStor and at the annual meeting.
Andataco. Only holders of record of Andataco common stock at the close
of business on September 7, 1999 are entitled to receive notice of and vote at
the Andataco special meeting. On that date, Andataco had issued and outstanding
25,432,303 shares of Andataco common stock. Holders of a majority of the
outstanding Andataco common stock on the record date, present in person or by
proxy, will constitute a quorum for the transaction of business at the Andataco
special meeting.
The affirmative vote of the holders of a majority of the Andataco
common stock represented in person or by proxy at the Andataco special meeting,
assuming a quorum is present and assuming the number of votes cast on the
proposal represents at least a majority of the outstanding Andataco common
stock, is required to approve the merger proposal. Andataco stockholders are
only allowed one vote for each share of Andataco common stock held by them on
the record date.
On the record date, Andataco directors and executive officers and their
affiliates beneficially owned 40,000 shares of Andataco common stock, excluding
shares that may be acquired upon the exercise of options representing less than
1% of the total issued and outstanding common stock of Andataco. In addition,
nStor owns 19,634,185 shares of Andataco common stock, representing
approximately 77.2% of the total issued and outstanding common stock of
Andataco. nStor intends to vote these shares in favor of the merger.
Consequently, approval of the merger is assured.
A list of stockholders entitled to notice of the Andataco special
meeting shall be available for inspection by any stockholder, during regular
business hours, for a period of ten days prior to the special meeting at the
principal executive office of Andataco and at the special meeting.
Proxies
nStor. Individuals appointed as proxies will vote those shares of nStor
common stock represented by a properly executed proxy in accordance with the
instructions indicated on the proxy. In order to be voted, nStor must have
received a properly executed proxy prior to or at the nStor annual meeting.
Also, the proxy must not
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have been duly and timely revoked. If the stockholder provides no instructions
on a properly executed proxy, that proxy will be voted "FOR" all of the
proposals, including the approval of the issuance of nStor's common stock to
Andataco stockholders in the merger. A properly executed proxy marked "ABSTAIN,"
although counted for purposes of determining whether there is a quorum and for
purposes of determining the aggregate voting power and number of shares
represented and entitled to vote at the nStor annual meeting, will not be voted.
However, because of the vote required for each proposal, a proxy marked
"ABSTAIN" will have the effect of a vote against the proposals.
Shares represented by "broker non-votes" (i.e., shares held by brokers
or nominees which are represented at a meeting but with respect to which the
broker or nominee is not empowered to vote) will be counted for purposes of
determining whether there is a quorum at the nStor annual meeting. In accordance
with AMEX rules, brokers and nominees are precluded from exercising their voting
discretion with respect to the approval of the issuance of nStor common stock to
Andataco stockholders in the merger and therefore, absent specific instructions
from the beneficial owner of the shares, are not empowered to vote the shares
with respect to the approval and adoption of the proposal to issue nStor common
stock to Andataco stockholders in the merger. Since the affirmative vote of a
majority of the nStor stock present and entitled to vote is required to approve
the proposals, a "broker non-vote" will have the effect of a vote against the
proposal.
Andataco. Individuals appointed as proxies will vote those shares of
Andataco common stock represented by a properly executed proxy in accordance
with the instructions indicated on the proxy. In order to be voted, Andataco
must have received a properly executed proxy prior to or at the Andataco special
meeting. Also, the proxy must not have been duly and timely revoked. If the
stockholder provides no instructions on a properly executed proxy, that proxy
will be voted "FOR" the approval of the merger proposal. A properly executed
proxy marked "ABSTAIN," although counted for purposes of determining whether
there is a quorum and for purposes of determining the aggregate voting power and
number of shares represented and entitled to vote at the Andataco special
meeting, will not be voted. However, because of the vote required, a proxy
marked "ABSTAIN" will have the effect of a vote against the merger proposal.
Revocation of Proxies
Your grant of a proxy on the enclosed proxy card does not prevent you
from voting in person or otherwise revoking your proxy.
An nStor stockholder may revoke a proxy at or before the nStor annual
meeting by delivering a duly executed revocation or a proxy bearing a later date
to Orilla F. Floyd, Secretary of nStor, at 100 Century Boulevard, West Palm
Beach, Florida 33417. An nStor stockholder may also revoke a proxy by attending
and voting at the nStor annual meeting. Attendance at the nStor annual meeting
will not by itself result in revocation of a proxy.
An Andataco stockholder may revoke a proxy at or before the Andataco
special meeting by delivering a duly executed revocation or a proxy bearing a
later date to Diane Wong, Clerk of Andataco, at 10140 Mesa Rim Road, San Diego,
California 92121, An Andataco stockholder may also revoke a proxy by attending
and voting at the Andataco special meeting. Attendance at the Andataco special
meeting will not by itself result in revocation of a proxy.
Expenses of Solicitation
nStor and Andataco will share equally the cost of printing and mailing
this document. nStor will pay for the costs of soliciting proxies on the
accompanying form. In addition to the use of mail, officers of nStor and
Andataco may solicit proxies by telephone or telecopy. These officers will not
be compensated for this solicitation, but will be reimbursed for reasonable
expenses incurred by them in connection with this solicitation. Upon request,
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nStor will reimburse brokers, dealers, banks and trustees, or their nominees,
for reasonable expenses incurred by them in forwarding proxy material to
beneficial owners of common stock of nStor or Andataco.
Accounting Representative
A representative of BDO Seidman, LLP is expected to be present at the
nStor annual meeting with the opportunity to make a statement if he or she
desires, and will be available to respond to appropriate questions.
A representative of PriceWaterhouseCoopers LLP is expected to be
present at the Andataco special meeting with the opportunity to make a statement
if he or she desires, and will be available to respond to appropriate questions.
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PROPOSAL ONE: MERGER/ISSUANCE OF nSTOR COMMON STOCK
THE MERGER
The following discussion of the merger, the merger agreement, the
certificate of amendment to nStor's certificate of incorporation and the related
transactions are qualified in their entirety by reference to the merger
agreement, the certificate of amendment and related agreements, copies of which
are attached hereto as appendices or filed as exhibits to the joint proxy
statement/prospectus.
General
The merger agreement provides for the merger of NTI, a Florida
corporation and a wholly-owned subsidiary of nStor, with and into Andataco, a
Massachusetts corporation, with Andataco becoming a wholly-owned subsidiary of
nStor. In the merger, each share of Andataco common stock issued and outstanding
immediately before the effective time of the merger will be converted into, and
become exchangeable for the number of shares of nStor common stock obtained by
dividing thirty-one cents ($0.31) by the average closing price of one share of
nStor common stock on the AMEX for the ten (10) trading days immediately before
the date of the stockholder meetings. This is more commonly referred to as the
exchange ratio.
nStor will not exchange shares of Andataco common stock owned by nStor,
NTI, or any other direct or indirect subsidiary of nStor, Andataco, or any
direct or indirect subsidiary of Andataco in the merger.
The merger agreement provides that, at the effective time, each
outstanding and unexercised option to purchase Andataco common stock will become
fully vested and exercisable. Any option for which a request to exercise has not
been received by the Clerk of Andataco prior to the effective time of the merger
will be canceled.
The merger will become effective upon the latest of:
o the time when the articles of merger are accepted for record by
the Secretary of the Commonwealth of Massachusetts under the
relevant provisions of the Massachusetts Business Corporation Law
(the "MBCL");
o the time when the articles of merger have been duly filed with
the Secretary of State of Florida as provided in the relevant
provisions of the Florida Business Corporation Act (the "FBCA");
or
o any other time agreed to by nStor and Andataco and established
under the Florida articles of merger and the Massachusetts
articles of merger.
We expect that the merger will become effective after all the
conditions to closing are met if the issuance of nStor common stock to Andataco
stockholders in the merger is approved by the nStor stockholders and the merger
and the merger agreement are approved by the Andataco stockholders.
The closing price of nStor's common stock on August 18, 1999 was $2.50
per share. If the merger had been completed on that date, nStor would have
issued approximately 739,000 shares of nStor common stock, in the aggregate, to
the holders of Andataco common stock.
Because the market price of nStor common stock may change, the number
of shares of nStor common stock that Andataco stockholders will receive in the
merger may increase or decrease before the date of the stockholder meetings. We
urge you to obtain current market quotations for nStor and Andataco common
stock. We cannot assure the future prices or markets for nStor or Andataco
common stock.
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Background of the Merger
Following Andataco's merger with IPL Systems in June 1997, Andataco
experienced a significant fluctuation in its revenues and earnings. As described
in "Risk Factors" and "Reasons for the Merger", the computer storage industry is
dominated by a few large companies, with significantly larger research and
marketing resources than Andataco. The industry has also undergone substantial
consolidation as a result of recent mergers and acquisitions. During 1997 and
1998, Andataco engaged in nearly a dozen discussions, under non-disclosure
agreements, exploring preliminarily the potential for a business combination.
None of those discussions resulted in a definitive proposal or term sheet. At
the same time, Andataco, was exploring other capital raising alternatives.
Several financing proposals were submitted, but Andataco's board viewed these
proposals as disadvantageous to Andataco and its stockholders.
At the December 16, 1998 board of directors meeting, management
reported that Andataco's growth prospects were limited by its inability to
sustain predictable operating profits, which made externally generated working
capital both difficult to access and expensive when available. Several
alternatives were explored, including the elimination of product development and
operations, which would eventually result in Andataco becoming solely a reseller
of other companies' products and services. The board determined to explore the
business combination alternative and, on January 19, 1999, an industry
experienced financial advisory firm was retained to act as Andataco's advisor.
In December 1998, while reviewing potential providers of computer
storage products for Andataco to resell, W. David Sykes, Andataco's President,
visited nStor's web site. Finding the product descriptions of interest, he
contacted Lawrence Steffann, nStor's President. As a result of this initial
conversation, on December 14, 1999, Harris Ravine, Andataco's Chief Executive
Officer, visited nStor's offices in Lake Mary, Florida to review nStor's product
strategy and to discuss a potential business relationship.
At the same time, Mr. Steffann determined that nStor could benefit from
a long-term business relationship with Andataco, including a potential
acquisition of Andataco. Mr. Steffann felt that such a relationship would enable
nStor to combine its advanced technology with Andataco's experienced sales
organization and gain access to a broader geographic customer base. In addition,
a potential merger could create cost saving opportunities.
On December 23, 1999 the Andataco board held a telephonic meeting to
discuss the potential acquisition of Andataco by nStor. The Board agreed that
Andataco should explore a potential strategic transaction with Andataco.
Mr. Steffann shared his conclusions with H. Irwin Levy, nStor's
Chairman, and on January 4, 1999, Mr. Ravine and Mr. Sykes met with Irwin Levy,
Chairman of the Board of Directors of nStor and Lawrence F. Steffan, nStor's
President in West Palm Beach, Florida to discuss their respective businesses and
to explore potential strategic transactions. Various alternatives were
discussed, including a proposal for nStor to acquire Andataco. On January 12,
1999, Mr. Ravine, Mr. Levy and Mr. Steffan participated in a video conference
where they discussed the terms of a proposed transaction.
On January 18, 1999, Mr. Steffan visited Andataco's offices in San
Diego, California where discussions of the proposed transaction continued.
Negotiations for nStor to acquire Andataco began in February 1999 and
resulted in a purchase agreement, dated as of March 2, 1999, in which nStor
agreed to purchase the approximately 76% of the outstanding common stock of
Andataco owned by Mr. Sykes and his family for $3 million in cash. nStor also
agreed to purchase a $5,196,000 note payable by Andataco to Mr. Sykes for $5
million in cash. The acquisition was subject to, among other conditions, nStor
obtaining adequate financing to fund the acquisition. The agreement also
provided that Mr. Sykes would continue as President of Andataco pursuant to a
proposed three-year employment agreement.
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On February 11, 1999 the Andataco board was updated on the status of
the conversations and discussions with nStor. From February 26, 1999 through
February 28, 1999, Mr. Sykes, Mr. Levy and Mr. Corrao met in Houston, Texas to
discuss the respective business of Andataco and nStor . Andataco and nStor
conducted a due diligence review of each other from January 1999 to March 1999.
On March 3, 1999, nStor issued a press release announcing the proposed
acquisition of Mr. Sykes shares and its intention to acquire the remaining
outstanding Andataco common stock as soon as possible following an independent
valuation of the fair value of such shares.
Following unsuccessful negotiations with several potential investors
for the purpose of raising the necessary funds to acquire Mr. Sykes' Andataco
shares, nStor and Mr. Sykes entered into Amendment No. 1 to the original
purchase agreement, as of April 26, 1999. That amendment increased the purchase
price for Mr. Sykes' Andataco common stock to $3.5 million in the form of
subordinated notes of nStor, of which $3 million would be convertible into nStor
common stock. The economic terms of nStor's acquisition of Mr. Sykes' note from
Andataco were also amended to provide for a cash purchase price of $3.5 million
and a $1.5 million subordinated note of nStor. Upon execution of Amendment No.
1, nStor paid a $100,000 non-refundable deposit to Mr. Sykes.
During May 1999, nStor continued to pursue negotiations with several
potential financing sources. However, by the latter part of May 1999, Mr. Levy
concluded that the terms and conditions of the financial proposals which had
been submitted would not be advantageous to nStor and its stockholders. Mr. Levy
then commenced further discussions with Mr. Sykes concerning a reduction in the
cash portion of the purchase price. These discussions resulted in Amendment No.
2 to the original purchase agreement, entered into on June 8, 1999, which
increased the purchase price for Mr. Sykes' Andataco shares to $5.1 million, or
$.28 per share, payable in the form of subordinated notes of nStor due in 2004.
The purchase price for Mr. Sykes' note from Andataco was also increased to
$5,154,000, consisting of $500,000 in cash (which included the $100,000 deposit
and an additional $50,000 paid on May 17, 1999) and 4,654 shares of nStor Series
F convertible preferred stock, convertible into 1,551,333 shares of nStor common
stock. nStor also agreed to issue a warrant to Mr. Sykes to purchase 155,133
nStor common shares at an exercise price of $3.30 per share. The Warrant expires
on June 8, 2002.
The acquisition of Mr. Sykes' shares of Andataco was completed on June
8, 1999. On that date, Mr. Levy also entered into a letter agreement with Mr.
Sykes pursuant to which (i) Mr. Sykes granted Mr. Levy an option, through
September 30, 1999, to purchase, for $3.00 per share, $3.2 million of nStor
common stock owned by Mr. Sykes (at an agreed upon value of $3.00 per share),
less any amounts received by Mr. Sykes as a result of public sales of such
shares of common stock during the option period, and (ii) Mr. Levy agreed to
purchase from Mr. Sykes, at Mr. Sykes' option, during the period from February
1, 2000 through February 5, 2000, shares of nStor's common stock owned by Mr.
Sykes for a purchase price of $3.00 per share, provided, however, that Mr. Levy
would not be obligated to purchase more than $3.2 million of nStor's common
stock owned by Mr. Sykes (at an agreed upon value of $3.00 per share), less any
amounts received by Mr. Sykes as a result of public sales of such shares of
common stock prior to February 1, 2000.
The purchase agreement with Mr. Sykes also contained a representation
that, if nStor acquired the remaining shares of Andataco held by Andataco's
minority stockholders, it would pay no less than the greater of the price per
share received by Mr. Sykes or the fair market value of such stock, as of the
date prior to the closing of the Sykes acquisition, as determined by a
recognized investment banking firm. nStor retained the investment banking firm
of Marshall & Stevens Incorporated (Marshall & Stevens) to render the valuation
opinion, a copy of which is attached to this joint proxy statement/prospectus as
Annex C hereto and is incorporated herein by reference. That opinion stated that
the fair value of the minority owned shares of Andataco was $.31 per share.
On July 16, 1999, as a result of a default by Andataco under the
minimum tangible net worth covenant of its principal loan agreement, nStor
purchased 1,612,903 shares of Andataco common stock for $500,000 ($.31 per
share). The resulting increase in Andataco's stockholders' equity allowed
Andataco to obtain a waiver of its loan default.
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On July 7, 1999, nStor issued a proposal to Andataco's board to merge a
subsidiary of nStor with and into Andataco, with Andataco as the surviving
corporation. The proposed merger consideration was $.31 of registered nStor
common stock for each outstanding share of Andataco common stock. On July 16,
1999 nStor withdrew the July 7 proposal. On July 29, the July 7 proposal was
reinstated on the same terms. The Andataco board appointed a special independent
committee comprised of Cornelius McMullan and Melville Straus to consider the
terms of the merger agreement and to make a recommendation to the Andataco board
regarding the approval of the proposed transaction.
On July 26, 1999, Andataco formally engaged FLS, an independent
financial advisory firm to opine on the fairness of nStor's proposal to the
Andataco stockholders and, on August 4, 1999, FLS delivered a written opinion as
to the fairness of the proposal to the Andataco board.
During July and August, 1999, representatives of Akerman, Senterfitt &
Eidson, P.A., nStor's counsel, and Cooley Godward LLP, Andataco's counsel, held
numerous telephone calls to negotiate the terms of the merger agreement.
On August 2, 1999, the Andataco board held a special meeting. At that
meeting, the FLS representative rendered the opinion of FLS, which was
subsequently confirmed in writing, that as of the date of the special meeting
the consideration to be received by the Andataco stockholders was fair from a
financial point of view to the Andataco stockholders. After the FLS presentation
and further discussion, the independent committee recommended to the Andataco
board that the merger agreement be approved. The Andataco board (with Mr. Ravine
and Mr. Sykes abstaining due to their interest as discussed under "Interest of
Executive Officers and Directors in the Merger" on page ___) then voted to
approve the merger agreement and the proposed merger with nStor .
The merger agreement was signed on August 27, 1999.
nStor's Reasons for the Merger
nStor. nStor's board of directors has unanimously approved the merger
and the issuance of nStor's common stock to Andataco stockholders in the merger
and has declared that the merger and the issuance of nStor's common stock are
advisable and are fair to, and in the best interest of, nStor and its
stockholders. In reaching its determination, the nStor board of directors
consulted with Andataco's management and considered the following important
factors that supported the board's recommendation:
o the long-term interests of nStor and its stockholders, as well as
the interests of nStor employees, customers, creditors, suppliers
and the communities in which nStor operates;
o information concerning business, earnings, operations, financial
condition and prospects of nStor and Andataco, both individually
and on a combined basis, including information about past
earnings performance of each of nStor and Andataco;
o the merger combines companies with strong positions in attractive
markets, providing for a strategic match;
o the opportunity to benefit from cost savings and other benefits
of size and operating efficiencies;
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o the merger should allow the combined company to benefit, over the
long term, from increased financial strength, generation of
revenues over a broader geographic base, and more alternatives in
the financial markets as compared to either company on a
stand-alone basis;
o the merger enables nStor to gain access to a strong sales
organization and increase its purchasing power;
o the potential for appreciation in the value of nStor common stock
following the merger resulting from opportunities for enhanced
revenue growth and accelerated earnings growth of the combined
company; and
o the ability to complete the merger, including, in particular, the
likelihood of obtaining stockholder approval.
The nStor board of directors also considered a variety of risks and
other potentially negative factors in deliberations concerning the merger. In
particular, the nStor board of directors considered:
o the difficulty in managing Andataco's operations after the
merger, given the geographical distance between nStor and
Andataco's executive offices and operational facilities; and
o the risks associated with combining the operations of Andataco
with nStor's existing operations, including the loss of key
personnel and customers, difficulty in combining corporate,
accounting, financial reporting and management information
systems and the strain on existing levels of personnel to operate
Andataco's business.
The foregoing discussion describes the material factors considered by
nStor's board of directors in its consideration of the merger. After considering
these factors, and taking into account the recommendation of management, the
nStor board of directors concluded that the positive factors described above
outweighed the negative factors described above. Because of the variety of
factors considered, the nStor board of directors did not find it practicable to,
and did not make specific assessments of, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. The
determination was made after consideration of all of the factors together. In
addition, individual members of the nStor board of directors may have given
different weights to different factors.
The nStor board unanimously recommends that the nStor stockholders vote
"FOR" approval of the issuance of nStor's common stock to Andataco stockholders
in the merger.
Opinion of nStor's Valuation Advisor
The following description of the opinion and presentation of Marshall &
Stevens contains forward looking information. The projections and forecasts
furnished to Marshall & Stevens were prepared by the management of Andataco.
Andataco does not publicly disclose internal management projections of the type
provided to Marshall & Stevens in connection with its valuation, and such
projections were not prepared with a view toward public disclosure. These
projections were based on numerous variables and assumptions that are inherently
uncertain and may be beyond the control of management, including, factors
related to general economic and competitive conditions and prevailing interest
rates. Accordingly, actual results could vary significantly from those set forth
in the opinion.
nStor retained Marshall & Stevens to render an opinion to the nStor
Board as to the valuation of the shares of Andataco common stock held by
Andataco's minority stockholders as of June 7, 1999, the day prior to the
closing of the acquisition of the Andataco shares owned by the family of David
Sykes.
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Marshall & Stevens delivered its written opinion to the nStor Board
that, as of June 7, 1999 and based upon and subject to certain considerations
and assumptions, the fair market value of the shares of Andataco common stock
held by Andataco's minority stockholders was $0.31 per share. The full text of
the Marshall & Stevens opinion, dated July 7, 1999, which sets forth the
assumptions made, procedures followed, matters considered and limitations on the
review undertaken, is attached as Annex C and is qualified in its entirety by
reference to the full text of the opinion.
In conducting its analysis and arriving at its opinion, Marshall &
Stevens, among other things:
o Reviewed the 10-K, along with audited financial statements of
Andataco as of October 31, 1998 and 1997;
o Reviewed the 10-Q filings of Andataco for the fiscal quarters of
January 31, 1999 and April 30, 1999;
o Reviewed certain financial and operating information regarding
the business, operations and prospects for Andataco, including
projections prepared by Andataco's management for the fiscal year
ending October 31, 1999;
o Reviewed the Form 8-K of nStor, dated June 8, 1999;
o Reviewed the historical trading activity of Andataco's common
stock; and
o Reviewed publicly-held, actively traded companies with business
operations similar to Andataco's.
In addition, in arriving at its opinion, Marshall & Stevens:
o Held discussions with nStor's and Andataco's management
concerning their business, operations, assets, financial
condition and prospects; and
o Undertook such other studies, analyses and investigations as it
deemed appropriate.
In arriving at its opinion, Marshall & Stevens did not visit Andataco.
Marshall & Stevens assumed and relied upon the accuracy and completeness of the
financial and other information supplied to or otherwise used by it in arriving
at its opinion and did not attempt independently to verify, or undertake any
obligation to verify, such information. Marshall & Stevens further relied upon
the assurances of the management of Andataco that they were not aware of any
facts that would make such information inaccurate or misleading. In addition,
Marshall & Stevens assumed that the forecasts and projections provided to them
represented the best currently available estimates and judgment of Andataco's
management as to the future financial condition and results of operations of
Andataco, and assumed that such forecasts and projections had been reasonably
prepared based on such currently available estimates and judgments. Marshall &
Stevens assumed no responsibility for and expressed no view as to such forecasts
and projections or the assumptions on which they are based.
Marshall & Stevens also took into account its assessment of general
economic, market and financial conditions and its experience in similar
transactions, as well as its experience in securities valuation in general.
Marshall & Stevens noted that its opinion was necessarily based upon conditions
as they currently existed and that could be evaluated on the date of its
opinion.
Marshall & Stevens did not express any view as to what the value of
nStor's stock will be when issued to Andataco minority shareholders pursuant to
the merger, or the price at which nStor's stock will trade prior to or
subsequent to the closing of the merger. The opinion does not constitute a
recommendation of the merger over any alternative transactions that may be
available to Andataco and does not address the underlying business decision of
the nStor Board to proceed with or effect the merger. Furthermore, the opinion
does not constitute a recommendation by Marshall & Stevens to any stockholder to
vote in favor of the merger.
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The following is a brief summary of the financial analyses utilized by
Marshall & Stevens in rendering its opinion. Such summary does not purport to be
a complete description of all of the analyses performed, or all of the factors
considered by, Marshall & Stevens in connection with its opinion.
Market Value Analysis
A market value of Andataco was estimated by a market or sale comparison approach
where values are based upon price or invested capital based ratios obtained from
publicly held, actively traded companies that are similar to the subject (the
"Comparables"). The most common ratio is price to earnings (the p/e ratio)
although other ratios are used such as invested capital to revenue. Values are
estimated by applying the valuation ratios obtained from the Comparables to the
respective financial statistics of the subject.
The selected Comparables were obtained from Standard & Poor's S&P Stock Report
and S&P Compustat CD-ROM database of 8,000 publicly held companies and included
the following: Bell Microproducts, Inc.; Savoir Technology Group; Pomeroy
Computer Resources; PCC Group, Inc.; and PC Service, Inc.
A review and analysis of the Comparables revealed that an investment in Andataco
carried more risk due to factors including but not limited to the following:
Andataco had been delisted from the NASDAQ market to the over-the-counter
Bulletin Board while the Comparables were actively traded with heavier volume;
Andataco was under temporary forbearance with its primary lender as a result of
defaulting on certain covenants of its loan agreement; Andataco did not have
adequate working capital and was not profitable; Andataco was over leveraged;
and, Andataco's revenues had been declining for the last three years while most
of the Comparables had been growing. As a result of these additional risk
factors, the valuation ratios used for Andataco were selected from the lower end
of the range as described below.
The most common valuation multiple, the price to earnings ratio, was not used
for Andataco due to net losses that resulted in a deficit value. Consequently,
invested capital to revenue and invested capital to gross profit ratios were
used and applied to Andataco's projected financial data as of October 31, 1999
and annualized financial data for the year ending May 31, 1999. The invested
capital to revenue ratio is developed by dividing the sum of the market value of
stockholder's equity plus total interest bearing debt by the Comparables'
revenues. The invested capital to gross profit ratio is developed by dividing
the sum of the market value of stockholder's equity plus total interest bearing
debt by the Comparables' gross profit. The valuation results were adjusted for
the lack of adequate working capital and yielded a valuation range of $0.27 to
$0.34 per share based on a projected income statement for the fiscal year ending
October 31, 1999 and $0.16 to $0.27 per share based on an annualized income
statement for the twelve month period ending May 31, 1999. Based on the market
approach, the market value of Andataco, as of June 7, 1999 was estimated at
$0.31 per share.
Andataco's Reasons for the Merger; Recommendation of the Andataco Board of
Directors
A special committee of independent directors of the Andataco board
comprised of Cornelius McMullan and Melville Straus, and the full board of
Andataco approved the merger and merger agreement and declared that the merger
and merger agreement are advisable and fair to, and in the best interests of,
Andataco and its stockholders. Harris Ravine and W. David Sykes abstained from
voting on the approval of the merger and the merger agreement due to their
interests in the merger as described in greater detail under "Interests of
Executive Officers and Directors in the Merger" on page ___.
The Andataco board of directors and the independent committee of the
board believe, that, in view of flattening sales and service, increased
competition, increased complexity of customer driven solutions and industry
consolidation, it is increasingly difficult for Andataco to grow from internal
resources. In addition, it is believed that Andataco's need for significant
working capital to grow the company may not be satisfied through revenue alone
and that raising capital from alternative financing will be difficult on terms
that would be favorable to Andataco and its shareholders. Prior to approving the
merger, the Andataco board considered and tested various alternatives for
raising capital and growing its business, including a private placement of
equity securities and increased borrowings under existing or new credit lines.
After considering such alternatives, the Andataco board identified several
potential benefits that it believes would result from the merger. The board
believes that:
o the demonstrated ability of nStor to access financial
resources would enable the combined company to grow
more quickly and to compete more effectively than if
Andataco remained as a stand alone entity;
o the expanded product line of the combined company
would allow Andataco to increase sales to its
existing customer base and allow it to offer its
products to existing customers of nStor, thereby
increasing revenue;
o the combined company's increased revenue base and
stronger balance sheet would enhance its ability to
access equity and debt capital on terms that would be
substantially more favorable than if Andataco
remained as an independent entity;
o the combined company would be able to offer new
products more quickly as a result of larger
resources and development capacity;
o the combined company would likely realize
operating efficiencies as a result of eliminating
or reducing overlapping functions, such as finance
and administration;
o the benefits associated with receiving shares of
nStor common stock that are quoted on the AMEX, as
opposed to the Bulletin Board, would potentially
provide more value to the Andataco stockholders;
o the combined company would benefit from an
experienced management team; and
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o based on the opinion of FLS and other factors
described above, the consideration to be paid in the
merger to the Andataco stockholders is fair from a
financial point of view to the Andataco stockholders.
The Andataco board of directors also considered a number of potentially
negative factors in the deliberations concerning the merger, including
o the risk that the combined company may not be able to
achieve revenues equal to the sum of the anticipated
revenues of each company as stand alone entities;the
adverse effects of one-time charges expected to be
incurred in connection with the merger and the
subsequent integration of the companies;
o the non-fixed nature of the exchange ratio and the
potential for adverse fluctuation in the market
price of nStor common stock;
o the possibility that the merger would be viewed
negatively and would have an adverse effect on
Andataco's sales, employees, customers, lenders and
other business relationships; and
o the likelihood that the merger would constitute a
"taxable" event to Andataco shareholders.
In the view of the wide variety of factors considered by the Andataco
board in determining to approve the merger proposal, including the factors set
forth above, the board did not find it practical to quantify or otherwise assign
relative values to the positive and negative factors considered. In addition,
different members of the Andataco board may have assigned different weights to
different factors in the considerations. However, after taking into account all
of the factors, the board determined that the potential benefits of the merger
outweighed the overall risks associated with the merger. For a discussion of the
interest of certain members of Andataco's management and board of directors in
the merger, see "Interests of Executive Officers and Directors."
The independent committee of the Andataco board and the Andataco board
recommends that the Andataco stockholders vote "FOR" approval and adoption of
the merger and merger agreement.
Opinion of Andataco's Financial Advisor
The following description of the opinion and presentation of FLS
contains forward looking information. The projections and forecasts furnished to
FLS were prepared by the management of Andataco. Andataco does not publicly
disclose internal management projections of the type provided to FLS in
connection with its analyses of the merger, and such projections were not
prepared with a view toward public disclosure. These projections were based on
numerous variables and assumptions that are inherently uncertain and may be
beyond the control of management, including, without limitation, factors related
to general economic and competitive conditions and prevailing interest rates.
Accordingly, actual results could vary significantly from those set forth in the
opinion.
Andataco retained FLS to render an opinion to the Andataco board as to
whether the merger consideration of $0.31 per share to be paid to the minority
stockholders of Andataco by nStor is fair, from a financial point of view, to
the minority stockholders of Andataco.
FLS delivered its written opinion to the Andataco board that, as of
August 4, 1999 and based upon and subject to certain considerations and
assumptions, the merger consideration of $0.31 per Andataco minority share to be
paid to the minority stockholders as specified in the merger agreement was fair,
from a financial point of view, to
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the minority stockholders of Andataco. The full text of the FLS opinion, dated
August 4, 1999, which sets forth the assumptions made, procedures followed,
matters considered and limitations on the review undertaken, is attached as
Annex B and is qualified in its entirety by reference to the full text of the
opinion.
In conducting its analysis and arriving at its opinion, FLS, among
other things:
o Reviewed the 10-K, along with audited
financial statements of Andataco as of October
31, 1998 and 1997;
o Reviewed the 10-Q filings of Andataco for the
fiscal quarters ending January 31, 1999 and April
30, 1999;
o Reviewed certain financial and operating
information regarding the business, operations
and prospects for Andataco, including
projections prepared by Andataco's management
for the fiscal year ending October 31, 1999;
o Reviewed the S-3 filing (as amended) of nStor,
filed on July 23, 1999; and
o Compared the historical financial results and
financial condition of Andataco with those of other
companies and businesses that FLS deemed relevant.
In addition, in arriving at its opinion, FLS:
o Held discussions with Andataco's management
concerning its business, operations, assets,
financial condition and prospects;
o Met with W. David Sykes, founder of Andataco,
who plans to be a member of nStor's management
team as Executive Vice President of Marketing
and Sales. Mr. Sykes provided a background on
Andataco as well as an explanation of his
recent sale of approximately 76% of Andataco
to nStor; and
o Undertook such other studies, analyses and
investigations as it deemed appropriate.
FLS did not, as part of its review, meet with management of nStor other
than W. David Sykes, as noted above. FLS also did not consider the fairness of
the proposed transaction, from a financial point of view, to the majority
stockholders of Andataco nor to the stockholders of nStor.
In arriving at its opinion, although FLS visited certain properties and
facilities of Andataco, FLS did not make, obtain or assume any responsibility
for any independent evaluation or appraisal of such properties and facilities or
of the assets and liabilities (contingent or otherwise) of Andataco or nStor.
FLS assumed and relied upon the accuracy and completeness of the financial and
other information supplied to or otherwise used by it in arriving at its opinion
and did not attempt independently to verify, or undertake any obligation to
verify, such information. FLS further relied upon the assurances of the
management of Andataco that they were not aware of any facts that would make
such information inaccurate or misleading. In addition, FLS assumed that the
forecasts and projections provided FLS represented the best currently available
estimates and judgment of Andataco's management as to the future financial
condition and results of operations of Andataco, and assumed that such forecasts
and projections had been reasonably prepared based on such currently available
estimates and judgments. FLS assumed no responsibility for and expressed no view
as to such forecasts and projections or the assumptions on which they are based.
FLS also assumed that the merger described by Andataco management would be
consummated on the terms set forth in the merger agreement, without waiver of
any of such terms.
FLS also took into its account its assessment of general economic,
market and financial conditions and its experience in similar transactions, as
well as its experience in securities valuation in general. FLS noted that its
opinion was necessarily based upon conditions as they currently existed and that
could be evaluated on the date of its opinion.
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FLS did not express any view as to what the value of nStor's stock will
be when issued to Andataco minority stockholders pursuant to the merger, or the
price at which nStor's stock will trade before or after the closing of the
merger. The opinion does not constitute a recommendation of the merger over any
alternative transactions that may be available to Andataco and does not address
the underlying business decision of the Andataco Board to proceed with or effect
the merger. Furthermore, the opinion does not constitute a recommendation by FLS
to any stockholder to vote in favor of the merger.
The following is a brief summary of the financial analyses utilized by
FLS in rendering its opinion. Such summary does not purport to be a complete
description of all of the analyses performed by, or all the factors considered
by, FLS in connection with its opinion.
Historical Stock Performance
FLS reviewed trading prices for the shares of Andataco Common Stock.
This stock performance review indicated that for Andataco's latest twelve
months, referred to in this document as "LTM,", ended August 2, 1999, the low
and high closing prices were $0.22 and $1.75.
Market Analysis of Selected Publicly Traded Companies
Using publicly available information, FLS compared certain financial
information and operating statistics of Andataco with similar financial
information and operating statistics of:
o Artecon, Inc.;
o Box Hill Systems Corp.;
o ECCS, Inc.;
o Procom Technology, Inc.; and
o Storage Computer Corp.
These companies are collectively referred to as the "Andataco
Comparables". FLS reviewed, among other things, Andataco Comparables' historical
profitability margins, certain historical growth rates, market values of
equity, market values of invested capital, total enterprise values and implied
multiples of historical or estimated revenues, earnings before taxes, interest,
depreciation and amortization ("EBITDA"), market values of invested capital and
earnings per share. Among other things, this analysis indicated that the implied
multiples for the Andataco Comparables were as follows:
o Total market value of invested capital as a multiple of
trailing twelve months revenues ranged from .9x to 2.5x for
Andataco Comparables with an average (adjusted for outlyers)
of 1.1x. Applying this multiple to Andataco's results yielded
a market value of invested capital for Andataco of $68.3
million, which, when adjusted for Andataco's debt, yielded
$58.2 million. FLS then applied a 50% discount to account for
Andataco's weak financial condition and a 45% discount to
account for the minority interest, yielding a result of $16
million or approximately $0.67 per Andataco share using this
methodology.
o Total market value of invested capital as a multiple of
trailing twelve months earnings before interest, taxes,
depreciation and amortization (EBITDA) ranged from -21.0x to
53.7x for Andataco Comparables, with an average of 9.1x.
Applying the average to Andataco's results yielded a market
value of invested capital for Andataco of $12.1 million,
which, when adjusted for debt, yielded $1.9 million. FLS then
applied discounts of 50% to account for Andataco's weak
financial condition, and 45% to account for the minority
interest position to yield an adjusted market value of
invested capital for Andataco of $0.5 million or approximately
$0.02 per Andataco share.
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o Current price as a multiple of estimated calendar 1999
earnings per share ("EPS") ranged from 2.6x to 60.0x with an
average of 29.2x. Estimates were taken from First Call
Research. All implied financial multiples were based on
closing market prices on July 29, 1999. FLS could not apply a
value to Andataco's 1999 EPS since, in the case of Andataco,
losses are estimated for the 1999 year.
Discounted Economic Income (Cash Flow) Approach
FLS analyzed Andataco based on an unlevered discounted cash flow
analysis of the projected financial performance of Andataco. Such projected
financial performance was based upon certain financial projections prepared by
Andataco's management for the fiscal year ending October 31, 1999. Those
projections included, among other things, projected sales, earnings (losses),
and EBITDA. FLS used Andataco's estimated fiscal year (October 31) 1999 EBITDA
to approximate cash flow. FLS then assumed industry growth rates of 25% per year
to estimate EBITDA for fiscal years 2000, 2001, 2002 and 2003. The discounted
cash flow analysis determined the discounted present value of the unlevered
pre-tax cash flows projected to be generated over the five-year period and then
added a terminal value based upon an EBITDA multiple of 9x which is consistent
with the current multiple of Andataco Comparables. The unleveraged after-tax
cash flows and terminal value were discounted using a discount rate of 10%,
yielding a value of $23.9 million. FLS then applied discounts to that value of
50% for Andataco's weak financial condition, and 45% to account for the minority
interest, yielding a value of $6.57 million or approximately $0.28 per Andataco
share.
FLS then calculated a weighted average value per share of Andataco
common stock, using the results described above. FLS applied a weighting of 50%
to the market analysis (25% to the result of the "market value of invested
capital to revenue" value and 25% to the result of the"market value of invested
capital to EBITDA" value), and a weighting of 50% to the discounted economic
income (cash flow) analysis yielding an overall value for Andataco of $7.4
million or $0.31 per Andataco share.
Consideration of David Sykes' recent sale of shares to nStor
FLS analyzed the recent sale of 18,021,281 Andataco shares by W. David
Sykes to nStor. Among other analyses, FLS analyzed the value of certain cash,
promissory notes, and preferred shares that were a part of the Sykes'
transaction.
FLS believes that its analyses must be considered in the aggregate, and
that selecting portions of its analyses or the factors considered by it without
considering all factors and analyses considered by FLS could create a misleading
view of the processes underlying its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. In arriving at its opinion, FLS did not
attribute any particular weight to any one analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. In its analyses, FLS made numerous implicit
assumptions about industry and general economic conditions, and other matters,
many of which are beyond the control of Andataco. Any estimates contained
therein are not necessarily indicative of future results or actual values, which
may be more significantly more or less favorable than such estimates. Estimates
of values of companies do not purport to be appraisals or necessarily reflect
the prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty, none of Andataco, FLS or any other person
assumes responsibility for their accuracy.
Andataco selected FLS to be its financial advisor in connection with
the merger because FLS is a prominent San Diego-based investment banking firm
engaged in, among other things, the valuation of businesses and securities in
connection with mergers, acquisitions, underwritings, sales and distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. FLS had no previous relationship with Andataco.
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Pursuant to the terms of an engagement letter, Andataco paid FLS a
customary fee for rendering the FLS opinion. Andataco also agreed, under
separate cover, to reimburse FLS for its out-of-pocket expenses, including
reasonable fees and expenses for its legal counsel, and to indemnify FLS and
certain related parties against certain liabilities, including liabilities under
the federal securities laws, arising out of or in connection with the services
rendered by FLS under the engagement letter. The terms of the fee arrangement
with FLS were negotiated at arm's length between Andataco's management and FLS.
Annex B contains the full text of the written opinion of FLS dated
August 4, 1999, which is incorporated by reference into this joint proxy
statement/prospectus and which sets forth assumptions made, matters considered
and limitations on the review undertaken in connection with the opinion. FLS has
consented to the references to its opinion in this joint proxy
statement/prospectus and to the inclusion of its opinion in Annex B of this
document. In giving its consent, FLS does not admit that it comes within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended (the "Securities Act"), and the related SEC rules and
regulations. The opinion was provided to the Andataco board for its information,
is directed only to the fairness of the exchange ratio from a financial point of
view to holders of Andataco common stock and does not constitute a
recommendation to any holder of Andataco common stock as to how that stockholder
should vote at the Andataco special meeting with respect to the merger or any
other matter related to the merger. This description of the opinion is qualified
in its entirety by reference to Annex B. Stockholders of Andataco are urged to,
and should, read the opinion in its entirety.
Material Federal Income Tax Consequences of the Merger
Tax Consequences to Andataco Stockholders
The following section describes the material anticipated U.S. federal
income tax consequences of the merger to holders of Andataco common stock who
hold that stock as a capital asset. The term "capital asset" is defined in
Section 1221 of the Internal Revenue Code of 1986 as amended (the "Code"), as
property held for investment. This section is based on the Code, Treasury
regulations, administrative rulings and court decisions that are currently in
effect. These tax laws are subject to change at any time, possibly with
retroactive effect. We do not address the U.S. federal income tax considerations
applicable to certain classes of stockholders, including,
o financial institutions;
o dealers in securities;
o insurance companies;
o tax-exempt entities;
o persons who acquired Andataco common stock upon the exercise
of an employee stock option or right or otherwise as
compensation;
o persons who hold Andataco common stock as part of a hedge,
straddle, conversion or stable risk reduction transaction;
o persons who do not hold their shares of Andataco common stock
as a capital asset; and
o persons who are not for United States federal income tax
purposes:
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o a citizen or resident of the United States;
o a domestic corporation;
o a domestic partnership;
o an estate whose income is subject to U.S. federal income tax
regardless of the source; and
o a trust if a United States court can exercise primary
supervision over the trust's administration and one or more
U.S. persons are authorized to control all substantial
decisions of the trust.
In addition, we are not providing information regarding the tax consequences of
the merger under applicable foreign, state or local laws.
HOLDERS OF ANDATACO COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL INCOME AND OTHER TAX CONSEQUENCES OF THE MERGER TO THEM,
INCLUDING THE EFFECTS OF STATE, LOCAL AND FOREIGN TAX LAWS.
The merger is intended to be a taxable transaction for U.S. federal
income tax purposes. Accordingly, Andataco stockholders will generally recognize
capital gain or loss as a result of the merger measured by the difference
between (a) the sum of (i) the fair market value of nStor common stock received,
and (ii) the cash, if any, received for a fractional share interest, and (b) the
tax basis of Andataco common stock surrendered in the merger. If (a) exceeds (b)
as outlined in the previous sentence for an Andataco stockholder, the
stockholder will have capital gain equal to the amount of such excess. However,
if (b) exceeds (a), the stockholder will have capital loss equal to the amount
of such excess. The merger will be taxable to the Andataco stockholders because
the consideration paid by nStor for the Andataco common stock included a
significant amount of non-stock consideration. As part of its plan to acquire
Andataco, nStor acquired 76% of the Andataco common stock from the Sykes family
for promissory notes.
Capital gain or loss will be long-term capital gain or loss for
Andataco common stock held for more than one year. Capital gain or loss will be
short-term capital gain or loss for Andataco common stock held for one year or
less.
In the case of individuals, the maximum federal income tax rate
applicable to capital gains is generally as follows:
o the same as ordinary income rates with respect to capital gain
for capital assets held for one year or less (i.e., short-term
capital gain); and
o twenty percent (20%) with respect to capital gain for capital
assets held for more than one year (i.e., long-term capital
gain).
Legislation has been proposed which, if enacted, would reduce the maximum
federal income tax rate applicable to long-term capital gain. It is not clear
whether this legislation will become law or, even if it or some variation
becomes law, whether there will be any reduction in the maximum rate in the bill
as enacted or whether any reduction in rate would have an effective date for
sales and exchanges on or before the effective time of the merger.
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An Andataco stockholder may generally deduct a capital loss only
against capital gain. Despite the above, an Andataco stockholder other than a
corporation may deduct against ordinary income up to $3,000 of the amount by
which the stockholder's capital losses exceed the stockholder's capital gains.
Unless an exemption applies under applicable law and regulations, the
exchange agent is required to withhold, and will withhold, 31% of any cash
payments to an Andataco stockholder in the merger unless the stockholder
provides the appropriate form as described below. Each Andataco stockholder
should complete and sign the Substitute Form W-9 included as part of the letter
of transmittal to be sent to each Andataco stockholder, so as to provide the
information, including such stockholder's taxpayer identification number, and
certification necessary to avoid backup withholding, unless an applicable
exemption exists and is proved in a manner satisfactory to nStor and the
exchange agent.
The preceding discussion is not meant to be a complete analysis of all
potential tax effects relevant to the merger. Thus, Andataco stockholders are
urged to consult their own tax advisors as to the specific tax consequences to
them of the merger, including federal, state, local and other applicable tax
laws and the effect of any proposed changes in the tax laws.
Tax Consequences to Andataco, nStor and NTI
Neither Andataco, nStor, NTI, nor the existing nStor stockholders will
recognize gain, loss or any other income for federal income tax purposes as a
result of the merger.
Conversion of Shares; Procedures for Exchange of Certificates
As soon as practicable after the effective time, the exchange agent
will mail to the registered holders of Andataco common stock (i) a letter of
transmittal and (ii) instructions for the use in effecting the surrender of
valid certificates representing shares of Andataco common stock (the "Andataco
stock certificates") in exchange for certificates representing nStor common
stock. Upon surrender of an Andataco stock certificate to the exchange agent for
exchange, together with a duly executed letter of transmittal and such other
documents as may reasonably be required by the exchange agent or nStor, the
holder of such Andataco stock certificate shall be entitled to receive in
exchange therefor a certificate representing the whole number of shares of nStor
common stock that such stockholder has the right to receive along with any cash
due as the result of fractional shares.
If any Andataco stock certificate has been lost, stolen or destroyed,
nStor may require the owner of such lost, stolen or destroyed Andataco stock
certificate to provide an appropriate affidavit as indemnity against any claim
that may be made against nStor or Andataco with respect to such Andataco stock
certificate.
Andataco stockholders should not surrender their Andataco stock certificates for
exchange until they receive a letter of transmittal from the exchange agent
Resale of nStor Common Stock; Restrictions on Andataco Affiliates
nStor common stock received in the merger will be freely transferrable,
except for shares of nStor common stock received by any "affiliate" of Andataco
prior to the merger under SEC Rule 145. Affiliate shares will not be
transferrable except in compliance with the Securities Act. The term "affiliate"
is defined in the Securities Act and generally includes directors, certain
executive officers and beneficial owners of 10% or more of a class of capital
stock. This joint proxy statement/prospectus does not cover sales of nStor
common stock by any person deemed an affiliate.
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Management and Operations Following the Merger
When the merger becomes effective, Andataco will operate as a wholly
owned subsidiary of nStor, and will continue its corporate existence under the
laws of the State of Massachusetts. The combined company will be governed by the
articles of organization and bylaws of Andataco immediately prior to the merger.
The nStor board and the nStor officers will remain unchanged after the
merger except that W. David Sykes will be added as the Executive Vice President
of Marketing and Sales of nStor. The Andataco stockholders will become
stockholders of nStor, and their rights as stockholders will be governed by the
nStor certificate of incorporation (the "nStor Certificate"), the nStor bylaws
(the "nStor Bylaws") and the laws of the State of Delaware.
See "Comparison of Rights of nStor Stockholders and Andataco Stockholders."
Appraisal Rights
If you are an Andataco stockholder, you are entitled to dissenters'
rights under both Massachusetts and California law. In order to exercise those
rights, you must comply with the procedures described below. The descriptions
are only summaries and are qualified by reference to the relevant provisions of
Massachusetts law, attached as Annex D and California law, attached as Annex E.
Massachusetts
If the merger is completed, Andataco stockholders who object to the
merger are entitled to appraisal rights under Massachusetts law. In order to
exercise appraisal rights, Andataco stockholders must strictly adhere to the
provisions of Massachusetts law governing appraisal rights. The following is a
summary of the relevant provisions of Massachusetts law.
In order to exercise appraisal rights, you must take the following
steps:
o send a written objection to the merger to Andataco before the
special meeting stating your intention to demand payment for
your shares of Andataco capital stock if the merger is
approved and the merger occurs;
o do not vote in favor of the merger; and
o send a written demand to Andataco for payment for your shares
of Andataco capital stock within twenty (20) days after you
receive notice from Andataco that the merger has occurred.
Andataco will send the notice within ten (10) days after the
merger is completed.
A vote by proxy or in person against the transaction alone does not
constitute a demand for appraisal. If you file a written objection with Andataco
prior to the special meeting, you do not need to vote against the merger.
However, if you file a written objection with Andataco prior to the special
meeting and vote in favor of the merger, you will be deemed to have waived your
right to exercise appraisal rights.
If you have followed the procedures set forth above and the merger is
completed, Andataco will contact you in order to determine the fair value of
your Andataco stock. The "fair value" of your Andataco stock will be determined
as of the day before approval of the merger by the Andataco stockholders and
will exclude any value arising from the expectation of the merger. If Andataco
and you have not agreed as to the fair value of your stock within 50 days after
you receive notice from Andataco that the merger has occurred, both you and
Andataco will have the right to have the court determine the fair value by
filing a bill in equity in the Superior Court Department of Suffolk County,
Massachusetts no later than four (4) months after the expiration of the
negotiation period.
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The determination of fair value made by the court or special master
will be binding on and enforceable by you and the other Andataco stockholders
who have properly executed their appraisal rights.
The fair value of the Andataco capital stock could be worth more than,
the same as or less than the value of the nStor common stock you would otherwise
have received by exchanging your shares of Andataco stock for shares of nStor
common stock.
Your appraisal rights are your only remedy if you object to the merger,
unless the merger is determined to have been illegal, fraudulent or in breach of
the fiduciary duties of the Andataco board of directors.
If you exercise your appraisal rights, after the merger is completed
you will not have any rights as an Andataco or nStor stockholder, including the
right to receive notices of meetings, vote at meetings or receive dividends, if
any.
California
Under California law, Andataco stockholders may require Andataco to
purchase for cash at their fair market value the shares owned by the
stockholders that are dissenting shares. The fair market value is determined as
of August 4, 1999, the day before the announcement of the terms of the proposed
merger, and will exclude any value arising from the expectation of the proposed
merger.
Shares of stock must satisfy the following requirements to qualify as
dissenting shares:
o The shares must have been outstanding on the record date;
o The shares must not have been voted in favor of the
transaction;
o The holder of such shares of stock must make a written demand
that Andataco repurchase such shares of stock at the fair
market value; and
o The holder of such shares must submit certificates for
endorsement.
A vote by proxy or in person against the transaction alone does not
constitute a demand for appraisal.
Within ten (10) days following approval of the merger by stockholders
of Andataco, Andataco will be required to mail to each holder of dissenting
shares, a notice of the approval of the transaction, a statement of the price
determined by Andataco to represent the fair market value of dissenting shares
which shall constitute an offer by Andataco to purchase the dissenting shares at
the stated price, and a description of the procedures for the holders to
exercise their rights as dissenting stockholders.
Within thirty (30) days after the date on which the notice of the
approval of the transaction by the Andataco stockholders is mailed to dissenting
stockholders, a dissenting stockholder must demand that Andataco repurchase the
stockholder's shares. The demand must state the number and class of dissenting
shares held of record by the stockholder and the fair market value of the
dissenting shares as of August 4, 1999, the day before the announcement of the
terms of the proposed merger which shall constitute an offer by the dissenting
stockholder to sell the dissenting shares at that price within the thirty-day
period. A demand for payment may not be withdrawn by a stockholder unless
Andataco consents to the withdrawal.
If Andataco and a dissenting stockholder agree upon the price to be
paid for the dissenting shares, Andataco will be required to pay that amount to
the dissenting stockholder within the later of thirty (30) days after the date
Andataco and the dissenting stockholder agreed on the price or thirty (30) days
after any conditions to the merger are satisfied or waived.
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If Andataco and a dissenting stockholder disagree as to the price for
the dissenting shares or disagree as to whether the shares are entitled to be
classified as dissenting shares, the stockholder has the right to bring an
action in California superior court, within six (6) months after the date on
which notice of approval of the merger by Andataco stockholders is mailed, to
resolve the dispute.
The fair value of the Andataco capital stock could be worth more than,
the same as or less than the value of the nStor common stock you would otherwise
have received by exchanging your shares of Andataco stock for shares of nStor
common stock.
Delaware
Under Delaware law, nStor stockholders who dissent from the issuance of
nStor common stock to Andataco stockholders in connection with the merger do not
have appraisal rights.
Accounting Treatment
nStor will account for the merger under the purchase method of
accounting under generally accepted accounting principles. Under the purchase
method of accounting, the purchase price for Andataco will be allocated to the
assets acquired and liabilities assumed based upon their estimated fair values.
The excess purchase consideration, if any, will be allocated to goodwill.
Public Trading Markets
Andataco common stock is currently traded on the Bulletin Board under
the trading symbol "ANDA." Upon completion of the merger, Andataco common stock
will cease to be listed on the Bulletin Board and will be deregistered under the
Exchange Act. nStor common stock is currently listed on the AMEX under the
symbol "NSO." nStor will apply to list the shares of nStor common stock to be
issued in the merger on the AMEX. The authorization for listing on the AMEX of
the shares of nStor common stock issuable to Andataco stockholders is a
condition to the completion of the merger.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendation of the independent committee of the
Andataco board to vote in favor of the merger and merger agreement, Andataco
stockholders should be aware that certain officers of Andataco, including some
officers who are also directors, have interests in the merger that are different
from, or in addition to, the interests of the Andataco stockholders generally.
Mr. Ravine, CEO and Chairman of the Board of Andataco, has an employment
agreement with Andataco which provides severance benefits described under
"Executive Compensation" in Andataco's Proxy Statement dated March 1, 1999 which
is incorporated herein by reference to Andataco's Annual Report on Form 10-K for
the year ended October 31, 1998. In addition, Mr. Sykes, President of Andataco
and Vice Chairman of the Andataco board of directors, has entered into a three
year employment agreement with nStor in connection with Mr. Sykes' recent sale
of approximately 76% of Andataco shares to nStor. This employment agreement is
effective upon nStor's acquisition of the remaining shares of Andataco common
stock. Under the terms of the employment agreement, Mr. Sykes will continue as
Andataco's President and will serve as nStor's Executive Vice President of
Marketing and Sales.
Indemnification of Directors and Officers
Under the merger agreement, for a period of six years after the
effective time, nStor has agreed to, and has agreed to cause Andataco, as the
surviving corporation, to maintain in effect the current or similar provisions
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regarding officer and director indemnification contained in Andataco's Articles
of Organization and Andataco Bylaws. nStor has also agreed to cause Andataco to
indemnify Andataco's directors and officers to the maximum extent to which
Andataco is permitted to indemnify those persons under the Andataco Articles and
Andataco Bylaws and applicable law. Additionally, nStor has agreed, as of the
effective time, to guarantee Andataco's indemnification obligations. If a claim
is asserted or made within the six-year period, the foregoing agreement
regarding indemnification will be extended until the final disposition of the
claim.
During the period of time that nStor is subject to these
indemnification obligations, nStor will cause Andataco, as the surviving
corporation in the merger, to maintain in effect nStor's existing directors and
officers insurance policies, or substitute policies that are no less favorable
to the directors and officers than Andataco's existing policies.
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MATERIAL TERMS OF THE MERGER AGREEMENT
The following summarizes the material terms of the merger agreement,
attached as Annex A. This summary is qualified in its entirety by the merger
agreement. You should read the merger agreement in its entirety for a more
complete description of the terms and conditions of the merger.
The Merger
If the issuance of nStor common stock to Andataco stockholders in the
merger is approved by nStor stockholders and the merger is approved by Andataco
stockholders, the merger closing will take place on a date specified by nStor or
NTI which will be no later than the third business day after the satisfaction of
all of the conditions to the merger. On the closing date, nStor and Andataco
will file Florida articles of merger and Massachusetts articles of merger with
the Secretary of State of Florida and the Secretary of the Commonwealth of
Massachusetts, respectively. The merger will be effective on the date that the
Massachusetts articles of merger and the Florida articles of merger are filed,
or on any other date that is specified in those filings or set by the parties.
Conversion of Shares
If the merger is closed:
o each share of Andataco common stock outstanding immediately before
the merger is completed will be converted into the number of
shares of nStor common stock obtained by dividing thirty-one cents
($0.31) by the average closing price of one share of nStor common
stock on the AMEX for the ten (10) trading days immediately before
the date of the Andataco special meeting; and
o each fractional share of nStor common stock will be converted into
the right to receive cash, without interest. The average closing
price of one share of nStor common stock on the AMEX for the ten
(10) trading days immediately before the date of the Andataco
special meeting will determine the amount of cash to be paid for
each fractional share.
Based on the number of shares of common stock of Andataco and nStor
outstanding on the record date for the meetings and the average closing price of
one share of nStor common stock on the AMEX for the ten (10) trading days
immediately prior to the record date, nStor will issue approximately [ ] shares
of nStor common stock in the merger and Andataco's existing stockholders will
own approximately [ ]% of the total issued and outstanding common stock of
nStor.
Representations and Warranties
Mutual Representations and Warranties
To induce the other party to enter into the merger agreement, Andataco
and nStor and NTI each made representations and warranties to the other
regarding the accuracy and completeness of reports filed with the SEC and
financial statements and information exchanged during the due diligence process.
In addition, Andataco, nStor and NTI each made other customary representations,
which included representations regarding the following:
o corporate organization and good standing;
o corporate authorization to enter into the contemplated
transaction; and
o capitalization.
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Additional Representation and Warranty of Andataco
In addition, Andataco has represented that it has received an opinion
of its financial advisor, FLS.
Certain Covenants
Conduct of Andataco's Business Before the Merger
Andataco has agreed that until the merger occurs, unless nStor
otherwise consents in writing and except as otherwise expressly contemplated by
the merger agreement, that Andataco will conduct its business only in the
ordinary course consistent with past practice and that, among other things:
o Andataco will use its commercially reasonable efforts to keep its
business organizations intact, to keep the services of its
present officers, directors, employees, agents, consultants and
similar representatives available and to maintain its
relationships with customers, suppliers, and others with whom it
has business relations;
o Andataco will not amend or permit the adoption of any amendment
to the Andataco Articles of Organization or Andataco Bylaws, or
modify its capital structure or affect the number or rights of
any securities outstanding, except under its stock option plan;
o Andataco will not grant or issue any options, warrants or other
rights to purchase or subscribe for Andataco common stock except
as provided in the merger agreement;
o Andataco will not declare or pay any dividend on or make any
distributions with respect to any share of capital stock;
o Andataco will not incur any debt other than under its current
credit facilities;
o Andataco will not make any capital expenditures in excess of
$50,000, in the aggregate;
o Andataco will not merge with or acquire any other business;
o Andataco will not acquire or sell its assets except in the
ordinary course of business consistent with past practice;
o Andataco will not enter into or modify any of its contracts or
amend or prematurely terminate or waive any material right or
remedy under its contracts, except in the ordinary course of
business;
o Andataco will not change its accounting methods, principles or
practices in any material respect or make any tax election;
o Andataco will not modify its compensation structures, benefit
plans or other compensation with respect to its employees,
directors and officers and will not hire any new employee whose
aggregate annual compensation is expected to exceed $30,000; and
o Andataco will not take any action that would cause any of its
representations or warranties to become untrue or incorrect.
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Agreements Not to Solicit Other Offers
Andataco agreed that it will not authorize or permit any of its related
parties to, initiate, solicit, or encourage any inquiries or the making of any
proposal for a tender or exchange offer, merger, consolidation or other business
combination involving Andataco. Any proposal or offer described in the foregoing
sentence will be referred to as an acquisition proposal. Andataco may, however,
at any time before the completion of the merger, engage in discussions or
negotiations with a third party who makes an unsolicited acquisition proposal if
the board of directors of Andataco determines in good faith, after consultation
with outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to Andataco's stockholders under applicable law. The Andataco
board may, after notice to nStor, withdraw or modify its approval or
recommendation of the merger agreement and the merger and terminate the merger
agreement after receipt by Andataco of a bonafide proposal made by a third party
to acquire more than 50% of the shares of Andataco common stock or all or
substantially all of the assets of Andataco on terms which the Andataco board
determines in its good faith judgment based on advice of a financial advisor of
nationally recognized reputation to be more favorable to Andataco's stockholders
than the merger.
Stockholders' Meeting
Andataco will call a meeting of its stockholders to be held as promptly
as practicable to vote on the merger. Subject to the discussion above under
"--Agreements Not to Solicit Other Offers," Andataco has agreed to recommend to
its stockholders adoption and approval of the merger.
nStor will call a meeting of its stockholders to be held promptly as
practicable to vote on the issuance of nStor's common stock to Andataco
stockholders in the merger. nStor has agreed to recommend to its stockholders
the approval of the issuance of nStor common stock to Andataco stockholders in
the merger.
Information
Andataco and nStor have agreed to give each other, and their authorized
representatives access to their facilities, books and records before the merger
is completed. nStor and Andataco will furnish the other party with all financial
and operating data and other information as the other party may reasonably
request.
Indemnification of Directors and Officers
For six years after the merger is completed, the surviving
corporation will indemnify the directors and officers of Andataco to the maximum
extent permitted by the Andataco articles of organization, the bylaws and
applicable law. nStor also has agreed that the surviving corporation will
maintain in effect, for a period of three years, the current policy of
directors' and officers' liability insurance coverage maintained by Andataco,
provided that the policy need cover only wrongful acts of the insured that
occurred prior to June 8, 1999, subject to limitation in the event that the
annual premium exceeds 125% of the prior fiscal year's premium. For the period
from June 8, 1999 through and including the date on which the directors and
officers cease to be directors or officers of nStor or any of its affiliates,
nStor has agreed that each of the persons who were insureds under Andataco's
directors' and officers' liability insurance policy as of June 8, 1999 will be
insured under nStor's directors' and officers' liability insurance policy.
Certain Other Covenants
The merger agreement also contains other agreements relating to the
conduct of the parties before the effective time, including those requiring the
parties to use commercially reasonable efforts to:
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o take all appropriate actions to consummate these transactions;
o prepare and file any filings required by federal or state
securities laws;
o supply information for this joint proxy statement/prospectus
that is true and correct in all material respects;
o consult with each other before issuing any press releases or
making any public statements about the merger, except for filings
required by governmental entities;
o comply with all legal requirements of the merger and obtain
all necessary consents and approvals; and
o take actions necessary to consummate the transactions
contemplated by the merger agreement if any takeover statutes
shall apply.
Conditions to Obligations to Effect the Merger
Andataco and nStor are not required to complete the merger until the
following conditions have been satisfied or waived:
o Approval of the merger by the Andataco stockholders;
o Approval of the issuance of nStor common stock to Andataco
stockholders in the merger by the nStor stockholders;
o No restraining order, injunction or other order issued by any
court, or other legal or regulatory restraint or prohibition
shall have been issued and be in effect:
(1) restraining or prohibiting the consummation of the merger; or
(2) prohibiting the ownership, operation or control of Andataco
by nStor or of any material portion of Andataco's business or
assets;
o All material consents and approvals to the merger have been
obtained;
o Receipt by Andataco of a fairness opinion from FLS;
o Effectiveness of the registration statement; and
o The shares of nStor common stock to be issued in the merger will
have been approved for listing on the AMEX.
Andataco is not required to complete the merger until the following
conditions have been satisfied or waived:
o The representations and warranties of nStor set forth in the
merger agreement must be true and correct, in all material
respects, as of the date of the merger agreement and as of the
closing of the merger;
o nStor must have materially performed all obligations required to
be performed by it under the merger agreement at or prior to the
closing of the merger; and
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o Andataco must have received an opinion of Akerman, Senterfitt &
Eidson, P.A. in a form reasonably satisfactory to Andataco.
nStor is not required to complete the merger until the following
conditions have been satisfied or waived:
o The representations and warranties of Andataco set forth in the
merger agreement must be true and correct, in all material
respects, as of the date of the merger agreement and as of the
closing of the merger;
o Andataco must have materially performed all obligations required
to be performed by it under the merger agreement at or prior to
the closing of the merger; and
o nStor must have received an opinion of Cooley Godward LLP in a
form reasonably satisfactory to nStor.
Termination
The merger agreement may be terminated at any time before the closing
of the merger. This termination may occur before or after approval of the merger
by the Andataco stockholders and approval of the issuance of nStor's common
stock to Andataco stockholders in the merger in the following manner:
o Mutual written consent of both Andataco and nStor;
o By either Andataco or nStor or NTI if:
(1) the merger has not been consummated before December 31, 1999,
unless the parties agree to extend the time in which the
merger must be consummated (the right to terminate under this
clause is not available to a party whose failure to fulfill
an obligation under the merger agreement is the cause of the
failure of the merger to occur);
(2) an arbitrator or governmental entity has issued a
nonappealable final order or taken any other nonappealable
final action permanently restraining or prohibiting the
transactions contemplated by the merger agreement; or
(3) the other party has breached, or failed to comply with, in
any material respect any of its obligations under the merger
agreement or any representation or warranty made by the other
party shall have been incorrect in any material respect when
made or shall have since ceased to be true and correct in any
material respect; or
o By Andataco if it enters into a definitive agreement with a third
party to effect a business combination, if the proposed
transaction would be considered a superior proposal under the
terms of the merger agreement.
Expenses
All costs and expenses incurred in connection with the transactions
contemplated by the merger agreement will be paid by the party incurring the
expenses.
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Amendment and Waiver
The merger agreement may be amended at any time before the effective
time by means of a written agreement. After approval by the Andataco
stockholders, however, no amendment may change the consideration they are to
receive or adversely affect the Andataco stockholders. The conditions to each of
the parties' obligations to consummate the merger are for the sole benefit of
that party and may be waived by that party in whole or in part to the extent
permitted by law.
Exchange of Stock Certificates
Shortly after the effective time, an exchange agent will mail to you a
letter of transmittal and instructions for exchanging your Andataco common stock
for shares of nStor common stock (plus cash in lieu of any fractional shares).
On surrender of an Andataco stock certificate to the exchange agent, together
with the executed letter of transmittal, Andataco stockholders will be entitled
to receive shares of nStor common stock and any cash payable in lieu of
fractional shares of nStor. The surrendered Andataco stock certificates will
promptly be canceled.
No Further Ownership Rights in Andataco Common Stock
On the closing of the merger, the stock transfer books of Andataco will
be closed and no further transfers of the shares of Andataco common stock that
were outstanding prior to the closing of the merger will be made. If shares of
Andataco common stock are presented to Andataco after the merger, the
certificates will be canceled and exchanged for shares of nStor common stock.
Failure to Exchange
If Andataco stockholders do not exchange their shares of Andataco
common stock certificates within 180 days after the closing of the merger, they
will have to contact nStor to exchange their shares of Andataco common stock for
nStor common stock and cash in lieu of fractional shares. Any dividends payable
on nStor common stock declared or made after the effective time of the merger
will also have to be claimed from nStor if the shares of Andataco common stock
were exchanged more than 180 days from the effective time of the merger.
No Liability
Andataco, nStor and the exchange agent will not be liable to any
stockholder of Andataco common stock for any shares of nStor common stock (or
cash in lieu of fractional shares) delivered to a public official pursuant to
abandoned property, escheat or similar laws.
Dividends and Distributions
nStor will not pay any dividends it has declared or any cash payable in
lieu of fractional shares until the stockholder to which the dividend or cash
payable is due has exchanged the Andataco shares for shares of nStor. Following
surrender of any Andataco certificate, nStor will pay to the stockholder,
without interest, the amount of any dividends declared by nStor to which the
stockholder is entitled and any cash payable in lieu of fractional shares of
nStor common stock.
Lost Certificates
If you are an Andataco stockholder and your stock certificates of
Andataco are lost, stolen, or destroyed prior to the closing of the merger, you
must make an affidavit of that fact. Also, if required by the surviving
corporation, you must post a bond in a reasonable amount as determined by the
surviving corporation, as indemnity against any potential claim regarding the
lost certificates. In exchange for lost, stolen or destroyed stock certificates,
after you have made the affidavit and posted the bond, the exchange agent will
issue to you shares of nStor common stock and any cash in lieu of fractional
shares due. The exchange agent will also pay any unpaid dividends and
distributions on shares of nStor common stock that are deliverable on the nStor
common stock.
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You should not send your share certificates until you receive a
transmittal form from American Stock Transfer and Trust Company, the exchange
agent.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated statements of
operations give effect to: (i) the acquisition of approximately 77% of the
outstanding common stock of Andataco which was principally completed in June
1999 (the "Completed Transaction"), and (ii) the anticipated acquisition of the
remaining approximately 23% of the outstanding common stock of Andataco (the
"Anticipated Acquisition") from Andataco's minority shareholders (collectively,
the "Transactions") as if the Transactions had occurred as of January 1, 1998.
The following unaudited pro forma condensed consolidated balance sheet as of
June 30, 1999 assumes the Anticipated Acquisition was consummated on June 30,
1999. The unaudited pro forma financial information is derived from and should
be read in conjunction with the historical financial statements and notes
thereto of nStor and of Andataco, that are incorporated by reference.
The Completed Transaction has been accounted for as a purchase with
assets acquired and liabilities assumed recorded at fair value, and Andataco's
operating results included in nStor's historical consolidated financial
statements, as of the effective date of acquisition (June 1, 1998). Accordingly,
the historical consolidated balance sheet of nStor as of June 30, 1999 includes
the accounts of Andataco, and nStor's historical consolidated statement of
operations for the six months then ended includes the operating results of
Andataco for June 1999.
The pro forma adjustments are based on management's preliminary
estimates of the value of tangible and intangible assets acquired. A valuation
of those assets is currently being conducted and, accordingly, those estimates
could change as additional information becomes available or as additional events
occur.
The unaudited pro forma financial information is not designed to
represent and does not represent what the consolidated results of operations or
financial position would have been had the Transactions been completed as of the
dates assumed, and are not intended to project the consolidated results of
operations for any future period or the consolidated financial position as of
any future date. The unaudited pro forma condensed consolidated financial
statements do not reflect certain non-recurring expenses that may result from
the Transactions, and also exclude estimated expense reductions, including
elimination of duplicate facilities and personnel costs, that are expected to
result from the Transactions.
52
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(in thousands)
<TABLE>
<CAPTION>
nStor Pro Forma Pro Forma
Historical Adjustment(1) Consolidated
--------------- ----------------- -----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 385 $ (300) $ 85
Accounts receivable, net 11,032 - 11,032
Inventories 9,302 - 9,302
Prepaid expenses and other 1,626 - 1,626
--------------- ----------------- -----------------
Total current assets 22,345 (300) 22,045
Property and equipment, net 4,117 - 4,117
Goodwill and other intangible assets, net 16,427 2,021 18,448
Restricted cash and other assets 658 - 658
--------------- ----------------- -----------------
$ 43,547 $ 1,721 $ 45,268
=============== ================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and other $ 13,624 $ - $ 13,624
Current portion of long-term debt 165 - 165
--------------- ----------------- -----------------
Total current liabilities 13,789 - 13,789
Long-term debt 19,943 - 19,943
Minority interests 79 (79) -
Shareholders' equity 9,736 1,800 11,536
--------------- ----------------- -----------------
$ 43,547 $ 1,721 $ 45,268
=============== ================= =================
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
53
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Completed
---------- Transaction
-----------
nStor Andataco
Year Ended Year Ended
December 31, October 31, Pro Forma Pro Forma
1998 1998 Adjustments Consolidated
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Sales $ 18,026 $ 77,519 $ - $ 95,545
Cost of sales 15,258 54,293 - 69,551
--------------- --------------- ---------------- ---------------
Gross profit 2,768 23,226 - 25,994
--------------- --------------- ---------------- ---------------
Operating expenses:
Selling, general and
administrative 8,335 19,700 - 28,035
Research and
development 2,572 1,552 - 4,124
Depreciation and
amortization 1,352 3,387 (122)(3) 4,617
--------------- --------------- ---------------- ---------------
Total operating
expenses 12,259 24,639 (122) 36,776
--------------- --------------- ---------------- ---------------
(Loss) income from
operations (9,491) (1,413) 122 (10,782)
Interest income 71 - - 71
Interest expense (987) (1,021) - (2,008)
--------------- --------------- ---------------- ---------------
(Loss) income before
minority interests (10,407) (2,434) 122 (12,719)
Minority interests - - 560(4) 560
--------------- --------------- ---------------- ---------------
Net (loss) income (10,407) (2,434) 682 (12,159)
Preferred stock
dividends (263) - (372)(5) (635)
Embedded dividend
attributable to
beneficial
conversion
privilege
of convertible
preferred stock
and accretion of
warrants (1,218) - - (1,218)
--------------- --------------- ---------------- ---------------
Net (loss) income
applicable to
common stock $(11,888) $ (2,434) $ 310 $ (14,012)
=============== =============== ================ ===============
Basic and diluted net
loss per common
share $ (.63) $ (.74)
=============== ===============
Average number of
common shares
outstanding, basic
and diluted 18,888,911 18,888,911
=============== ===============
(RESTUBBED TABLE)
<PAGE>
<CAPTION>
Anticipated
Acquisition
------------
Proforma Pro Forma
Adjustments Consolidated
--------------- ----------------
<S> <C> <C>
Sales $ - $ 95,545
Cost of sales - 69,551
--------------- ----------------
Gross profit - 25,994
--------------- ----------------
Operating expenses:
Selling, general and
administrative - 28,035
Research and
development - 4,124
Depreciation and
amortization 289(6) 4,906
--------------- ----------------
Total operating
expenses (289) 37,065
--------------- ----------------
(Loss) income from
operations (289) (11,071)
Interest income - 71
Interest expense - (2,008)
--------------- ----------------
(Loss) income before
minority interests (289) (13,008)
Minority interests (560)(7) -
--------------- ----------------
Net (loss) income (849) (13,008)
Preferred stock
dividends - (635)
Embedded dividend
attributable to
beneficial
conversion
privilege
of convertible
preferred stock
and accretion of
warrants - (1,218)
--------------- ----------------
Net (loss) income
applicable to
common stock $(849) $ (14,861)
=============== ================
Basic and diluted net
loss per common
share $ (.74)
================
Average number of
common shares
outstanding, basic
and diluted 739,000 (8) 19,627,911
=============== ================
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
54
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Completed
---------- Transaction
-----------
nStor Andataco
Six Months Six Months
Ended Ended Pro Forma Pro Forma
Jun. 30, 1999 Apr. 30, 1999 Adjustments Consolidated
---------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sales $ 10,809 $ 31,370 $ (5,962)(2) $ 36,217
Cost of sales 9,489 22,375 (4,502)(2) 27,362
---------------- ---------------- -------------- ---------------
Gross profit 1,320 8,995 (1,460) 8,855
---------------- ---------------- -------------- ---------------
Operating expenses:
Selling, general and
administrative 4,882 7,882 (1,207)(2) 11,557
Research and
development 1,218 506 (50)(2) 1,674
Depreciation and (252)(2)
amortization 978 1,716 (61)(3) 2,381
---------------- ---------------- -------------- ---------------
Total operating expenses 7,078 10,104 (1,570) 15,612
---------------- ---------------- -------------- ---------------
(Loss) income from
operations (5,758) (1,109) 110 (6,757)
Interest and other income 108 - - 108
Interest expense (801) (482) 99(2) (1,184)
---------------- ---------------- -------------- ---------------
(Loss) income before
minority interests (6,451) (1,591) 209 (7,833)
Minority interests 36 - (330)(4) 366
---------------- ---------------- -------------- ---------------
Net (loss) income (6,415) (1,591) 539 (7,467)
Preferred stock
dividend (306) - (209)(5) (515)
Embedded dividend
attributable to
beneficial
conversion
privilege
of convertible
preferred stock
and accretion of
warrants (327) - - (327)
---------------- ---------------- -------------- ---------------
Net (loss) income
applicable to
common stock $(7,048) $(1,591) $ 330 $(8,309)
================ ================ ============== ===============
Basic and diluted net
loss per common
share $ (.32) $ (.38)
================ ===============
Average number of
common shares
outstanding, basic
and diluted 21,838,532 21,838,532
================ ===============
(RESTUBBED TABLE)
<PAGE>
<CAPTION>
Anticipated
Acquisition
-----------
Proforma Pro Forma
Adjustments Consolidated
--------------- ----------------
<S> <C> <C>
Sales $ - $ 36,217
Cost of sales - 27,362
--------------- ----------------
Gross profit - 8,855
--------------- ----------------
Operating expenses:
Selling, general and
administrative - 11,557
Research and
development - 1,674
Depreciation and
amortization 145(6) 2,526
--------------- ----------------
Total operating expenses 145 15,757
--------------- ----------------
(Loss) income from
operations (145) (6,902)
Interest and other income - 108
Interest expense - (1,184)
--------------- ----------------
(Loss) income before
minority interests (145) (7,978)
Minority interests (366)(7) -
--------------- ----------------
Net (loss) income (511) (7,978)
Preferred stock
dividend - (515)
Embedded dividend
attributable to
beneficial
conversion
privilege
of convertible
preferred stock
and accretion of
warrants - (327)
--------------- ----------------
Net (loss) income
applicable to
common stock $ (511) $(8,820)
=============== ================
Basic and diluted net
loss per common
share $ (.39)
================
Average number of
common shares
outstanding, basic
and diluted 739,000(8) 22,577,532
=============== ================
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
55
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Adjustment to Unaudited Pro Forma Condensed Consolidated Balance Sheet:
(1) Adjustment resulting from the Anticipated Acquisition of the
remaining approximately 23% of the outstanding shares of Andataco
for a purchase price of approximately $1.8 million, or $.31 per
Andataco share plus $300,000 of estimated transaction costs. The
purchase price will be paid with registered common shares of nStor
based on the average closing price of nStor common stock for the
ten (10) trading days immediately before the Stockholder meetings.
Adjustments to Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the Completed Transaction, which consisted of the purchase from
Mr. Sykes and affiliates in June 1999 of approximately 76% of the outstanding
common stock of Andataco and a $5,196,000 note payable by Andataco, in exchange
for (1) $500,000 cash; (2) $5,100,000 of 9-1/2% notes payable June 2004; (3)
$4,654,000 of preferred stock, convertible into 1,551,333 shares of nStor's
common stock (based on a conversion price of $3 per common share, the closing
market price on June 7, 1999, the date the terms of the preferred stock were
agreed to); and (4) three year warrants to purchase 155,133 shares of nStor's
common stock, at $3.30 per common share, valued at approximately $200,000 using
the Black Scholes option pricing model. The preferred stock requires quarterly
dividends at the following annual rates: 8% during the first year, 9% during the
second year and 10% thereafter. In addition, in July 1999, nStor contributed
$500,000 in cash as a capital contribution to Andataco in exchange for newly
issued Andataco common stock, increasing nStor's ownership to approximately 77%.
(2) Reversal of Andataco's June 1999 operating results included in
nStor's historical statement of operations for the six months
ended June 30, 1999.
(3) Reduction of amortization of excess of purchase price of Completed
Transaction over fair value of net assets acquired (goodwill) as
follows (in thousands):
Purchase price of Completed Transaction $ 10,454
Transaction costs 750
----------
Total 11,204
Less estimated fair value of Andataco's net assets acquired
as of June 1, 1999 357
----------
Goodwill arising from Completed Transaction $ 10,847
==========
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ ---------
Amortization of goodwill over seven years $ 1,550 $ 775
Elimination of amortization of goodwill
included in Andataco's historical
statements of operations (1,672) (836)
------------ ---------
Pro Forma reduction to amortization of
goodwill $ (122) $ (61)
============ =========
56
<PAGE>
(4) Minority interests (23%) in historical net loss of Andataco.
(5) Cash dividends on $4,654,000 of preferred stock issued to Mr.
Sykes (8% per annum during the year ended December 31, 1998 and 9%
per annum during the six months ended June 30, 1999).
Interest expense has not been adjusted since the adjustment would not be
material.
Adjustments to Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the Anticipated Acquisition:
(6) Additional amortization of goodwill resulting from excess of
purchase price of Anticipated Acquisition (approximately
$1,800,000 plus $300,000 of estimated transaction costs) over fair
value of net assets acquired ($79,000) over seven years.
(7) Reversal of minority interests in historical net loss of Andataco.
(8) Number of shares of nStor's common stock expected to be issued in
exchange for minority shares based on a recent closing market
price ($2.50 on August 18, 1999).
57
<PAGE>
DESCRIPTION OF nSTOR'S CAPITAL STOCK
The authorized common stock of nStor consists of (a) 40,000,000 shares
of nStor common stock, $0.05 par value per share of which 22,715,061 shares are
issued and outstanding, 2,401,000 shares are reserved for issuance upon the
exercise of outstanding nStor options, 2,420,133 shares are reserved for
issuance upon the exercise of outstanding nStor warrants and 160,000 shares are
reserved for issuance upon the conversion of nStor notes and (b) 1,000,000
shares of nStor preferred stock of which 4,000 shares are designated as Series A
preferred stock shares, 4,000 shares are designated as Series C preferred stock,
6,000 shares are designated as Series D preferred stock, 3,500 shares are
designated as Series E preferred stock shares and 4,654 shares are designated as
Series F preferred stock. No shares of nStor capital stock are held in treasury.
All of the capital stock is, and will be, fully paid and non-assessable.
Common Stock
Holders of nStor common stock are entitled to one vote per share on all
matters except the election of directors. Holders of nStor common stock are
entitled to cumulative voting in the election of directors, however, nStor is
seeking stockholder approval to eliminate cumulative voting. See "Proposal
Four." All actions submitted to a vote of stockholders are voted on by holders
of common stock voting together as a single class.
Holders of nStor common stock are not entitled to preemptive rights and
the common stock is not subject to redemption.
Holders of nStor common stock are entitled to receive dividends in
cash, in property or in shares of nStor's capital stock, if and when the nStor
board declares dividends on common stock, subject to any preference in favor of
outstanding shares of preferred stock, if there are any.
In the event of liquidation, all holders of nStor common stock will
participate on an equal basis with each other in the distribution of nStor's net
assets available after payment of nStor's liabilities and payment of any
liquidation preferences in favor of outstanding shares of preferred stock, if
there are any.
The rights of holders of nStor common stock are subject to the rights
of holders of any nStor preferred stock which nStor designates or has
designated. The rights of holders of nStor preferred stock may adversely affect
the rights of nStor common stockholders.
Preferred Stock
nStor's board of directors is permitted to issue shares of preferred
stock in one or more series and to fix the relative rights, preferences and
limitations of each series. Among such rights, preferences and limitations are
dividend rates, provisions of redemption, rights upon liquidation, conversion
privileges and voting powers. Should the board of directors elect to exercise
this authority, the rights and privileges of holders of shares of common stock
could be made subject to the rights and privileges of any such series of
preferred stock. The issuance of preferred stock could have the effect of making
it more difficult for a third party to acquire, or discouraging a third party
from acquiring, a majority of its outstanding voting stock.
nStor has five series of preferred stock. The Series A preferred stock
accrues dividends at 8% per annum, payable quarterly, is convertible into 1,000
shares of common stock per share, commencing July 7, 1999, and has an automatic
conversion feature in which each share not converted as of July 7, 2000 shall
automatically convert into shares of common stock. There are 1,666.67 shares of
Series A preferred stock issued and outstanding as of the date of this joint
proxy statement/prospectus.
The Series C preferred stock accrues dividends at 8% per annum, payable
quarterly, is convertible into 1,000 shares of common stock per share,
commencing July 7, 1999, and has an automatic conversion feature in which each
share not converted as of July 7, 2000 shall automatically convert into common
stock. There are 3,000 shares of Series C preferred stock issued and outstanding
as of the date of this joint proxy statement/prospectus.
The Series D preferred stock accrues dividends at 8% per annum, payable
quarterly, is convertible into 1,000 shares of common stock per share,
58
<PAGE>
commencing April 27, 1999, and has an automatic conversion feature in which any
shares not converted into the common stock as of October 28, 2001 shall
automatically be so converted. There are 2,700 shares of Series D preferred
stock issued and outstanding as of the date of this joint proxy
statement/prospectus.
The Series E preferred stock accrues dividends at 8% per annum during
the first year after issuance, 9% per annum during the second year after
issuance and 10% per annum after the second anniversary of issuance, payable
quarterly. The Series E preferred stock is convertible into 333 1/3 shares of
common stock per share, commencing June 8, 1999. There are 3,500 shares of
Series E preferred stock issued and outstanding as of the date of this joint
proxy statement/prospectus.
The Series F preferred stock accrues dividends at 8% per annum during
the first year after issuance, 9% per annum during the second year after
issuance and 10% per annum after the second anniversary of issuance, payable
quarterly. The Series F preferred stock is convertible into 333 1/3 shares of
common stock per share, commencing June 8, 1999. There are 4,654 shares of
Series F preferred stock issued and outstanding as of the date of this joint
proxy statement/prospectus.
All series of preferred stock vote together with the shares of common
stock on all matters based on the largest number of shares of common stock into
which the preferred stock may be converted.
Warrants
nStor has outstanding warrants to purchase 2,411,997 shares of nStor
common stock. The number of shares of common stock purchasable upon the exercise
of warrants is subject to adjustment in the event that nStor subdivides its
outstanding shares of common stock into a greater number of shares (including a
stock split effected as a stock dividend) or combines its outstanding shares of
common stock into a lesser number of shares. In addition, in the event of a
capital reorganization or reclassification of nStor's capital stock, or its
consolidation or merger with another corporation, or sale of all or
substantially all of its assets, then the holders of the warrants have the right
to purchase, in lieu of common stock, such securities or assets as may be issued
with respect to or in exchange for a number of outstanding shares of common
stock equal to the number of shares of common stock which could be purchased
upon the exercise of the warrants immediately prior to any such transaction.
59
<PAGE>
DESCRIPTION OF ANDATACO COMMON STOCK
The authorized capital stock of Andataco consists of (a) 40,000,000
shares of Class A common stock, $0.01 par value per share, of which 25,432,303
shares are issued and outstanding, 725,500 shares are reserved for issuance upon
the exercise of outstanding options and [180,783] shares are reserved for
issuance upon exercise of outstanding warrants and (b) 2,250,000 shares of Class
C common stock of which none are issued and outstanding, No shares of Company
capital stock are held in treasury.
Common Stock
Andataco Common Stock. The holders of Andataco common stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of shareholders and do not have cumulative voting rights. Except as
otherwise required by law, all other matters are determined by a majority of the
votes cast. Holders of Andataco common stock are entitled to receive ratably
such dividends, if any, as may be declared by the Andataco board out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding Andataco preferred stock. The holders of Andataco common stock are
entitled to receive ratably the net assets of Andataco available after the
payment of all debts and other liabilities. The outstanding shares of Andataco
common stock are fully paid and nonassessable.
60
<PAGE>
COMPARISON OF RIGHTS
Andataco is incorporated under the laws of the State of Massachusetts.
nStor is incorporated under the laws of the State of Delaware. The Andataco
stockholders' rights are currently governed by Massachusetts law, and under
certain circumstances, by California law, the Andataco Articles and the Andataco
Bylaws. After the merger is completed, the rights of Andataco stockholders will
be governed by Delaware law, the nStor Certificate and the nStor Bylaws. The
material differences between your rights as a holder of shares of Andataco
common stock and your rights as an nStor stockholder are summarized below.
The following summary highlights certain differences in the
Massachusetts Business Corporation Law (MBCL), the Delaware General Corporation
Law (DGCL), the nStor Certificate, the nStor Bylaws, the Andataco Certificate
and the Andataco Bylaws. The identification of specific differences is not meant
to indicate that other equally, or more significant differences, do not exist.
Copies of the nStor Certificate and the nStor Bylaws are incorporated into this
document by reference. Copies of the Andataco Certificate and the Andataco
Bylaws will be furnished to you upon request. nStor will send copies of any of
these to you at your request.
<TABLE>
<CAPTION>
Andataco Stockholders nStor Stockholders
- ------------------------------------------------------- ------------------------------------------------------
<S> <C> <C>
Authorized Stock
The authorized capital of Andataco consists of The nStor Certificate authorizes stock consisting of
40,000,000 shares of Class A common stock, par value 40,000,000 shares of common stock, par value $0.05
$0.01 per share and 2,250,000 shares of Class C per share, and 1,000,000 shares of preferred stock,
common stock, par value $0.01 per share. On the par value $0.05 per share. nStor is seeking
record date, there were 25,432,303 shares of Andataco stockholder approval to increase its authorized
Class A common stock outstanding and 0 shares of shares to 75,000,000. On the record date, there were
Andataco Class C common stock outstanding. 22,715,061 shares of nStor common stock outstanding
and 15,521 shares of nStor preferred stock
outstanding which are convertible into 10,084,667
shares of nStor common stock.
Required Vote for Authorization of Certain Actions
Under Massachusetts law, approval of mergers and In Delaware, a corporation's board of directors
consolidations and sales, mortgages, leases or must recommend and the stockholders holding a
exchanges of all or substantially all of a majority of the outstanding shares of a corporation
corporation's property requires the affirmative vote entitled to vote must vote in favor of certain
of two-thirds of the shares of each class of stock mergers or consolidations, and sales, leases or
outstanding and entitled to vote on the transaction. exchanges of all or substantially all of a
A corporation's articles of organization may provide corporation's assets. Additionally, similar board
for a vote of a lesser proportion, but not less than a recommendations and stockholder approval is
majority of each such class. In addition, required for most amendments to the corporation's
Massachusetts law provides that, unless otherwise certificate of incorporation.
required by the articles of organization, a merger
may be approved solely by vote of a surviving
corporation's directors if:
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Andataco Stockholders nStor Stockholders
- ------------------------------------------------------- ------------------------------------------------------
<S> <C> <C>
o there is no amendment to the A stockholder vote of the surviving corporation is
surviving corporation's articles of not required to approve the merger in the following
organization; situations:
o the shares of any class of stock of the
corporation issued in the merger do o the related agreement of merger does not
not exceed fifteen percent (15%) of amend the corporation's certificate of
the shares of the same class incorporation;
outstanding immediately prior to the o each share of common stock outstanding
merger; and immediately before the merger is an
o any stock issued in the merger has identical outstanding or treasury share of
been authorized in accordance with common stock after the merger; and
Massachusetts law. o the number of shares of common stock to
be issued in the merger, or to be issuable
The Andataco Articles provide that a liquidation,
upon conversion of any convertible dissolution,
reorganization, consolidation, merger or instruments
to be issued in the merger, sale, lease or
disposition of substantially all of the does not
exceed 20% of the shares of the assets of Andataco
requires the affirmative vote of a common stock
outstanding immediately majority of the shares of
Class A common and Class before the merger. C common
stock , voting as a single class or the written
consent of the holders of all of the shares of Class
A and Class C common stock.
Board of Directors
Massachusetts law provides that holders of a Under the DGCL, a director of a corporation that
majority of the shares of Andataco capital stock does not have a classified board of directors or
entitled to vote in an election of directors may cumulative voting may be removed, with or
remove a director with or without cause, and a without cause, with the approval of a majority of
majority of the board of directors may remove a the outstanding shares entitled to vote at an
director for cause. However, a director may only be election.
removed for cause after receiving notice and an
opportunity to be heard by the group proposing to The nStor Certificate provides that the number of
remove him or her. directors will be fixed by the nStor Bylaws and
may be increased or decreased if allowed under the
nStor Bylaws.
The Andataco Articles provide that the number of
directors will be fixed by the Andataco Bylaws.
According to the Andataco Bylaws, the Andataco board
must consist of not less 3 directors. The Andataco
board is currently composed of 4 directors.
Under the Andataco Articles, the holders of Class C
common stock are entitled to elect, remove or replace
the proportion of the total number of directors equal
to the percent of common stock owned by the Class C
common stock. The remaining directors will be
elected, removed and replaced by the Class A common
stock.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Andataco Stockholders nStor Stockholders
- ------------------------------------------------------- ------------------------------------------------------
<S> <C> <C>
Under the Andataco Bylaws, a director holds office According to the nStor Bylaws, the number of
for a term of 1 year and until his or her successor is directors will be fixed exclusively by resolution
duly elected and qualified. adopted by a majority of the board of directors, but
must consist of not less than 3 directors. Currently,
The Andataco Articles do not provide for the nStor board is composed of 6 directors.
cumulative voting.
Under the nStor Bylaws a plurality of votes cast at
Under the Andataco Bylaws, directors may be stockholders meetings at which directors are to be
removed at any time for cause by vote of a majority elected is required to elect the directors. A director
of the directors, and with or without cause by the holds office for a term of 1 year and until his or her
holders of a majority of the shares entitled to vote at successor is duly elected and qualified.
an election of directors.
The nStor Certificate provides for cumulative
voting; however, nStor is seeking stockholder
approval to eliminate cumulative voting. (See
Proposal Four)
Under the nStor Certificate and nStor Bylaws, any
director, or the entire nStor board, may be removed
from office at any time, with or without cause, by
the holders of a majority of the shares entitled to
vote at an election of directors.
Limitation of Liability of Directors and Officers
With limited exceptions, Massachusetts law permits With limited exceptions, Delaware law permits a
a corporation to adopt a provision in its certificate of corporation to adopt a provision in its certificate of
incorporation eliminating or limiting the personal incorporation eliminating or limiting the personal
liability of a director, but not an officer, to the liability of a director, but not an officer, to the
corporation or its stockholders for monetary corporation or its stockholders for monetary
damages for breach of fiduciary duty as a damages for breach of fiduciary duty as a director.
director.
The following are items for which a corporation
cannot limit the liability of a director:
o any breach of the director's duty of loyalty
to the corporation or its stockholders;
o acts or omissions not in good faith or
which involve intentional misconduct or a
knowing violation of law;
o liability under Section 174 of the DGCL
for unlawful payment of dividends or
stock purchases or redemptions; or
o any transaction from which the director
derived an improper personal benefit.
63
<PAGE>
Andataco Stockholders nStor Stockholders
- ------------------------------------------------------- ------------------------------------------------------
Indemnification of Directors and Officers
Massachusetts law permits indemnification of Under Delaware law, a corporation may indemnify
directors, officers, employees and certain others for any person made a party or threatened to be made a
expenses incurred by reason of their position with party to any type of proceedings, other than an
the corporation, if he or she has acted in good faith action by or in the right of the corporation, because
with a reasonable belief that his or her conduct was he is or was an officer, director employee or agent
in the best interest of the corporation. of the corporation against expenses, judgments,
fines and amounts paid in settlement actually and
Under the Andataco Bylaws, Andataco will reasonably incurred in connection with
the indemnify its directors and officers against all proceeding if the following standards are met.
liabilities and expenses incurred by reason of his or
her position as director or officer unless a court or A corporation may indemnify a director if he acted
administrative body has determined that the director in good faith and in a manner he reasonably
or officer has not acted in good faith in the believed to be in or not opposed to the best interests
reasonable belief that his or her actions were in the of the corporation. In the case of a criminal
best interest of Andataco. proceeding, a corporation may indemnify a director
if the director had no reasonable cause to believe
If the claim or matter is disposed of by a settlement that his conduct was unlawful. A corporation may
payment made by a director or officer of Andataco, also indemnify any person who was serving at the
Andataco shall indemnify the director or officer only request of the corporation as a director, officer,
if: employee or agent of another corporation or entity
in a similar fashion with respect to actions by or in
o the indemnification and payment is the right of the corporation, court approval is
approved or ratified by a majority of required as a prerequisite to indemnification of
a quorum of directors who are not expenses in respect of any claim as to which a
parties to the proceeding, by a person has been adjudged liable to the corporation.
majority of a committee of two or more
directors who are not parties to the
proceeding and who are selected for this
purpose by the entire board, or by a
majority of a quorum of the outstanding
shares entitled to vote for directors,
excluding shares held by stockholders
who are parties to the proceeding; or
o the approval of the indemnification
and payment is based upon the
opinion of independent legal counsel
appointed by a vote of the directors
or as described above; or
o the indemnification and payment is
approved by a court of competent
jurisdiction; or
64
<PAGE>
Andataco Stockholders nStor Stockholders
- ------------------------------------------------------- ------------------------------------------------------
o the directors have acted in A corporation may indemnify any person made a party
accordance with the standard of or threatened to be made a party to any threatened,
conduct set forth in the pending or completed action or suit brought by or in
Massachusetts Business Corporation the right of the corporation because he was an
Law. officer, director, employee or agent of the
corporation, against expenses actually and reasonably
incurred in connection with the action or suit if he
acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best
interests of the corporation. A corporation may also
indemnify any person who was serving at the request
of the corporation as a director, officer, employee
or agent of another corporation or entity in a
similar fashion. However, a corporation cannot
indemnify any person found liable to the corporation
unless the court determines the person is entitled to
indemnification.
A corporation must indemnify a director, officer,
employee or agent who successfully defends himself in
a proceeding to which he was a party because he was a
director, officer, employee or agent of the
corporation against expenses actually and reasonably
incurred by him. Expenses incurred by an officer or
director, or other employees or agents as deemed
appropriate by the board of directors, in defending a
civil or criminal proceeding may be paid by the
corporation in advance of the final disposition of
the proceeding upon receipt of an undertaking by or
on behalf of that person to repay the amount if it is
ultimately determined that he is not entitled to
indemnification by the corporation.
A corporation may purchase and maintain insurance on
behalf of any person who is or was a director,
officer, employee or agent of the corporation or who
is or was serving at the request of the corporation
as a director, officer, employee or agent of another
corporation or other entity. The insurance may cover
any liability asserted against the person and
incurred by the person in that capacity, or arising
out of the person's status, whether or not the
corporation would have the power to indemnify the
person against the liability.
The nStor Certificate provides that each person
entitled to indemnification under the nStor
Certificate must be indemnified by nStor to the
fullest extent permitted by the DGCL.
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
Andataco Stockholders nStor Stockholders
- ------------------------------------------------------- ------------------------------------------------------
<S> <C> <C>
Amendments to Charter/Certificate of Incorporation and Bylaws
Under Massachusetts law the Andataco Articles may Under DGCL, an amendment to the certificate of
be amended by the affirmative vote of two-thirds of incorporation of a corporation may be approved by
the shares of each class of stock entitled to vote on the a majority of the total outstanding shares and a
amendment. However, the affirmative vote of only a majority of the outstanding shares of each class
majority of the shares of each class of stock entitled to entitled to vote upon the proposed amendment. A
vote on the amendment is required to approve the higher vote can be required by the certificate of
following: incorporation.
o change in par value; The DGCL provides that a corporation's
o change in authorized number of stockholders may amend the bylaws. Also, the
shares; or corporation's certificate of incorporation may grant
o change in corporate name. that authority to the corporation's directors, as long
as the stockholders' power to amend the bylaws is
not limited or removed.
Under the Andataco Articles, the Andataco Articles
may not be amended or repealed without the
affirmative vote at a meeting of the holders of a The nStor Certificate expressly provides that the
majority of the shares of common stock, voting as a nStor Certificate may be amended in accordance
single class or by written consent of the holders of all with the DGCL.
of the shares of common stock.
Under the nStor Certificate, the nStor board is
Under the Andataco Bylaws, the Andataco Bylaws expressly authorized and empowered to adopt,
may be amended or repealed by the vote of the holders amend or repeal the nStor Bylaws. However, the
of a majority of the shares of common stock entitled to bylaws adopted by the nStor board under this
vote or by a majority of the directors. If the Andataco authorization may be amended or repealed by the
Bylaws are amended or repealed by the directors, nStor board or by the stockholders having voting
notice of the amendment or repeal must be given to the power to vote on such matter.
stockholders entitled to vote on the amendment or
repeal.
Special Meetings of Stockholders; Action Without a Meeting
Under the Andataco Bylaws, special meetings of the Under the nStor Bylaws, special meetings of the
stockholders may be called only by the Andataco stockholders may be called only by the Chairman
board or by the president, or by one or more of the Board or by a majority of the nStor board or
stockholders holding shares in the aggregate entitled by the chief executive officer, president or vice
to cast not less than ten percent (10%) of the votes at president, or by one or more stockholders holding
the special meeting. shares in the aggregate entitled to cast not less than
thirty-five percent (35%) of the votes at the special
meeting.
The Andataco Bylaws expressly provides that any The nStor Certificate expressly provides that any
action required or permitted to be taken by its action required or permitted to be taken by its
stockholders may be taken without a meeting if a stockholders may be taken without a meeting if a
consent in writing is signed by the holders of all of consent in writing is signed by the holders of
the outstanding stock entitled to vote on the matter. outstanding stock having not less than the minimum
number of votes that would be necessary to authorize
or take such action at a meeting at which all shares
entitled to vote were present and voted.
66
<PAGE>
Andataco Stockholders nStor Stockholders
- ------------------------------------------------------- ------------------------------------------------------
Dividends and Other Distributions
Under Massachusetts law, a corporation may pay The DGCL generally provides that a corporation
dividends or repurchase stock so long as the may declare and pay dividends out of its surplus or,
corporation is not insolvent, the dividend or when no surplus exists, out of net profits for the
repurchase does not render the corporation insolvent fiscal year in which the dividend is declared and/or
and the dividend or repurchase does not violate the the previous fiscal year. However, dividends may
corporation's articles of organization. not be paid out of net profits if the capital of the
corporation is less than the amount of capital
The Andataco Articles provide that holders of represented by the issued and outstanding stock of
common stock shall be entitled to receive any all classes having a preference upon the distribution
dividends declared from time to time by the of assets.
Andataco board.
The nStor Bylaws provide that the nStor board may
periodically declare, and the corporation may pay,
dividends on its outstanding shares in the manner and
upon the conditions provided by law and the nStor
Certificate. The nStor Certificate does not restrict
nStor's ability to declare or pay dividends.
Appraisal Rights of Dissenting Stockholders
A discussion of Massachusetts appraisal rights is set Under Delaware law, in certain circumstances, a
forth under "THE MERGER- Appraisal Rights - stockholder of a Delaware corporation is entitled to
Massachusetts." demand appraisal and obtain payment of the judicially
determined fair value of his or her shares in the
event of any plan of merger or consolidation
to which the corporation in which he or she
is a stockholder is a party. The stockholder must
continuously hold the shares through the effective date
of the merger, otherwise comply with the requirements of
Delaware law for the perfection of appraisal rights and must
not vote in favor of the merger. However, this right to
demand appraisal does not apply to stockholders if:
o they are stockholders of a surviving
corporation and a vote of the stockholders
of the corporation is not necessary to
authorize the merger or consolidation; or
o the shares held by the stockholders are
either listed on a national securities
exchange, designated as a national market
system security on an interdealer quotation
system by the NASD or are held of record
by more than 2,000 stockholders on the
date set to determine the stockholders
entitled to vote on the merger or
consolidation.
67
<PAGE>
Andataco Stockholders nStor Stockholders
- ------------------------------------------------------- ------------------------------------------------------
Notwithstanding the above, appraisal rights are
available for the shares of any class or series of
stock of a Delaware corporation if the agreement of
merger or consolidation requires the stockholders to
accept for their stock anything except:
o shares of stock of the corporation
surviving or resulting from the merger or
consolidation;
o shares of stock of any other
corporation which at the effective
date of the merger or consolidation
will be listed on a national
securities exchange, designated as
a national market system security
on an interdealer quotation system
by the NASD or held of record by
more than 2,000 stockholders;
o cash in lieu of fractional shares of these
corporations; or
o any combination of these.
nStor's stockholders are not entitled to any
additional dissenter's rights under the nStor
Certificate.
Preemptive Rights
The Andataco Articles provide that holders of Class Delaware law provides for preemptive rights with
C common stock have the right to acquire additional respect to new share issuances only as and to the
shares of Class C common stock upon the issuance extent provided in a corporation's certificate of
of additional shares of Class A common stock if incorporation. The nStor Certificate does not
certain conditions set forth in the Andataco Articles expressly grant preemptive rights to the nStor
are met. stockholders.
Stockholder Rights Plans
Currently, Andataco does not have a stockholders' Stockholder rights plans are valid and enforceable
rights plan. under Delaware law. Currently, nStor does not
have a stockholder rights plan in place.
68
<PAGE>
Andataco Stockholders nStor Stockholders
- ------------------------------------------------------- ------------------------------------------------------
Transactions with Interested Stockholders
69
<PAGE>
Andataco Stockholders nStor Stockholders
- ------------------------------------------------------- ------------------------------------------------------
Chapter 110F of the MBCL provides that, if a In general, the DGCL prevents an interested
person acquires 5% or more of the stock of a stockholder from engaging in a "business
Massachusetts corporation without the prior combination" with a Delaware corporation for three
approval of the board of directors of that years after the person became an interested
corporation, thereby becoming an "interested stockholder. An "interested stockholder" is defined
stockholder", that person may not engage in certain generally, for purposes of the DGCL, as a person
transactions with the corporation for a period of two owning 15% or more of a corporation's outstanding
years, unless one of the following two exceptions voting stock, except any person who owned and
applies: has continued to own shares in excess of the 15%
limitation since December 23, 1987. For purposes
o The person became an interested of the DGCL, the term business combination
stockholder and 90% owner of the includes mergers or the following types of
voting stock of the corporation in the transactions between a corporation and an
transaction, excluding voting stock interested stockholder:
owned by directors who are also o mergers, consolidations and sales or other
officers and certain employee stock dispositions of 10% or more of the assets
plans, or of a corporation to or with an interested
o the transaction is approved by the stockholder;
board of directors and by the o certain transactions resulting in the
affirmative vote of two-thirds of the issuance or transfer to an interested
outstanding voting stock which is stockholder of any stock of the
not owned by the interested corporation or its subsidiaries; or
stockholder.
This provision does not apply to a corporation if
The applicability of Chapter 110F is subject to the certificate of incorporation or bylaws contain a
certain exceptions, and does not apply to provision expressly electing not to be governed by
corporations with less than 200 stockholders or this provision or the corporation does not have
corporations that elect not to be governed by voting stock either listed on a national securities
Chapter 110F. exchange, authorized for quotation on an inter-
dealer quotation system of a registered national
The Andataco Articles provide that any contract, securities association or held of record by more
transaction or act in which any director has an than 2,000 holders.
interest either individually or as a director, officer,
trustee or member of an interested entity, or as a The statute does not apply to certain business
holder of the majority of the capital stock of an combinations with an interested stockholder when
interested entity, must be authorized or ratified by a the combination is:
majority of the directors that do not have an interest o proposed after the public announcement
in the contract, transaction or act. The contract, of, and before the consummation or
transaction or act may also be authorized or ratified abandonment of a merger or
by a majority of the common stock entitled to vote at consolidation;
the election of directors if the nature of the contract, o a sale of 50% or more of the aggregate
transaction or act and a description of the interest of market value of the assets of the
each director in the contract, transaction or act is corporation on a consolidated basis or the
summarized in the notice of the meeting of aggregate market value of all outstanding
stockholders at which the stockholders will vote to shares of the corporation;
authorize or ratify the matter and is fully disclosed at o a tender offer for 50% or more of the
the stockholder meeting. outstanding voting shares of the
corporation;
o with or by a person who either was not an
interested stockholder during the previous
three years or who became an interested
stockholder with the approval of the
board; or
70
<PAGE>
Andataco Stockholders nStor Stockholders
- ------------------------------------------------------- ------------------------------------------------------
o approved or not opposed by a
majority of the current directors
who were also directors before any
person became an interested
stockholder during the previous
three years.
The nStor Certificate and nStor Bylaws do
not remove nStor from the restrictions
imposed by the Delaware business combination
statute.
Control Share Acquisitions
The MBCL contains no provision governing control The DGCL contains no provision for control share
share acquisitions. acquisitions.
</TABLE>
71
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF nSTOR
The following table sets forth, as of July 31, 1999, information with
respect to the beneficial ownership of the common stock of nStor by: (1) each
person known by nStor to beneficially own more than 5% of the outstanding shares
of its common stock, (2) each director and executive officer of nStor, including
executive officers named in the Summary Compensation Table under "Executive
Compensation," and (3) all directors and executive officers of nStor as a group.
None of these persons own shares of Andataco stock. Therefore the number of
shares of nStor beneficially owned will not change as a result of the merger and
the percent owned will decrease by approximately 1%.
Prior to Completion of the Merger
---------------------------------
Amount and
Name and Address of Nature of Percent of
- ------------------- Beneficial Outstanding
Beneficial Owner Ownership(1) Shares
- ---------------- ------------ ------
H. Irwin Levy
100 Century Boulevard 7,570,099(2) 28.7
West Palm Beach, FL 33417
Bernard Marden
1290 S. Ocean Blvd. 3,973,025 16.3
Palm Beach, FL 33480
Maurice Halperin
2500 N. Military Trail 2,989,367 11.8
Boca Raton, FL 33431
Herbert Gimelstob
7777 West Glades Road 2,131,133 8.8
Boca Raton, FL 33434
Michael L. Wise
285 Tanglewood Crossing 1,016,312(3) 4.4
Lawrence, NY 11559
Mark F. Levy
100 Century Boulevard 806,666(4) 3.5
West Palm Beach, Fl 33417
Bernard R. Green
583 North Lake Way 351,333(5) 1.5
Palm Beach, Fl 33480
Lawrence F. Steffann
450 Technology Park 260,000 1.1
Lake Mary, FL 32746
Jack Jaiven
100 Century Boulevard 40,000 (6)
West Palm Beach, FL 33417
All executive officers and
directors as a group (6 10,044,410 37.2
persons)
- ----------------------
72
<PAGE>
(1) Unless otherwise indicated, each stockholder listed has the sole power
to vote and direct disposition of the shares of common stock shown as
beneficially owned by such stockholder. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of
the following shares which such person or group has the right to
acquire pursuant to options, warrants, convertible equity securities or
subscription agreements that are exercisable, convertible or obtainable
within 60 days of the date hereof: Mr. H. Irwin Levy - 3,715,000
shares; Mr. Marden - 1,616,666 shares; Mr. Gimelstob - 1,566,666
shares; Mr. Halperin - 2,566,667 shares; Mr. Wise - 182,000 shares; Mr.
Mark F. Levy - 120,000 shares; Mr. Green - 20,000 shares; Mr. Steffann
- 250,000 shares; Mr. Jaiven - 25,000 shares; and all executive
officers and directors as a group - 4,312,000 shares. See "Executive
Compensation".
(2) Includes 166,666 shares owned by a corporation controlled by Mr. Levy.
(3) Includes 227,410 shares owned by a retirement trust controlled by Mr.
Wise. Also includes the following shares, as to which Mr. Wise
disclaims beneficial ownership: 389,502 shares owned by Mr. Wise's
wife, 65,000 shares owned by Mr. Wise's child, 50,400 shares owned
jointly by Mr. Wise's wife and his mother and 18,000 shares owned by a
general partnership controlled by Mr. Wise's wife.
(4) Includes 10,000 shares owned by Mr. Levy's wife, 7,500 shares owned by
Mr. Levy as guardian for his minor children and 41,666 shares owned by
a corporation controlled by Mr. Levy as guardian for his minor
children. Mr. Levy disclaims beneficial ownership as to these shares.
Mark Levy is H. Irwin Levy's son.
(5) Includes 20,000 shares owned by Mr. Green's wife and 10,000 shares
owned by a trust of which Mr. Green's wife is a trustee. Mr. Green
disclaims beneficial ownership as to these shares.
(6) Less than 1%.
73
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ANDATACO
The following table sets forth certain information regarding the
ownership of Andataco's common stock as of July 31, 1999 by: (i) each director
and nominee for director; (ii) each executive officer; (iii) all executive
officers and directors of Andataco as a group; and (iv) all those known by
Andataco to be beneficial owners of more than five percent of its common stock.
<TABLE>
<CAPTION>
Beneficial Ownership (1)
------------------------
Number of Percent
Beneficial Owner Shares of Total
- ---------------- ------ --------
<S> <C> <C>
nStor Technologies, Inc. 19,634,185 77.2%
100 Century Boulevard
West Palm Beach, Florida 33417
Harris Ravine (2) 409,200 1.6%
Melville Straus (3) 44,000 *
Cornelius McMullan (4) 32,200 *
Jack Corrao (5) 31,000 *
W. David Sykes 0 *
All executive officers and directors as a group 516,400 2.0%
(5 persons) (6)
</TABLE>
- -----------------------
* Less than one percent.
<TABLE>
<CAPTION>
<S> <C>
(1) This table is based upon information supplied by officers, directors and principal stockholders and
Schedules 13D and 13G, if any, filed with the SEC. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable, Andataco believes that each of the
stockholders named in this table has sole voting and investment power with respect to the shares indicated
as beneficially owned. Applicable percentages are based on 25,432,303 shares outstanding on July 31,
1999, adjusted as required by rules promulgated by the SEC. Except as shown otherwise in the table, the
address of each stockholder listed is in care of Andataco at 10140 Mesa Rim Road, San Diego, California
92121.
(2) Includes 409,200 shares subject to options exercisable within 60 days of July 31, 1999.
(3) Includes 4,000 shares subject to options exercisable within 60 days of July 31, 1999. Mr. Straus is Mr.
Sykes' uncle.
(4) Includes 32,200 shares subject to options exercisable within 60 days of July 31, 1999.
(5) Includes 31,000 shares subject to options exercisable within 60 days of July 31, 1999.
(6) Includes 476,400 shares subject to options exercisable within 60 days of July 31, 1999.
</TABLE>
74
<PAGE>
PROPOSAL TWO: ELECTION OF nSTOR DIRECTORS
nStor's Restated Certificate of Incorporation provides that the number
of directors constituting its board shall be not less than three, with the exact
number to be fixed from time to time by the board. The board has fixed at five
the number of directors that will constitute the board for the coming year.
Messrs. Michael L. Wise, Bernard R. Green, H. Irwin Levy (Chairman of
the Board), Mark F. Levy, and Lawrence F. Steffann have been nominated for
election as directors of the nStor board of directors. Each of the nominees for
election as a director is a current member of nStor's board.
It is intended that the shares represented by the enclosed proxy will
be voted equally for the election of the five nominees listed above, unless
otherwise instructed. The board of directors of nStor has no reason to believe
that any of the nominees will refuse to act or be unable to accept election;
however, in the event that one or more of the nominees is unable to accept
election or if any other unforeseen contingencies should arise, each proxy that
does not direct otherwise will be voted for the remaining nominees, if any, and
for such other person(s) as may be designated by the board.
Pursuant to nStor's Restated Certificate of Incorporation, the election
of directors is by cumulative voting. Each holder of common stock is entitled to
that number of votes equal to the number of votes which he or she would be
entitled to cast for the election of directors with respect to his or her shares
of common stock, multiplied by the number of directors to be elected (in this
case, five), and he or she may cast all of such votes for a single director or
may distribute them among the number of directors to be voted for, or for any
two or more of them as he or she may see fit. If you execute and return your
proxy in blank, you are authorizing the holders thereof to vote your shares for
the nominees as they determine is appropriate. The five nominees receiving the
highest number of votes will be elected.
nStor's board unanimously recommends a vote "FOR" the following
nominees as directors. The holders of proxies intend to vote for the following
nominees as directors.
For your review, we furnish the following information about each of the
nominees. This information includes all positions each of the director nominees
has held with nStor and the nominees' other principal occupations during the
last five years.
H. Irwin Levy, 73, currently serves as Chairman of the Board of
Directors of nStor, and has been a director of the company since 1995. Mr. Levy
previously served as Chairman of the Board of the company from 1987 until July
1991. In addition, Mr. Levy has served as Chairman of the Board and Chief
Executive Officer of Hilcoast Development Corp. and certain affiliated
companies, all of which are currently privately held businesses, since August
1992. Since December 1997, Mr. Levy has served as Chairman of the Board of CV
Reit, Inc., a New York Stock Exchange-listed Real Estate Investment Trust and
was Chairman of the Board and Chief Executive Officer of CV Reit from 1985 until
July 1992. He is currently of counsel to the West Palm Beach law firm of Levy
Kneen Mariani Curtin Kornfeld and del Russo, which has provided legal services
to nStor.
Michael L. Wise, 55, currently serves as Vice Chairman of the Board of
Directors of nStor. Mr. Wise has served as a director of the company since 1989.
In addition, Mr. Wise is currently Chairman of the Board of Directors and Chief
Executive Officer of Netword, Inc., a publicly held company that provides a
utility for navigating the Internet. Mr. Wise has been associated with nStor in
various positions since 1986, including as the company's President from March
1989 until December 1990 and from October 1992 until July 1996, and was the
founder of IMNET Corporation of Delaware, which became a subsidiary of nStor in
1988. Mr. Wise served as President and Chairman of the Board of IMNET from July
1986 to June 1990. Mr. Wise has a Ph.D in physics.
Lawrence F. Steffann, 47, was appointed President and a director of
nStor in June 1998. Previously, from January 1997 to May 1998, Mr. Steffann was
President of World Wide Ventures, a company which provided consulting services
to start-up technology companies. Prior to that, he held numerous executive
management positions with Boca Research, Inc. from September 1990 to January
1997, including Chief Operating Officer from August 1995 to January 1997.
75
<PAGE>
Mark F. Levy, 44, currently serves as a director and as a Vice
President of nStor. Mr. Levy has been a director of the company since 1992, and
previously served as Vice President, Secretary and a director of the company
from 1985 to 1990, and as President of the company from July 1996 to June 1998.
In addition, Mr. Levy is President of Cenvill Recreation, Inc. and certain
affiliated companies, all of which are privately held businesses. Mr. Levy is
the son of H. Irwin Levy, and is licensed to practice law in the State of
Florida.
Bernard R. Green, 80, has been a director of nStor since 1997. Mr.
Green is a consultant to, and previously for more than forty years, was the
managing or senior partner of, the accounting firm of Friedman, Alpren & Green
of New York, New York and West Palm Beach, Florida. Mr. Green previously served
as a director of Hilcoast Development Corp. from July 1992 until February 1997
and has been a private investor for more than twenty years.
<PAGE>
PROPOSAL THREE: APPROVAL OF AN AMENDMENT TO nSTOR'S
RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED NUMBER OF SHARES OF ITS COMMON STOCK
General
The board of directors of nStor has unanimously adopted a resolution to
submit to a vote of the stockholders a proposal to amend paragraph 4(a) of the
company's Restated Certificate of Incorporation to increase the number of shares
of common stock which nStor is authorized to issue from 40,000,000 to
75,000,000.
The full text of paragraph 4(a) of the Restated Certificate of
Incorporation, if amended as proposed, would read as follows:
"4(a) The total number of shares which the Corporation is authorized to
issue is seventy six million (76,000,000). The Corporation is authorized to
issue two classes of shares to be designated, respectively, "Preferred Stock"
and "Common Stock." The number of shares of Preferred Stock authorized to be
issued is one million (1,000,000) and the number of shares of Common Stock
authorized to be issued is seventy five million (75,000,000). The Preferred
Stock shall have a par value of $.01 per share and the Common Stock shall have a
par value of $.05 per share. The aggregate par value of all shares of Preferred
Stock is $10,000 and the aggregate par value of all shares of Common Stock is
$3,750,000."
The terms of the additional shares of common stock will be identical to
those of the currently outstanding common stock. However, because stockholders
have no preemptive rights to purchase any additional shares of common stock
which may be issued, the issuance of additional shares will reduce the
percentage interest of current stockholders in the total outstanding shares.
Approval of this proposal will not increase the number of shares of preferred
stock authorized. The relative rights and limitations of the common stock and
preferred stock would remain unchanged under this proposal.
Purposes and Effects of Increasing the Number of Authorized Shares of Common
Stock
If approved by nStor's stockholders, this proposal would increase the
number of shares of common stock which nStor is authorized to issue from
40,000,000 to 75,000,000. The additional 35,000,000 shares, if and when issued,
would have the same rights and privileges as the currently outstanding shares of
common stock of nStor.
The board of directors of nStor recommends the proposed increase in the
authorized number of shares of common stock to ensure an adequate supply of
authorized and unissued shares of common stock for one or more of the following
purposes:
o to provide sufficient shares to complete the merger;
o additional issuances under nStor's 1996 Stock Option Plan;
o the raising of additional capital for the operations of the
company;
o the conversion of nStor's convertible preferred stock;
o the financing of acquisitions of other businesses;
o the satisfaction of the company's contingent obligations to
issue common stock; and
o the retirement of outstanding company debt obligations.
Except as described in this joint proxy statement/prospectus, there are
currently no plans or arrangements relating to the issuance of any of the
additional shares of common stock proposed to be authorized and such shares
would be available for issuance without further action by stockholders, unless
required by nStor's Restated Certificate of Incorporation, its Bylaws, its
listing agreement with the AMEX or other principal national securities exchange
or system, or applicable law.
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The increase in the number of authorized shares of common stock has not
been proposed for any anti-takeover purpose and the board of directors and
members of management of nStor have no knowledge of any current effort to obtain
control of nStor or to accumulate large amounts of its common stock. However,
the availability of additional shares of common stock could make any attempt to
gain control of nStor or of the board of directors more difficult. Shares of
authorized but unissued common stock could be issued in an effort to dilute the
stock ownership and voting power of any person or entity desiring to acquire
control of nStor which might have the effect of discouraging or lessening the
likelihood of such a change of control. Such shares could also be issued to
other persons or entities who support the board of directors in opposing a
takeover attempt that the board considers not to be in the best interests of
nStor and its stockholders.
In evaluating this proposal, stockholders should consider the effect of
certain other provisions of nStor's Restated Certificate of Incorporation and
Bylaws that may have anti-takeover consequences, including:
o the authorization of 1,000,000 shares of preferred stock, the
terms of which may be fixed by the board of directors without
further action by nStor's stockholders;
o the provision that standing directors may only be removed by a
majority vote of stockholders;
o the limitation on the ability of stockholders to call a
special meeting; and
o the provision that vacancies in, and newly created
directorships resulting from an increase in the number of
directors on, the board of directors may be filled by a
majority of the remaining directors.
Vote Required; Effective Date of Amendment to Restated Certificate of
Incorporation; Recommendation of the Board of Directors
If this proposal is approved by the holders of a majority of the
outstanding shares of nStor's common stock and preferred stock, voting together,
it will become effective upon the filing by the company of a Certificate of
Amendment to its Restated Certificate of Incorporation with the Delaware
Secretary of State, which filing is expected to be done as soon as practicable
after stockholder approval is obtained. The directors and executive officers of
nStor intend to vote their shares in favor of this proposal.
For the reasons described above, nStor's board unanimously recommends
that the stockholders vote "FOR" the proposal to amend nStor's Restated
Certificate of Incorporation to increase the authorized number of shares of
common stock from 40,000,000 to 75,000,000.
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PROPOSAL FOUR: APPROVAL OF AN AMENDMENT TO nSTOR'S RESTATED CERTIFICATE
OF INCORPORATION TO ELIMINATE CUMULATIVE VOTING FOR DIRECTORS
General
The board of directors of nStor has unanimously adopted a resolution to
submit to a vote of the stockholders a proposal to amend nStor's Restated
Certificate of Incorporation to eliminate cumulative voting in future elections
of directors.
Cumulative voting is presently permitted by Article 8 of nStor's
Restated Certificate of Incorporation. The effects of cumulative voting are
described below and under "Proposal Two: Election of Directors" above. Under
Delaware law, stockholders do not have cumulative voting rights in the election
of directors unless nStor's Certificate of Incorporation specifically provides
such rights.
Proposed Amendments to Restated Certificate of Incorporation
The full text of Article 8 of the Restated Certificate of
Incorporation, if amended as proposed, would read as follows:
"8. No holder of any class of stock of the Corporation shall be
entitled to cumulate votes in connection with any election of directors of the
company."
Conforming Amendment to Bylaws
If this proposal is adopted by the stockholders, in order to make the
Bylaws consistent with the amendment of the Restated Certificate of
Incorporation set forth in this proposal, upon effectiveness of the filing of
the Articles of Amendment to the Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware, the third and fourth paragraphs of
Section 2.9 of the Bylaws of the company would be deleted in their entirety and
replaced with the following paragraph:
"Except as may be otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder."
Description of Operation of Cumulative Voting
Cumulative voting entitles each stockholder to cast a number of votes
that is equal to the number of voting shares held by such stockholder multiplied
by the total number of directors to be elected, and to cast all such votes for
one nominee or distribute the votes among up to as many candidates as there are
positions to be filled. See "Proposal Two: Election of Directors" above. Without
cumulative voting, a stockholder group must hold a majority of the company's
voting shares to cause the election of one or more nominees. Cumulative voting
enables a minority stockholder or group of stockholders holding a relatively
small number of shares to elect a representative or representatives to the
board. For example, in the election of five directors, with cumulative voting, a
stockholder or stockholders holding greater than approximately 18% of the voting
shares is guaranteed the ability to elect one director.
Effect of and Reasons for the Amendments
The elimination of cumulative voting will make it more difficult for a
minority stockholder to obtain representation on the board of directors without
the concurrence of the holders of a majority of the shares of common stock and
preferred stock, voting together.
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The board of directors believes that the elimination of cumulative
voting is advantageous to nStor and its stockholders because each director of a
publicly-held corporation has a duty to represent the interests of all
stockholders rather than any specific stockholder or group of stockholders. The
presence on the board of directors of one or more directors representing the
interests of a minority stockholder or group of stockholders could disrupt the
management of nStor and prevent it from operating in the most effective manner.
Furthermore, the election of directors who view themselves as representing a
particular minority constituency could introduce an element of discord on the
board of directors, impair the ability of the directors to work effectively and
discourage qualified independent individuals from serving as directors.
Providing for majority rule voting in the election of directors by eliminating
cumulative voting will help ensure that each director acts in the best interests
of all stockholders.
Approval of the proposed amendment may render more difficult any
attempt by a stockholder or group of stockholders of a significant number of
voting shares, but less than a majority, to change or influence the management
or policies of the company. In addition, under certain circumstances, the
proposed amendment, along with other measures that may be viewed a having
anti-takeover effects, may discourage any unfriendly acquisition or business
combination that might result in payment of a premium over the market price for
the shares held by the stockholder. For example, the proposed amendment may
discourage the accumulation of large minority stockholders (as a prelude to an
unfriendly acquisition or business combination proposal or otherwise) by persons
who would not make that acquisition without being assured of representation on
the board of directors.
Vote Required; Effective Date of Amendment to Restated Certificate of
Incorporation; Recommendation of the Board of Directors
If the proposed amendment is approved by the holders of a majority of
the outstanding shares of common stock and preferred stock, voting together, it
will become effective upon the filing by the company of a Certificate of
Amendment to the company's Restated Certificate of Incorporation with the
Delaware Secretary of State, which filing is expected to be done as soon as
practicable after stockholder approval is obtained. The directors and executive
officers of the company intend to vote their shares in favor of the proposed
amendment.
For the reasons described above, nStor's Board unanimously recommends
that the stockholders vote "FOR" the proposed amendment to nStor's Certificate
of Incorporation to eliminate cumulative voting for directors.
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PROPOSAL FIVE: AMENDMENT OF nSTOR'S 1996 STOCK OPTION PLAN
General
The nStor board of directors believes that the future growth and
success of the company depends, in large part, upon the company's ability to
attract, motivate and retain competitively superior employees, and that stock
option grants have been and will continue to be an important element in
achieving this goal by furthering an alignment of participating employees'
interests with those of the company's stockholders, thereby promoting the
company's long-term growth and profitability. Accordingly, effective October 5,
1996, nStor's board adopted the company's 1996 Stock Option Plan. nStor's
stockholders approved the Plan in May 1997. The purpose of the Plan is to
provide an additional incentive to attract, motivate and retain persons with
outstanding abilities and skills who provide important services to the company
and upon whose efforts and judgment the success of the company importantly
depends, by affording such persons the opportunity to benefit from rising values
of the company's common stock.
The board of directors of nStor has unanimously approved, subject to
approval by nStor's stockholders, an amendment to the 1996 Stock Option Plan to
increase from 2,500,000 to 5,000,000 the number of shares of nStor's common
stock available for issuance under the Plan, in order to ensure that a
sufficient number of shares are available for issuance to current and
newly-hired key employees.
Summary of the 1996 Stock Option Plan
In furtherance of its purposes, the 1996 Stock Option Plan authorizes,
among other things:
o the granting of incentive or nonqualified stock options to
purchase nStor's common stock to persons selected by the
administrators of the Plan from a class of key employees,
directors, officers and consultants of nStor, including
non-employees who render valuable contributions to the company
(presently approximately 37 persons);
o initial grants of stock options to purchase such number of
shares of common stock as the board may determine, to
non-employee directors elected to the board by the
stockholders or appointed to the board by the board,
subsequent to October 5, 1996; and
o automatic annual grants to non-employee directors, effective
each anniversary of those directors' appointment to the board,
of stock options to purchase 20,000 shares each of common
stock.
The Plan provides that it is to be administered by a committee
consisting of not less than two non-employee directors designated by nStor's
board or, if a committee is not designated, then by the entire board.
Except for the annual grants to non-employee directors, the Plan's
administrators in their sole discretion determine the persons to be awarded
options, the number of shares subject to the options and the exercise price and
other terms of the options. In addition, the Plan's administrators have full
power and authority to interpret the Plan, to establish, amend, and rescind any
rules and regulations relating to the Plan, to prescribe the form of any
agreement or instrument executed in connection with the Plan, and to make all
other determinations necessary or advisable for the administration of the Plan.
The acts of the Plan's administrators are final, conclusive and binding upon all
interested parties, including the company, its stockholders, its officers and
employees, recipients of grants under the Plan, and all persons or entities
claiming by or through such persons. The Plan's administrators, however, have no
discretion with respect to the annual grants to non-employee directors.
As originally adopted, an aggregate of 2,500,000 shares of common stock
were reserved for issuance upon exercise of options granted under the Plan. If
this proposal is approved by the company's stockholders, the aggregate number of
shares reserved for issuance upon the exercise of options granted under the Plan
would be increased to 5,000,000. The shares acquired upon the exercise of
options granted under the Plan are authorized and issued shares of common stock.
The company's stockholders have no preemptive rights to purchase or subscribe
for any common stock by reason of the reservation and issuance of common stock
under the Plan. If any option granted under the Plan expires or terminates for
any reason other than having been exercised in full, the unpurchased shares
subject to that option will again be available for issuance under the Plan.
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Certain Terms and Conditions
All grants of options under nStor's 1996 Stock Option Plan must be
evidenced by a written agreement between the company and the grantee. Such
agreement must contain such terms and conditions as the Plan's administrators
prescribe, consistent with the Plan, including, without limitation, the number
of shares, the exercise price, the term and any restrictions on the
exercisability of the options granted.
Under the Plan, the option price per share of common stock may be any
price determined by the Plan's administrators at the time of grant; except that
the option price of an incentive stock option granted under the Plan may not be
less than the fair market value per share of common stock on the date of grant
(or less than 110% of the fair market value for stockholders who own more than
10% of the company's stock). The term "fair market value" is defined under the
Plan as the average high and low sale prices of the common stock as reported by
the National Association of Securities Dealers Automated Quotations on the date
of grant, or, if the common stock is listed on a stock exchange, the average of
the high and low sale price of the common stock on that date, as reported by the
Wall Street Journal. The closing price per share of nStor's common stock on
August 18, 1999 as reported by the AMEX was $2.50. The exercise price of an
option may be paid in cash, by certified or official bank check, by money order,
by delivery of already owned shares of common stock having a fair market value
equal to the exercise price, or by a combination of the foregoing. Cash payments
will be used by the company for general corporate purposes. Payments made in
common stock must be made by delivery of stock certificates in negotiable form.
The use of already owned shares of common stock applies to payment for
the exercise of an option in a single transaction and to the "pyramiding" of
already owned shares in successive, simultaneous option exercises. In general,
"pyramiding" permits an option holder to start with as little as one share of
common stock and exercise an entire option to the extent then exercisable (no
matter what the number of shares subject thereto). By utilizing already owned
shares of common stock, no cash (except for fractional share adjustments) is
needed to exercise an option. Consequently, the optionee would receive common
stock equal in value to the spread between the fair market value of the shares
subject to the option and the exercise price of the option.
No option granted under the Plan is assignable or transferable, other
than by will or by the laws of descent and distribution. During the lifetime of
an optionee, an option is exercisable only by the optionee. The expiration date
of an option is determined by the Plan's administrators at the time of the
grant, but in no event may an option be exercised after the expiration of 10
years from the date of grant. Unless otherwise provided for by the Plan's
administrators, options will vest at a rate of 20% per year, based upon the
anniversary of the date of grant, commencing upon the first year anniversary of
the grant of the option. Accordingly, upon the fifth anniversary of the grant,
the option will become 100% vested. The Plan's administrators may, in their sole
discretion, accelerate the date on which any option may be exercised. Each
outstanding option will automatically become exercisable in the event of certain
transactions, including certain changes in control of the company, certain
mergers and reorganizations, and certain dispositions of substantially all the
company's assets.
Unless otherwise provided for by the Plan's administrators, one year
after the date on which an optionee's employment is terminated by reason of
retirement, death, or permanent and total disability (as defined in the Plan),
the unexercised portion of any vested options granted under the Plan, together
with all options which would have otherwise vested and become exercised in the
one year period following the applicable events, will automatically be
terminated. Unless otherwise provided by the Plan's administrators, the
unexercised portion of any vested options granted under the Plan will
automatically be terminated three months after the date on which an optionee's
employment is terminated for any other reason. The unexercised portion of any
vested options will automatically be terminated immediately on the date on which
an optionee's employment is terminated for "cause," as defined in the Plan.
To prevent certain types of dilution of the rights of a holder of an
option, the Plan provides for appropriate adjustment of the number of shares for
which options may be granted, the number of shares subject to outstanding
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options and the exercise price of outstanding options in the event of any
increase or decrease in the number of issued and outstanding shares of the
company's capital stock resulting from a stock dividend, recapitalization,
merger, reorganization or other capital adjustment of the company. The board has
discretion to make appropriate antidilution adjustments to outstanding options
in the event of a merger, consolidation or other reorganization of the company.
The Plan will expire on October 5, 2006, and any option outstanding on
such date will remain outstanding until it expires or is exercised. The Board
may amend or terminate the Plan or any option at any time, without the approval
of the stockholders, provided that any amendment may not adversely affect the
rights of an optionee under an outstanding option without the optionee's
consent. In addition, no such amendment may, without approval of the company's
stockholders increase the number of shares of common stock reserved for issuance
under the Plan, or materially modify the requirements for eligibility to receive
options under the Plan.
Federal Income Tax Consequences
The nStor 1996 Stock Option Plan is not qualified under the provisions
of Section 401(a) of the Internal Revenue Code, nor is it subject to any of the
provisions of the Employee Retirement Income Security Act of 1974, as amended.
Nonqualified Stock Options
An optionee granted a nonqualified stock option under the Plan will
generally recognize, at the date of exercise of such option, ordinary income
equal to the difference between the exercise price and the fair market value of
the shares of common stock subject to the nonqualified stock option. This
taxable ordinary income will be subject to federal income tax withholding
requirements, and the company will be entitled to a deduction for federal income
tax purposes equal to the amount of ordinary income recognized by the optionee,
provided that such amount constitutes an ordinary and necessary business expense
to the company and is reasonable, and provided that either the employee includes
that amount in his or her income, or the company timely satisfies its reporting
requirements with respect to that amount.
If an optionee exercises a nonqualified stock option by delivering
shares of the company's common stock, the optionee will not recognize gain or
loss with respect to the exchange of such shares, even if the fair market value
of those shares is different from the optionee's tax basis. The optionee,
however, will be taxed as described above with respect to the exercise of the
nonqualified stock option as if he had paid the exercise price in cash, and the
company likewise generally will be entitled to an equivalent tax deduction.
Provided a separate identifiable stock certificate is issued therefor, the
optionee's tax basis in that number of shares received on such exercise which is
equal to the number of shares surrendered on such exercise will be equal to his
or her tax basis in the shares surrendered, and his or her holding period for
such number of shares received will include the holding period for the shares
surrendered. The optionee's tax basis and holding period for the additional
shares received on exercise of a nonqualified stock option paid for, in whole or
in part, with shares will be the same as if the optionee had exercised the
nonqualified stock option solely for cash.
Incentive Stock Options
The Plan provides for the grant of stock options that qualify as
"incentive stock options" as defined in section 422 of the Internal Revenue
Code. Under the Code, an optionee generally is not subject to ordinary income
tax upon the grant or exercise of an incentive stock option. However, an
employee who exercises an incentive stock option by delivering shares of common
stock previously acquired pursuant to the exercise of an incentive stock option
is treated as making a "disqualifying disposition" (as defined below) of such
shares if the employee delivers such shares before the expiration of the holding
period applicable to such shares. The applicable holding period is the longer of
two years from the date of grant or one year from the date of exercise. The
effect of this provision is to prevent "pyramiding" the exercise of an incentive
stock option (i.e., the exercise of the incentive stock option for one share and
the use of that share to make successive exercises of the incentive stock option
until it is completely exercised) without the imposition of current income tax.
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If, subsequent to the exercise of an incentive stock option (whether
paid for in cash or in shares), the optionee holds the shares received upon
exercise for a period that exceeds two years from the date such incentive stock
option was granted or, if later, one year from the date of exercise, the
difference (if any) between the amount realized from the sale of such shares and
their tax basis to the holder will be taxed as long-term capital gain or loss.
In general, if, after exercising an incentive stock option, an employee
disposes of the shares so acquired before the end of the required holding period
(as described in the preceding paragraph), such optionee would be deemed to
receive ordinary income in the year of such disposition in an amount equal to
the excess of the fair market value of the shares as of the date the incentive
stock option was exercised over the exercise price. Such an event is sometimes
referred to as a "disqualifying disposition." If the disqualifying disposition
is a sale or exchange that would permit a loss to be recognized under the
Internal Revenue Code (were a loss in fact to be sustained), and the sales
proceeds are less than the fair market value of the shares on the date of
exercise, the optionee's ordinary income would be limited to the gain (if any)
from the sale. If the amount realized upon disposition exceeds the fair market
value of the shares on the date of exercise, the excess would be treated as
short-term or long-term capital gain, depending on whether the holding period
for such shares exceeded one year.
The amount by which the fair market value of the shares of common stock
acquired pursuant to the exercise of an incentive stock option exceeds the
exercise price of such shares under such option generally will be treated as an
item of adjustment included in the optionee's alternative minimum taxable income
for purposes of the alternative minimum tax for the year in which the option is
exercised. If, however, there is a disqualifying disposition of the shares in
the year in which the option is exercised, there will be no item of adjustment
for purposes of the alternative minimum tax as a result of the exercise of the
option with respect to those shares. If there is a disqualifying disposition in
a year after the year of exercise, the income on the disqualifying disposition
will not be considered income for purposes of the alternative minimum tax in
that subsequent year. The optionee's tax basis for shares acquired pursuant to
the exercise of an incentive stock option will be increased for purposes of
determining his or her alternative minimum tax by the amount of the item of
adjustment recognized with respect to such shares in the year the option was
exercised.
An income tax deduction is not allowed to the company with respect to
the grant or exercise of an incentive stock option or the disposition, after the
required holding period described above, of shares acquired upon exercise. In
the event of a disqualifying disposition, a federal income tax deduction will be
allowed to the company in an amount equal to the ordinary income to be
recognized by the optionee, provided that such amount constitutes an ordinary
and necessary business expense to the company and is reasonable, and either the
employee includes that amount in his or her income or the company timely
satisfies its reporting requirements with respect to that amount.
Options Granted Under the Plan
nStor has granted under its 1996 Stock Option Plan an option to
Lawrence F. Steffann, nStor's President, to purchase an aggregate of 750,000
shares of common stock at an exercise price of $1.20 per share. The grant to Mr.
Steffann is contingent upon approval of the amendment of the Plan by nStor's
stockholders. No other options which are contingent upon stockholder approval of
the amendment have been granted under the Plan as of the date of this joint
proxy statement/prospectus. As of August 18, 1999, the potential realizable
value of the stock option granted to Mr. Steffann, based upon the closing price
of $2.50 per share of nStor's common stock as reported by AMEX on such date, was
$975,000.
nStor's Board recommends a vote "FOR" the proposal to approve and
ratify the adoption of the amendment to nStor's 1996 Stock Option Plan.
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PROPOSAL SIX: RATIFICATION OF THE REAPPOINTMENT OF
nSTOR'S INDEPENDENT AUDITORS
The firm of BDO Seidman, LLP, certified public accountants, served as
nStor's independent auditors for the fiscal year ended December 31, 1998. BDO
Seidman has advised nStor that the firm does not have any direct or indirect
financial interest in nStor or any of its subsidiaries, nor has the firm had any
such interest in connection with nStor or its subsidiaries during the past year,
other than in its capacity as nStor's independent auditors. nStor's board has
selected BDO Seidman as nStor's independent auditors for the fiscal year ending
December 31, 1999. Although the board is not required to do so, it is submitting
its selection of nStor's independent auditors for ratification at the annual
meeting, in order to ascertain the views of its stockholders. The board will not
be bound by the vote of the stockholders; however, if the selection is not
ratified, the board would reconsider its selection. One or more representatives
of BDO Seidman may be present at the annual meeting, will have the opportunity
to make a statement if they desire to do so and will be available to respond to
appropriate questions from stockholders.
The nStor board recommends that the company's stockholders vote "FOR"
ratification of the reappointment of BDO Seidman, LLP, as the company's
independent auditors.
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PROXY SOLICITATION
Proxies are being solicited from nStor stockholders and Andataco
stockholders by and on behalf of their respective boards of directors. nStor and
Andataco will bear their own expenses for the solicitations, including the costs
of preparing and mailing this joint proxy statement/prospectus to their
respective stockholders. In addition to solicitation by mail, proxies may be
solicited from nStor stockholders and Andataco stockholders by directors,
officers and regular employees of nStor and Andataco, respectively, in person,
by telecopy or by telephone. Such directors, officers and employees will not
receive any additional compensation for such services but may be reimbursed for
reasonable expenses incurred by them in forwarding the proxy soliciting
materials to the beneficial owners of nStor common stock and preferred stock and
Andataco common stock. Although there is no formal agreement to do so, nStor and
Andataco, respectively, will reimburse banks, brokerage firms and other
custodians, nominees and fiduciaries for the forwarding of proxy solicitation
materials to beneficial owners of nStor common stock and preferred stock and
Andataco common stock held of record by such persons.
LEGAL MATTERS
The validity of the shares of nStor common stock to be issued in
connection with the merger will be passed upon for nStor by Akerman, Senterfitt
& Eidson, P.A., Fort Lauderdale, Florida.
EXPERTS
The consolidated financial statements of nStor incorporated by
reference in this joint proxy statement/prospectus have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent and for
the periods set forth in their report, incorporated herein by reference and are
incorporated herein in reliance upon such report given upon the authority of
said firm as experts in auditing and accounting.
The financial statements of Andataco incorporated in this joint proxy
statement/prospectus by reference to Andataco's Annual Report on Form 10-K for
the year ended OCtober 31, 1998 and nStor's Form 8-K filed June 23, 1999 have
been so incorporated in reliance on the report of PriceWaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
FUTURE STOCKHOLDER PROPOSALS
nStor. At times, stockholders seek to nominate directors or present
proposals for inclusion in the proxy statement and form of proxy for
consideration at the annual meeting. To be included in nStor's proxy statement,
nStor stockholders must timely submit nominations of directors or proposals in
addition to meeting other legal requirements. nStor must receive proposals or
nominations for the 2000 annual meeting no later than _________, 2000, for
possible inclusion in the proxy statement and form of proxy relating to the
meeting. The proposals must also comply in full with the requirements of Rule
14a-8 promulgated under the Securities Exchange Act of 1934. Direct any
proposals and questions to the Secretary of nStor.
If a stockholder does not seek to have a proposal included in the proxy
statement, but nevertheless wishes to present a proper proposal at the 2000
annual meeting of stockholders, and the proposal is received by nStor on or
before ___________, nStor will provide information in the proxy statement
relating to that annual meeting as to the nature of the proposal and how persons
named in the proxy solicited by the nStor board intend to exercise their
discretion to vote on the matter.
Andataco. If the merger does not occur, the deadline for submitting a
stockholder proposal for inclusion in Andataco's proxy statement and form of
proxy for the Andataco 2000 annual meeting of stockholders pursuant to Rule
14a-8 promulgated under the Securities Exchange Act of 1934 is October 29, 1999.
Unless a stockholder who wishes to bring a matter before the stockholders at
Andataco's 2000 annual meeting of stockholders notifies Andataco of such matter
prior to January 15, 2000, management will have discretionary authority to vote
all shares for which it has proxies in opposition to such matter.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
NSTOR TECHNOLOGIES, INC.,
NTI ACQUISITION CORP.
AND
ANDATACO, INC.
DATED AS OF AUGUST 27, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
ARTICLE I
DEFINITIONS..............................................................................................1
1.1 Definitions............................................................................1
ARTICLE II
THE MERGER...............................................................................................2
2.1 Merger.................................................................................2
2.2 Closing................................................................................2
2.3 Articles of Organization and Bylaws of Surviving Corporation...........................2
2.4 Directors and Officers.................................................................2
ARTICLE III
CONVERSION OR CANCELLATION OF THE COMPANY'S COMMON STOCK ................................................3
3.1 Conversion and Cancellation of The Company's Capital Stock.............................3
3.2 Dissenting Shares/Rights of Appraisal..................................................4
3.3 Exchange of Certificates...............................................................4
(a) Exchange Agent........................................................4
(b) Exchange Procedures...................................................5
(c) Distributions with Respect to Unexchanged
Shares of nStor Common Stock..........................................5
(d) Fractional Shares.....................................................6
(e) Termination of Exchange Fund..........................................6
(f) No Liability..........................................................6
(g) Withholding Rights....................................................6
(h) Lost Certificates.....................................................6
3.4 No Further Rights......................................................................6
3.5 Closing of the Company's Transfer Books................................................7
3.6 Stock Options and Warrants.............................................................7
3.7 Tax Consequences.......................................................................7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY ...........................................................8
4.1 Organization, Standing, etc. of the Company............................................8
4.2 Authorization and Execution............................................................8
A-2
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4.3 Capitalization.........................................................................8
4.4 SEC Reports and Financial Statements...................................................9
4.5 No Broker's or Finder's Fees...........................................................9
4.6 Opinion of Financial Advisor...........................................................9
4.7 Information Supplied...................................................................9
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF NSTOR AND THE NSTOR SUBSIDIARY.......................................................................10
5.1 Organization, Standing, etc., of nStor................................................10
5.2 Organization, Standing, etc., of nStor Subsidiary.....................................10
5.3 Authorization and Execution...........................................................10
5.4 Capitalization........................................................................11
5.5 SEC Reports and Financial Statements..................................................11
5.6 No Broker's or Finder's Fees..........................................................12
5.7 Information Supplied..................................................................12
ARTICLE VI
COVENANTS OF THE COMPANY................................................................................12
6.1 Investigations........................................................................13
6.2 Operation of the Company..............................................................13
6.3 No Solicitation.......................................................................15
6.4 Board Approval, Fairness Opinion, Shareholder
Approval and Proxy Statement..........................................................17
6.5 Financial Statements and Reports......................................................18
6.6 Notice and Cure.......................................................................18
6.7 Best Efforts and Consents.............................................................18
6.8 Agreements and Covenants..............................................................19
ARTICLE VII
COVENANTS OF NSTOR AND THE NSTOR SUBSIDIARY ............................................................19
7.1 Investigations........................................................................19
7.2 Conduct of Business of the nStor Subsidiary...........................................19
7.3 Operation of nStor....................................................................19
7.4 Obligation of nStor to Make Merger Effective and
The nStor Subsidiary's Shareholder Consent............................................19
7.5 Notice and Cure.......................................................................20
7.6 Best Efforts and Consents.............................................................20
7.7 Information for Proxy Statement for the Company's Shareholders........................20
7.8 Board Approval, Shareholder Approval, Proxy
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Statement and Registration Statement..................................................20
7.9 Financial Statements and Reports......................................................21
7.10 Agreements and Covenants..............................................................21
ARTICLE VIII
CONDITIONS..............................................................................................21
8.1 General Conditions....................................................................21
(a) Shareholder Approval.................................................21
(b) No Violations or Proceedings.........................................21
(c) Registration Statement...............................................22
(d) Amex Listing.........................................................22
(e) Approvals of Tribunals and Other Persons.............................22
8.2 Conditions to the Obligation of nStor and The nStor Subsidiary........................22
(a) Representations and Warranties True and Correct......................22
(b) Satisfaction of Obligations..........................................22
(c) Opinion of Counsel...................................................22
8.3 Conditions to Obligations of The Company..............................................22
(a) Representations and Warranties.......................................23
(b) Satisfaction of Obligations..........................................23
(c) Opinion of Counsel...................................................23
(d) Fairness Opinion.....................................................23
(e) nStor Stock Options..................................................23
ARTICLE IX
TERMINATION; PAYMENT OF EXPENSES........................................................................23
9.1 Termination of Agreement and Abandonment of Merger....................................23
(a) Mutual Consent.......................................................23
(b) nStor or the Company.................................................23
(c) nStor or the nStor Subsidiary........................................24
(d) Company..............................................................24
9.2 Effect of Termination.................................................................24
9.3 Amendment.............................................................................24
9.4 Extension; Waiver.....................................................................24
9.5 Fees and Expenses.....................................................................25
ARTICLE X
FURTHER COVENANTS.......................................................................................25
10.1 nStor to Cause nStor Subsidiary and Surviving
Corporation To Perform................................................................25
10.2 Indemnification and Insurance of Company Officers and Directors.......................25
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10.3 Binding Effects.......................................................................26
ARTICLE XI
GENERAL.................................................................................................27
11.1 Release of Information................................................................27
11.2 Notices...............................................................................27
11.3 Successors and Assigns................................................................28
11.4 Further Assurances....................................................................28
11.5 Specific Performance..................................................................28
11.6 Severability..........................................................................29
11.7 Entire Agreement......................................................................29
11.8 Governing Law.........................................................................29
11.9 Certain Construction Rules............................................................29
11.10 Survival of Covenants, Representations and Warranties.................................29
11.11 Counterparts..........................................................................29
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of August 27,
1999, among nStor Technologies, Inc., a Delaware corporation ("nSTOR"), NTI
Acquisition Corp., a Florida corporation and a wholly owned subsidiary of nStor
(the "nSTOR SUBSIDIARY"), and Andataco, Inc., a Massachusetts corporation (the
"COMPANY").
RECITALS:
A. The respective Boards of Directors of nStor, the nStor Subsidiary
and the Company have each approved the merger of the nStor Subsidiary into the
Company (the "MERGER"), whereby (other than shares of Company Common Stock (as
hereinafter defined) owned directly or indirectly by nStor and Dissenting Shares
(as defined in SECTION 3.2)), each outstanding share of the Class A Common
Stock, par value $.01 per share, of the Company (the "COMPANY COMMON STOCK"),
will be converted into the right to receive the Merger Consideration (as
hereinafter defined), all upon the terms and subject to the conditions set forth
in this Agreement. The Board of Directors of the Company has adopted resolutions
recommending that the Company's shareholders approve the Merger.
B. nStor, the nStor Subsidiary and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
C. nStor beneficially owns approximately 77% of the outstanding Company
Common Stock.
NOW, THEREFORE, in consideration of the mutual agreements,
representations and warranties contained herein, and subject to the conditions
contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the terms set forth in
SCHEDULE 1.1 shall have the respective meanings set forth therein.
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ARTICLE II
THE MERGER
2.1 Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as hereinafter defined), in accordance with this Agreement,
the Massachusetts Business Corporation Law (the "MBCL") and the Florida Business
Corporation Act (the "FBCA"), the nStor Subsidiary shall merge with and into the
Company and the separate existence and corporate organization of the nStor
Subsidiary (except as may be continued by operation of law) shall cease and the
Company shall survive the Merger as the surviving corporation (the "SURVIVING
CORPORATION"). The Surviving Corporation shall succeed to and possess all of the
estates, properties (real, personal and mixed) rights, privileges, powers,
franchises, immunities, purposes, and all and every other interest of, or
belonging to, the Company or the nStor Subsidiary, all without further act or
deed; and the Surviving Corporation shall be subject to all the debts,
liabilities, obligations, restrictions, disabilities, penalties and duties of
the Company and the nStor Subsidiary, all without further act or deed. nStor
shall not assume any debts, liabilities, obligations, restrictions,
disabilities, penalties or duties of the Company, the nStor Subsidiary or the
Surviving Corporation.
2.2 Closing. The Closing of the Merger (the "CLOSING") shall take place
at the offices of Akerman, Senterfitt & Eidson, P.A., 450 East Las Olas Blvd.,
Ft. Lauderdale, Florida 33301, at 10:00 a.m., Ft. Lauderdale, Florida, on a date
to be specified by nStor or the nStor Subsidiary, which shall be no later than
the third business day after satisfaction of the last to occur of the conditions
set forth in ARTICLE VIII, or at such other time and place or on such other date
as nStor and the Company may agree. On the Closing Date, (i) Articles of Merger
(which shall be completed as appropriate to reflect the terms of this Agreement)
shall be executed, delivered, filed and recorded in accordance with the MBCL,
and (ii) Articles of Merger (which shall be completed as appropriate to reflect
the terms of this Agreement) shall be executed, delivered, filed and recorded in
accordance with the FBCA, unless otherwise agreed by the parties in writing. The
Merger shall become effective when such Articles of Merger are duly filed with
the Secretary of State of the State of Florida and the Secretary of the
Commonwealth of Massachusetts, or at such other time as the nStor Subsidiary and
the Company shall agree should be specified in the Articles of Merger (the time
the Merger becomes effective being hereinafter referred to as the "EFFECTIVE
TIME").
2.3 Articles of Organization and Bylaws of Surviving Corporation. From
and after the Effective Time, the Articles of Organization, as amended, of the
Company immediately prior to the Effective Time, shall be the Articles of
Organization of the Surviving Corporation, until further amended in accordance
with the MBCL. From and after the Effective Time, the Bylaws, as amended, of the
Company immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation, until further amended in accordance with the MBCL.
2.4 Directors and Officers. The directors of nStor Subsidiary
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, with each to serve as such until his or her respective successor is
duly elected and qualified in the manner provided in the Articles
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of Organization and Bylaws of the Surviving Corporation, or his or her earlier
death, resignation or removal. The officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation, with each
to serve as such until his or her respective successor is duly elected and
qualified in the manner provided in the Articles of Organization and Bylaws of
the Surviving Corporation, or his or her earlier death, resignation or removal.
ARTICLE III
CONVERSION OR CANCELLATION OF THE COMPANY'S COMMON STOCK
3.1 Conversion and Cancellation of The Company's Capital Stock. Subject
to the terms and conditions of this Agreement, at the Effective Time, by virtue
of the Merger and without any action on the part of the nStor Subsidiary, the
Company or the holder of any of the following securities:
(a) Each share of the Company Common Stock issued and
outstanding immediately prior to the Effective Time, other than Dissenting
Shares and shares canceled in accordance with SECTION 3.1(c), shall be converted
into and represent the right to receive, without interest, that number of shares
of common stock, par value $0.50 per share, of nStor ("NSTOR COMMON STOCK")
obtained by dividing Thirty One Cents ($0.31) by the average closing price
("AVERAGE PRICE") of a share of nStor Common Stock on The American Stock
Exchange ("AMEX") for the ten (10) trading days immediately prior to the date of
the Company Special Meeting (the "EXCHANGE RATIO"); provided, however, that if
between the date of this Agreement and the Effective Time the outstanding shares
of Company Common Stock or nStor Common Stock shall have been changed into a
different number of shares or a different class, by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Exchange Ratio shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares. Nothing stated in the immediately
preceding sentence shall be construed as providing the holders of Company Common
Stock any preemptive or antidilutive rights other than in the case of a stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares, and there shall be no adjustment to the Exchange Ratio in
the event that nStor issues or agrees to issue any shares of nStor Common Stock
between the date hereof and the Effective Time, whether for cash, through option
grants, option or warrant exercises, in acquisitions, or in other transactions.
At the Effective Time, all shares of Company Common Stock issued and outstanding
immediately prior thereto shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each certificate
previously evidencing any such shares shall thereafter represent the right to
receive, upon the surrender of such certificate in accordance with the
provisions of SECTION 3.3(b), certificates evidencing such number of whole
shares of nStor Common Stock into which such Company Common Stock was converted
in accordance with the Exchange Ratio and any cash in lieu of fractional shares
of nStor Common Stock paid in consideration therefor pursuant to SECTION 3.3(d).
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(b) At the Effective Time, each share of Company Common Stock,
if any, held in the Company's treasury and each share of the Company Common
Stock owned by the nStor Subsidiary, nStor or any direct or indirect wholly
owned subsidiary of either of them at the Effective Time shall be canceled and
retired without payment of any consideration therefor and shall cease to exist.
(c) Each share of common stock of the nStor Subsidiary issued
and outstanding immediately prior to the Effective Time shall be converted into
and become one (1) fully paid and nonassessable share of Common Stock, par value
$.01 per share, of the Surviving Corporation.
3.2 Dissenting Shares/Rights of Appraisal.
(a) Shares of Company Common Stock held by each shareholder
who has not voted such shares in favor of the Merger as to which appraisal shall
have been duly demanded and perfected in accordance with Section 86 of the MBCL
and Section 1300 of the California Corporations Code (the "CCC") where the
holder thereof has not effectively withdrawn or forfeited such right to such
appraisal ("DISSENTING SHARES") shall not be converted into, represent the right
to receive, or be exchangeable for the Merger Consideration due with respect to
such class of Capital Stock, unless such holder shall have forfeited such
holder's right to appraisal under the MBCL or the CCC or withdrawn, with the
consent of the Company, such holder's demand for appraisal. If such holder has
forfeited or withdrawn such holder's right to appraisal of Dissenting Shares,
then, as of the Effective Time, or the occurrence of such event, whichever last
occurs, such holder's Dissenting Shares shall cease to be Dissenting Shares and
shall be converted into and represent the right to receive, and be exchangeable
for, the Merger Consideration due with respect to such class of Capital Stock.
(b) The Company shall give nStor (i) prompt written notice of
any written demands for appraisal of any shares of Capital Stock of the Company,
withdrawals of such demands, and any other instruments served pursuant to the
MBCL or CCC and received by the Company and (ii) the opportunity to direct and
control all negotiations and proceedings with respect to demands for appraisal
under the MBCL or CCC. The Company shall not, except with the prior written
consent of nStor, make any payment with respect to any demands for appraisal of
Capital Stock of the Company or settle or offer to settle any such demands.
3.3 Exchange of Certificates.
(a) Exchange Agent. nStor shall deposit, or shall cause to be
deposited, with a bank, trust company or other entity as may be designated by
nStor and reasonably satisfactory to the Company (the "EXCHANGE AGENT"), for the
benefit of the holders of shares of Company Common Stock, for exchange in
accordance with this SECTION 3, through the Exchange Agent, at the Effective
Time, (i) certificates evidencing the shares of nStor Common Stock issuable
pursuant to SECTION 3.1 in exchange for outstanding shares of Company Common
Stock (including
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Company Common Stock issued upon exercise or conversion, as applicable, of
Options and Warrants prior to the Effective Time as set forth in SECTION 3.6)
and (ii) upon the request of the Exchange Agent, cash in an amount sufficient to
make any cash payment in lieu of fractional shares of nStor Common Stock
pursuant to SECTION 3.3(d) (such certificates for shares of nStor Common Stock,
together with any dividends or distributions with respect thereto, and cash in
lieu of fractional shares of nStor Common Stock being hereafter collectively
referred to as the "EXCHANGE FUND"). The Exchange Agent shall, pursuant to
irrevocable instructions, deliver the nStor Common Stock contemplated to be
issued pursuant to SECTION 3.1 out of the Exchange Fund to holders of shares of
Company Common Stock. Except as contemplated by SECTION 3.3(e) hereof, the
Exchange Fund shall not be used for any other purpose. Any interest, dividends
or other income earned on the investment of cash or other property held in the
Exchange Fund shall be for the account of nStor.
(b) Exchange Procedures. nStor shall instruct the Exchange
Agent to mail, within five (5) business days after the Effective Time, to each
holder of record of a certificate or certificates which immediately prior to the
Effective Time evidenced outstanding shares of Company Common Stock (the
"CERTIFICATES") (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as nStor may reasonably specify) and
(ii) instructions to effect the surrender of the Certificates in exchange for
the certificates evidencing shares of nStor Common Stock and cash (if any). Upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed, and such other customary documents as
may be required pursuant to such instructions, the holder of such Certificate
shall be entitled to receive in exchange therefor (A) certificates evidencing
that number of whole shares of nStor Common Stock that such holder has the right
to receive in accordance with the Exchange Ratio in respect of the shares of
Company Common Stock formerly evidenced by such Certificate, (B) any dividends
or other distributions to which such holder is entitled pursuant to SECTION
3.3(c), and (C) cash in lieu of fractional shares of nStor Common Stock to which
such holder is entitled pursuant to SECTION 3.3(d) (the shares of nStor Common
Stock, and the dividends, distributions and cash described in clauses (A), (B)
and (C) being, collectively, the "MERGER CONSIDERATION"), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of shares of Company Common Stock that is not registered in the transfer records
of the Company, Merger Consideration may be issued and paid in accordance with
this ARTICLE III to a transferee if the Certificate evidencing such shares of
Company Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid or by the transferee requesting
such payment paying to the Exchange Agent any such transfer tax. Until
surrendered as contemplated by this SECTION 3.3, each Certificate shall be
deemed at any time after the Effective Time to evidence only the right to
receive upon such surrender the Merger Consideration.
(c) Distributions with Respect to Unexchanged Shares of nStor
Common Stock. No dividends or other distributions declared or made after the
Effective Time with respect to nStor
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Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of nStor
Common Stock represented thereby and no cash payment in lieu of fractional
shares of nStor Common Stock shall be paid to any such holder pursuant to
SECTION 3.3(d), until the holder of such Certificate shall surrender such
Certificate. Upon such surrender, there shall be paid to the Person in whose
name the certificates representing the shares of nStor Common Stock into which
such Certificates were converted and registered, all dividends and other
distributions payable in respect of such nStor Common Stock on a date after, and
in respect of a record date after, the Effective Time.
(d) Fractional Shares. No fraction of a share of nStor Common
Stock shall be issued in the Merger and any such fractional share interest shall
not entitle the owner thereof to vote or to any other rights of a stockholder of
nStor. In lieu of any such fractional shares, each holder of Company Common
Stock upon surrender of a Certificate for exchange pursuant to this SECTION 3.3
shall be paid an amount in cash (without interest), rounded to the nearest cent,
determined by multiplying (i) the Average Price by (ii) the fractional interest
to which such holder would otherwise be entitled (after taking into account all
shares of Company Common Stock then held of record by such holder).
(e) Termination of Exchange Fund. Any portion of the Exchange
Fund that remains undistributed to the holders of Company Common Stock for six
(6) months after the Effective Time shall be delivered to nStor, upon demand,
and any holders of Company Common Stock who have not theretofore complied with
this ARTICLE III shall thereafter look only to nStor for the Merger
Consideration to which they are entitled pursuant to this ARTICLE III.
(f) No Liability. Neither nStor nor the Company shall be
liable to any holder of shares of Company Common Stock for any such shares of
nStor Common Stock (or dividends or distributions with respect thereto) from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(g) Withholding Rights. nStor or the Exchange Agent shall be
entitled to deduct and withhold from the Merger Consideration otherwise payable
pursuant to this Agreement to any holder of shares of Company Common Stock such
amounts as nStor or the Exchange Agent is required to deduct and withhold with
respect to the making of such payment under the Code or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by nStor or
the Exchange Agent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the shares of Company Common
Stock in respect of which such deduction and withholding was made by nStor or
the Exchange Agent.
(h) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such Person of a bond in
such reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange
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for such lost, stolen or destroyed Certificate the shares of nStor Common Stock,
any cash in lieu of fractional shares and any unpaid dividends and distributions
on shares of nStor Common Stock deliverable in respect thereof, pursuant to this
Agreement.
3.4 No Further Rights. From and after the Effective Time, holders of
Certificates shall cease to have any rights as shareholders of the Company,
except the right to receive the Merger Consideration as provided herein or in
the case of Dissenting Shares, as may be provided by applicable law.
3.5 Closing of the Company's Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of the
Company Common Stock shall thereafter be made. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent,
they shall be canceled and exchanged for the Merger Consideration, as provided
in this ARTICLE III, subject to applicable law in the case of Dissenting Shares.
3.6 Stock Options and Warrants.
(a) The Company will (i) terminate, to the extent permitted by
the terms thereof, the Company's 1991/1993 Consolidated Equity Plan, 1996
Consolidated Equity Plan and 1997 Equity Incentive Plan, as amended
(collectively, the "COMPANY OPTION PLANS"), immediately before the Effective
Time, without prejudice to the rights of the holders of outstanding Options
issued pursuant to the Company Option Plans, (ii) grant no additional Options
after the date of this Agreement under the Company Option Plans and (iii) grant
no other options, warrants, rights, convertible securities or other agreements
or commitments pursuant to which the Company is required to issue any shares of
Capital Stock or any securities convertible into or exchangeable for Capital
Stock.
(b) The Company shall provide written notice to all holders of
outstanding Options issued pursuant to the Company Option Plans in accordance
with the terms of the respective Company Option Plan that, at the option
holder's election, the vesting period for any outstanding Options shall be
accelerated and all such Options shall be deemed to be vested immediately prior
to the Effective Time and holders of outstanding Options shall have the right to
exercise their Options prior to the Effective Time in accordance with the
respective terms and conditions of the Company Option Plans; provided, however,
that any outstanding Options which are not exercised prior to the Effective Time
shall terminate and the holders thereof shall have no rights with respect
thereto following the Effective Time other than as set forth in this SECTION
3.6(b).
(c) At its sole and absolute discretion, nStor may issue
options to continuing employees of the Company, pursuant to nStor's 1996 Stock
Option Plan, as amended ("the nStor Option Plan"), on such terms and conditions
as the administrators of the nStor Option Plan may deem appropriate.
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3.7 Tax Consequences. The Merger will be a taxable transaction for
federal income tax purposes. Neither nStor, nStor Subsidiaries, nor the Company
shall take a position on any tax return inconsistent with this Section 3.7.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to nStor and the nStor
Subsidiary as follows:
4.1 Organization, Standing, etc. of the Company. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the Commonwealth of Massachusetts, has all requisite corporate power and
authority to own its assets and to carry on its business as presently conducted.
4.2 Authorization and Execution. The Company has all requisite
corporate power and authority to enter into this Agreement and, subject to the
adoption and approval of this Agreement and the Merger by the holders of a
majority of the shares of Company Common Stock outstanding on the record date
for the Company Special Meeting (as defined herein), to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement and, subject to obtaining the requisite approval of the holders of a
majority of the shares of Company Common Stock outstanding on the record date
for the Company Special Meeting, the performance by the Company of this
Agreement, the Merger and the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company. The
Board of Directors of the Company, at meetings duly called and held, has (a)
determined that the transactions contemplated by this Agreement, including the
Merger, are fair to and in the best interests of the shareholders of the
Company, (b) approved this Agreement and the transactions contemplated hereby,
including, without limitation, the Merger, and (c) resolved to recommend that
the Company's shareholders approve and adopt this Agreement, the Merger and the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and subject to the execution and delivery of this
Agreement by nStor and the nStor Subsidiary constitutes a legal, valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as enforcement may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium and similar laws, both state and federal,
affecting the enforcement of creditors' rights or remedies in general as from
time to time in effect, or (ii) the exercise by courts of equitable powers.
4.3 Capitalization. The authorized Capital Stock of the Company
consists of (a) 40,000,000 shares of Class A Common Stock, $0.01 par value per
share, of which 25,432,303 shares are issued and outstanding, (b) 725,500 shares
of Class A Common Stock reserved for issuance upon the exercise of outstanding
Options, (c) [180,783] shares of Class A Common Stock reserved for issuance upon
exercise of outstanding Warrants, (d) 2,250,000 shares of Class C
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Common Stock of which none are issued and outstanding, and (e) no shares of
Company Capital Stock are held in treasury. All of the outstanding shares of
Company Common Stock have been duly authorized and are validly issued, fully
paid and nonassessable and free of preemptive rights. Except for the Options and
the Warrants, there are no subscriptions, options, warrants, rights (including
"phantom" stock rights), convertible securities or other agreements or
commitments (contingent or otherwise) of any character (written or oral)
pursuant to which the Company is required to issue any shares of Capital Stock
or any securities convertible into or exchangeable for Capital Stock, or is
otherwise required to give any Person the right to receive any benefits or
rights similar to any rights enjoyed by or accruing to the holders of shares of
Capital Stock or any rights to participate in the equity or net income of the
Company. SCHEDULE 4.3 sets forth the number and exercise price of all
outstanding Options and Warrants. As of the Closing Date, there will be no
outstanding subscriptions, options (other than the Options), warrants (other
than the Warrants), rights or any other agreements or commitments of any kind or
any convertible or exchangeable securities of the sort described in the
immediately preceding sentence. Except as set forth on SCHEDULE 4.3, there are
not any shareholders' agreements, voting trusts or other agreements or
understandings between or among shareholders or to which the Company is a party
or by which it is bound with respect to the transfer or voting of any Capital
Stock.
4.4 SEC Reports and Financial Statements. The Company has filed with
the SEC, and has heretofore made available to nStor, true and complete copies
of, all forms, reports, schedules, statements and other documents required to be
filed by it since August 1997, under the Exchange Act or the 33 Act (such forms,
reports, schedules, statements and other documents, including any financial
statements or schedules included therein, are referred to as the "COMPANY SEC
DOCUMENTS"). The Company SEC Documents, at the time filed, (a) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the 33 Act, as the case may be, and the
applicable rules and regulations of the SEC thereunder. The financial statements
of the Company included in the Company SEC Documents comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Forms 10-Q and 8-K of the SEC)
and fairly present (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments) the financial position of the Company as at the
dates thereof and the results of operations and cash flows for the periods then
ended.
4.5 No Broker's or Finder's Fees. No broker, investment banker,
financial advisor or other person, other than Quarterdeck Investment Partners,
Inc. and Fleming Lessard & Shields LLC, the fees and expenses of which will be
paid by the Company, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement, based upon arrangements made by or on behalf of
the Company.
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4.6 Opinion of Financial Advisor. The Company has received the opinion
of Fleming Lessard & Shields LLC to the effect that, as of that date, the
consideration to be received in the Merger by the holders of Company Common
Stock is fair from a financial point of view, and a complete and correct signed
copy of such opinion has been, or promptly upon receipt thereof will be,
delivered to nStor.
4.7 Information Supplied. None of the information supplied or to be
supplied by the Company specifically for inclusion or incorporation by reference
in (i) the registration statement on Form S-4 to be filed with the SEC by nStor
in connection with the issuance of nStor Common Stock in the Merger (the
"REGISTRATION STATEMENT") will, at the time the Registration Statement is filed
with the SEC, at any time it is amended or supplemented and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading, and (ii) the Proxy Statement will, at the
date it is first mailed to the Company's stockholders and at the time of the
meeting of the Company's stockholders held to vote on approval of this
Agreement, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply in all material respects with the
requirements of the Exchange Act, and the rules and regulations thereunder. No
representation is made by the Company in this SECTION 4.7 with respect to
statements made or incorporated by reference in the Proxy Statement based on
information supplied by nStor or the nStor Subsidiary specifically for inclusion
or incorporation by reference in the Proxy Statement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF NSTOR AND THE NSTOR SUBSIDIARY
nStor and the nStor Subsidiary, jointly and severally, hereby represent
and warrant to the Company as follows:
5.1 Organization, Standing, etc., of nStor. nStor is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own its assets
and to carry on its business as presently conducted.
5.2 Organization, Standing, etc., of nStor Subsidiary. The nStor
Subsidiary is a newly formed corporation duly organized, validly existing, and
in good standing under the laws of the State of Florida and has all requisite
corporate power and authority to own its assets and to carry on its business as
presently conducted.
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5.3 Authorization and Execution. Each of nStor and the nStor Subsidiary
has all corporate power and authority to enter into this Agreement and, subject
to the approval of the issuance of nStor Common Stock pursuant to the Merger by
the holders of a majority of the outstanding shares of nStor Common Stock on the
record date for the Special Meeting of the nStor Shareholders, to consummate the
transaction contemplated by this Agreement. The execution and delivery of this
Agreement and, subject to the approval of the issuance of nStor Common Stock
pursuant to the Merger by the holders of a majority of the outstanding shares of
nStor Common Stock outstanding on the record date for the Special Meeting of the
nStor Shareholders, the performance of each of nStor and the nStor Subsidiary of
this Agreement and the consummation by each of them of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of nStor and the nStor Subsidiary. This Agreement has been duly
executed and delivered by each of nStor and the nStor Subsidiary and subject to
the execution and delivery of this Agreement by the Company, constitutes a
legal, valid and binding agreement of each of nStor and the nStor Subsidiary
enforceable against nStor and the nStor Subsidiary, as applicable, in accordance
with its terms, except as enforcement may be limited by (i) bankruptcy
insolvency, reorganization, moratorium and similar laws, both state and federal,
affecting the enforcement of creditors' rights or remedies in general as from
time to time in effect, or (ii) the exercise by courts of equitable powers.
5.4 Capitalization.
(a) The authorized capital stock of nStor consists of (a)
40,000,000 shares of nStor Common Stock of which 22,706,925 shares are issued
and outstanding, (b) 2,401,000 shares of nStor Common Stock have been reserved
for issuance upon the exercise of outstanding nStor Options, (c) 2,420,133
shares of nStor Common Stock have been reserved for issuance upon exercise of
outstanding nStor Warrants, (d) 160,000 shares of nStor Common Stock have been
reserved for issuance upon the conversion of nStor Notes, (e) 4,000 shares of
Series A Preferred Stock of which 1,667 are issued and outstanding, (f) 4,000
shares of Series C Preferred Stock of which 3,000 are issued and outstanding,
(g) 6,000 shares of Series D Preferred Stock of which 2,700 are issued and
outstanding, (h) 3,500 shares of Series E Preferred Stock of which 3,500 are
issued and outstanding, (i) 4,654 shares of Series F Preferred Stock of which
4,654 are issued and outstanding, and (j) no shares of nStor capital stock are
held in treasury. All of the outstanding shares of nStor capital stock have been
duly authorized and are validly issued, fully paid and nonassessable and free of
preemptive rights. Except for the nStor Options, the nStor Warrants, the nStor
Notes, and the outstanding shares of nStor Preferred Stock, there are no
subscriptions, options, warrants, rights (including "phantom" stock rights),
convertible securities or other agreements or commitments (contingent or
otherwise) of any character (written or oral) pursuant to which nStor is
required to issue any shares of its capital stock or any securities convertible
into or exchangeable for its capital stock, or is otherwise required to give any
Person the right to receive any benefits or rights similar to any rights enjoyed
by or accruing to the holders of shares of nStor capital stock or any rights to
participate in the equity or net income of nStor. SCHEDULE 5.4 sets forth the
number and exercise and/or conversion price of all outstanding nStor Options,
nStor Warrants, nStor Notes and nStor Preferred Stock.
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(b) At the Effective Time, the duly authorized capital stock
of the nStor Subsidiary will consist of 1,000 shares of common stock, $.01 par
value, 100 shares of which will be validly issued, fully paid and nonassessable
and owned of record and beneficially by nStor. There are no outstanding options,
warrants or other rights to subscribe for or purchase capital stock (or
securities convertible into or exchangeable for capital stock) of the nStor
Subsidiary. The nStor Subsidiary has not engaged in any activities other than as
contemplated by the terms of this Agreement.
5.5 SEC Reports and Financial Statements. nStor has filed with the SEC,
and has heretofore made available to the Company true and complete copies of,
all forms, reports, schedules, statements and other documents required to be
filed by it since August 1997, under the Exchange Act or the 33 Act (such forms,
reports, schedules, statements and other documents, including any financial
statements or schedules included therein, are referred to as the "nSTOR SEC
DOCUMENTS"). The nStor SEC Documents, at the time filed, (a) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading and (b) complied
in all material respects with the applicable requirements of the Exchange Act
and the 33 Act, as the case may be, and the applicable rules and regulations of
the SEC thereunder. The financial statements of nStor included in the nStor SEC
Documents comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except as may be
indicated in the notes thereto or, in the case of the unaudited statements, as
permitted by Forms 10-Q and 8-K of the SEC) and fairly present (subject, in the
case of the unaudited statements, to normal, recurring audit adjustments) the
financial position of the nStor as at the dates thereof and the results of
operations and cash flows for the periods then ended.
5.6 No Broker's or Finder's Fees. No broker, investment banker,
financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement, based upon arrangements made by or
on behalf of nStor.
5.7 Information Supplied. None of the information supplied or to be
supplied by nStor specifically for inclusion or incorporation by reference in
(i) the Registration Statement will, at the time the Registration Statement is
filed with the SEC, at any time it is amended or supplemented and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading, and (ii) the Proxy Statement will, at the
date it is first mailed to the Company's and nStor's stockholders and at the
time of the meeting of the Company's and nStor's stockholders held to vote on
approval of this Agreement or the issuance of the nStor Common Stock, as
applicable, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statement therein, in light of the circumstances under which they are
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made, not misleading. The Registration Statement will comply as to form in all
material respects with the requirements of the Exchange Act, and the rules and
regulations thereunder. No representation is made by nStor in this SECTION 5.7
with respect to statements made or incorporated by reference in the Registration
Statement based on information supplied by the Company specifically for
inclusion or incorporation by reference in the Registration Statement.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company covenants and agrees with nStor or the nStor Subsidiary
that, between the date of this Agreement and the Effective Time (the
"Pre-Closing Period"), the Company at its expense will comply with all covenants
and provisions of this ARTICLE VI, except to the extent otherwise expressly
required or permitted by this Agreement.
6.1 Investigations. The Company will provide nStor and nStor's counsel,
accountants and other representatives and agents with reasonable access, upon
prior notice and during normal business hours, to all facilities, officers,
directors, employees, agents, accountants, actuaries, assets, properties, books
and records of the Company and will furnish nStor with such financial and
operating data and other information with respect to the business and properties
of the Company or the transactions contemplated hereby as nStor shall from time
to time request; PROVIDED, HOWEVER, that such investigation (a) shall be
conducted in such manner as not to interfere unreasonably with the operation of
the business of the Company, and (b) shall not affect any of the representations
and warranties hereunder. The Company will also provide nStor with timely notice
of and access to minutes of all meetings (and all actions by written consent in
lieu thereof) of the board of directors, or any committee thereof, and
shareholders of the Company.
6.2 Operation of the Company.
(a) During the Pre-Closing Period, the Company will carry on
its business solely in the usual and ordinary course consistent with past
practice. Without limiting the generality of the foregoing:
(i) the Company shall conduct its business
and operations in the ordinary course and in substantially the same manner as
such business and operations have been conducted prior to the date of this
Agreement;
(ii) the Company shall use reasonable efforts
to preserve intact its current business organization, keep available the
services of its current officers, directors, employees, agents, consultants and
other similar representatives and maintain its relations and good will with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with the Company;
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(iii) the Company shall keep in full force all
insurance policies maintained by it as of the date hereof;
(iv) the Company shall cause its officers to
report regularly (but in no event less frequently than weekly) to nStor
concerning the status of the Company's business;
(v) the Company shall not declare, accrue, set
aside or pay any dividend or make any other distribution in respect of any
shares of Capital Stock, and shall not repurchase, redeem or otherwise reacquire
any shares of Capital Stock or other securities (except that the Company may
repurchase Company Common Stock from former employees pursuant to the terms of
existing restricted stock purchase agreements);
(vi) the Company shall not sell, issue or
authorize the issuance of (i) any Capital Stock or other security, (ii) any
option or right to acquire any Capital Stock or other security, or (iii) any
instrument convertible into or exchangeable for any Capital Stock or other
security (except that the Company shall be permitted to issue Company Common
Stock to employees upon the exercise of outstanding Options and Warrants and to
new employees consistent with its existing hiring policy;
(vii) the Company shall not amend or waive any of
its rights under, or permit the acceleration of vesting under, (i) except to the
extent expressly permitted under the terms of this Agreement, any provision of
any of its stock plans, (ii) any provision of any agreement evidencing any
outstanding Option, or (iii) any provision of any restricted stock purchase
agreement;
(viii) the Company shall not (i) amend or permit
the adoption of any amendment to the Company's articles of organization or
bylaws, (ii) effect or permit the Company to become a party to any
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction, (iii) form any subsidiary or acquire any equity interest
or other interest in any other entity, or (iv) merge, consolidate or otherwise
combine or agree to merge, consolidate or otherwise combine with any other
Person;
(ix) the Company shall not make any capital
expenditure, except for capital expenditures that, when added to all other
capital expenditures made on behalf of the Company during the Pre-Closing
Period, do not exceed $50,000 per month;
(x) the Company shall not (i) enter into, or
permit any of the assets owned or used by it to become bound by, any contract
other than in the ordinary course of business consistent with past practice, or
(ii) amend or prematurely terminate, or waive any material right or remedy
under, any such contract;
(xi) the Company shall not (i) acquire, lease
or license any right or other asset from any other Person, (ii) sell or
otherwise dispose of, or lease or license, any right or other
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asset to any other Person, or (iii) waive or relinquish any right, except for
assets acquired, leased, licensed or disposed of by the Company in the ordinary
course of business consistent with past practice;
(xii) the Company shall not (i) lend money to any
Person (except that the Company may make routine travel advances to employees in
the ordinary course of business and may, consistent with its past practices,
allow employees to acquire Company Common Stock in exchange for promissory notes
upon exercise of Options), or (ii) incur or guarantee any indebtedness for
borrowed money (except that the Company may make routine borrowings in the
ordinary course of business under its line of credit with Wells Fargo Credit,
Inc.);
(xiii) the Company shall not (i) establish, adopt
or amend any employee benefit plan, (ii) pay any bonus or make any
profit-sharing payment, cash incentive payment or similar payment to, or
increase the amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees, or (iii) hire any new employee whose aggregate annual compensation is
expected to exceed $30,000;
(xiv) the Company shall not change any of its
methods of accounting or accounting practices in any material respect;
(xv) the Company shall not make any Tax
election; and
(xvi) the Company shall not agree or commit to take
any of the actions described in clauses "(v)" through "(xv)" above.
(b) The Company will promptly advise nStor in writing of the
commencement or threat of any claim, litigation, action, suit, inquiry or
proceeding involving the Company, its properties or assets, or any of its
directors, officers or agents (in their capacities as such).
(c) The Company shall furnish nStor with a copy of all
amendments to the Company's Annual Report on Form 10-K, filed with the SEC for
the year ended October 31, 1998 (the "COMPANY 10-K") and of any other form filed
with the SEC under the Exchange Act from the date of filing of the Company 10-K
to the Effective Time of the Merger.
(d) The Company will use its best efforts to (i) maintain all
of its licenses, qualifications and authorizations to do business in each
jurisdiction in which it is so licensed, qualified or authorized, (ii) maintain
in full force and effect all material contracts, documents and arrangements ,
and (iii) continue all current marketing and selling activities relating to the
business, operations or affairs of the Company.
(e) The Company will comply, in all material respects, with
all Legal Requirements applicable to its business, operations or affairs.
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(f) Notwithstanding the foregoing, the Company may take any
action described in clauses "(v") through "(xvi)" above if nStor gives its prior
written consent to the taking of such action by the Company.
6.3 No Solicitation.
(a) The Company and its officers, directors, employees,
representatives and agents shall immediately cease any discussions or
negotiations with any parties that may be ongoing with respect to a Takeover
Proposal (as hereinafter defined). The Company shall not authorize or permit any
of its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it to,
directly or indirectly, solicit, initiate or encourage (including by way of
furnishing information) any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Takeover Proposal;
PROVIDED, HOWEVER, that if, at any time prior to the Effective Time, the Board
of Directors of the Company determines in good faith, after consultation with
outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to the Company's shareholders under applicable law, the Company
may, in response to an unsolicited Takeover Proposal, and subject to compliance
with SECTION 6.3(c), (A) furnish information with respect to the Company to any
Person pursuant to a confidentiality agreement in a form approved by the Company
and (B) participate in negotiations regarding such Takeover Proposal. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in the preceding sentence by any director or executive officer of the
Company or any investment banker, financial advisor, attorney, accountant or
other representative of the Company, whether or not such Person is purporting to
act on behalf of the Company or otherwise, shall be deemed to be a breach of
this SECTION 6.3(a) by the Company. For purposes of this Agreement, "TAKEOVER
PROPOSAL" means any inquiry, proposal or offer from any Person relating to any
direct or indirect acquisition or purchase of twenty percent (20%) or more of
the assets of the Company or twenty percent (20%) or more of any class of equity
securities of the Company, any tender offer or exchange offer that if
consummated would result in any Person beneficially owning twenty percent (20%)
or more of any class of equity securities of the Company, any merger,
consolidation, business combination, sale of substantially all of the assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company, other than the transactions contemplated by this Agreement, or any
other transaction the consummation of which could reasonably be expected to
impede, interfere with, prevent or materially delay the Merger or which would
reasonably be expected to dilute materially the benefits to nStor of the
transactions contemplated hereby.
(b) Except as set forth in this SECTION 6.3, neither the Board
of Directors of the Company nor any committee thereof shall (i) withdraw or
modify or propose to withdraw or modify, in a manner adverse to nStor, the
approval or recommendation by such Board of Directors or such committee of this
Agreement or the Merger, (ii) approve or recommend, or propose to approve or
recommend, any Takeover Proposal or (iii) cause the Company to enter into any
agreement with respect to any Takeover Proposal.
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Notwithstanding the foregoing, in the event that, prior to the Merger,
the Board of Directors of the Company determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to the Company's shareholders under applicable
law, the Board of Directors of the Company may (subject to the other provisions
of this SECTION 6.3) withdraw or modify its approval or recommendation of this
Agreement and the Merger, approve or recommend a Superior Proposal (as defined
below), cause the Company to enter into an agreement with respect to a Superior
Proposal or terminate this Agreement, but in each case only at a time that is
after the second business day following nStor's receipt of written notice (a
"NOTICE OF SUPERIOR PROPOSAL") advising nStor that the Board of Directors of the
Company has received a Superior Proposal, specifying the material terms and
conditions of such Superior Proposal and identifying the Person making such
Superior Proposal. In the event that a Notice of Superior Proposal is delivered
and any material term or condition of the Superior Proposal described therein is
subsequently changed, the Company shall deliver a supplemental Notice of
Superior Proposal describing such change and may withdraw or modify its approval
or recommendation of this Agreement and the Merger, approve or recommend the
modified Superior Proposal or cause the Company to enter into an agreement with
respect to the modified Superior Proposal only at a time that is after the
second business day following nStor's receipt of the supplemental Notice of
Superior Proposal. In addition, if the Company proposes to enter into an
Agreement with respect to any Takeover Proposal, it shall concurrently with
entering into such agreement pay, or cause to be paid to nStor any indebtedness
owed to nStor including, without limitation, with respect to product sold or
services provided by nStor to the Company or supplied or provided by nStor to
any of the Company's customers at the request of the Company. For purposes of
this Agreement, a "SUPERIOR PROPOSAL" means any bonafide proposal made by a
third party to acquire, directly or indirectly, for consideration consisting of
cash and/or securities, more than fifty percent (50%) of the shares of the
Company Common Stock then outstanding or all or substantially all the assets of
the Company and otherwise on terms which the Board of Directors of the Company
determines in its good faith judgment based on the advice of a financial advisor
of nationally recognized reputation to be more favorable to the Company's
shareholders than the Merger.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this SECTION 6.3, the Company shall immediately advise
nStor orally and in writing of any request for information or of any Takeover
Proposal, the material terms and conditions of such request or Takeover Proposal
and the identity of the Person making such request or Takeover Proposal. The
Company will keep nStor fully informed of the status and details (including
amendments or proposed amendments) of any such request or Takeover Proposal.
(d) Nothing contained in this SECTION 6.3 shall prohibit the
Company from taking and disclosing to its shareholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's shareholders if, in the good faith judgment of the
Board of Directors of the Company, after consultation with outside counsel,
failure so to disclose would be inconsistent with its fiduciary duties to the
Company's shareholders under applicable law; PROVIDED, HOWEVER, neither the
Company nor its Board of Directors nor any committee thereof shall, except as
permitted by SECTION 6.3(b), and except
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in the event that the fairness opinion of the Company's financial adviser is
withdrawn or modified to a materially adverse extent, withdraw or modify, or
propose to withdraw or modify, its position with respect to this Agreement or
the Merger or approve or recommend, or propose to approve or recommend, a
Takeover Proposal.
6.4 Board Approval, Fairness Opinion, Shareholder Approval and Proxy
Statement.
(a) The Company hereby approves of and consents to the Merger
and represents that the Board of Directors of the Company, at a meeting duly
called and held, duly adopted resolutions approving this Agreement and the
Merger, determining that the terms of the Merger are fair to, and in the best
interest of, the Company's shareholders and recommending that the Company's
shareholders approve and adopt this Agreement. The Company represents that its
Board of Directors has received the opinion of Fleming, Lessard & Shields LLC
that the proposed consideration to be received by the holders of the Company
Common Stock pursuant to the Merger is fair to such holders from a financial
point of view, and a complete and correct signed copy of such opinion has been
delivered by the Company to nStor.
(b) The Company will, through its Board of Directors,
recommend to its shareholders that the shareholders vote in favor of, or
otherwise consent to, the approval of this Agreement, the Merger and the
transactions contemplated hereby. Without limiting the generality of the
foregoing, the Company agrees that its obligations pursuant to the first
sentence of this SECTION 6.4(b) shall not be affected by the commencement,
public proposal, public disclosure or communication to the Company of any
Takeover Proposal. The Company shall, as soon as practicable following the date
hereof, establish a record date for, duly call, give notice of, convene and hold
a meeting of its shareholders, to be held as promptly as practicable after the
date of this Agreement, for the purpose of voting upon the Merger and this
Agreement (the "COMPANY SPECIAL MEETING").
(c) The Company shall cooperate and assist nStor with the
preparation and filing with the SEC of the Proxy Statement and the Registration
Statement relating to the issuance of the Merger Consideration, in which the
Proxy Statement will be included as a prospectus. The Company shall use its best
efforts to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing.
(d) If at any time prior to the Effective Time any event
relating to the Company or any of its subsidiaries should be discovered which
should be set forth in an amendment of, or a supplement to, the Registration
Statement, the Company promptly shall so inform nStor and shall furnish all
necessary information to nStor relating to such event.
6.5 Financial Statements and Reports.
(a) As promptly as practicable after each calendar month
ending during the Pre- Closing Period, but in no event later than 30 days after
the end of each such month, the Company
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will deliver to nStor true and correct copies of the unaudited financial
statements (including a balance sheet, a statement of operations and changes in
shareholders' equity and cash flows) of the Company as of and for the month then
ended, prepared in accordance with GAAP (except for the absence of footnotes)
and which shall present fairly the financial condition and assets and
liabilities (whether accrued, absolute, contingent or otherwise) of the Company
as of the end of such month and the results of operations of the Company for and
during the period then ended, subject to normal and recurring year-end audit and
quarter-end adjustments.
(b) As promptly as practicable, the Company will deliver to
nStor true and complete copies of such other material financial statements,
reports or analyses as may be prepared or received by the Company and as relate
to the Company's business and operations, and such other information with
respect to the foregoing as nStor reasonably may request, including, without
limitation, normal internal reports and special reports (such as those of
consultants).
6.6 Notice and Cure. The Company will notify nStor promptly in writing
of, and contemporaneously will provide nStor with true and complete copies of
any and all information or documents relating to, and will use its best efforts
to cure before the Effective Time, any event, transaction or circumstance that
results in or will result in any covenant or agreement of the Company under this
Agreement being breached, or that renders or will render untrue any
representation or warranty of the Company contained in this Agreement as if the
same were made on or as of the date of such event, transaction or circumstance.
The Company will use its best efforts to cure, at the earliest practicable date
and prior to the Effective Time, any violation or breach of any representation,
warranty, covenant or agreement made by the Company in this Agreement, whether
occurring or arising before or after the date of this Agreement.
6.7 Best Efforts and Consents. Subject to the terms and conditions
herein provided, the Company shall use its best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable Legal Requirements and otherwise to consummate and
make effective the transactions contemplated by this Agreement, and to satisfy
the conditions to Closing and shall use its best efforts to obtain all necessary
actions or non-actions, extensions, waivers, Consents, licenses and clearances
and to effect all registrations, filings and notices with, to or from other
Persons or Tribunals required of the Company that are necessary or desirable to
effect the Merger and the transactions contemplated hereby.
6.8 Agreements and Covenants. The Company shall not make any
commitment, either in writing or orally, which would violate any of the
provisions set forth in this ARTICLE VI.
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ARTICLE VII
COVENANTS OF NSTOR AND THE NSTOR SUBSIDIARY
nStor covenants and agrees with the Company that, at all times during
the Pre-Closing Period, nStor at its expense will comply with all covenants and
provisions of this ARTICLE VII, except to the extent otherwise expressly
required or permitted by this Agreement.
7.1 Investigations. nStor will provide the Company and the Company's
counsel, accountants and other representatives and agents with reasonable
access, upon prior notice and during normal business hours, to all facilities,
officers, directors, employees, agents, accountants, actuaries, assets,
properties, books and records of nStor and will furnish the Company with such
financial and operating data and other information with respect to the business
and properties of nStor or the transactions contemplated hereby as the Company
shall from time to time request; PROVIDED, HOWEVER, that such investigation (a)
shall be conducted in such manner as not to interfere unreasonably with the
operation of the business of nStor, and (b) shall not affect any of the
representations and warranties hereunder.
7.2 Conduct of Business of the nStor Subsidiary. During the period from
the date of this Agreement to the Effective Time, the nStor Subsidiary shall not
engage in any activities of any nature except as provided in or contemplated by
this Agreement.
7.3 Operation of nStor. During the Pre-Closing Period, nStor will carry
on its business solely in the usual and ordinary course consistent with past
practice.
7.4 Obligation of nStor to Make Merger Effective and The nStor
Subsidiary's Shareholder Consent. nStor shall cause the nStor Subsidiary to take
all actions necessary on its part to carry out the transactions contemplated
hereby. nStor, as the sole shareholder of the nStor Subsidiary, has consented in
writing to the approval of this Agreement and the Merger in accordance with the
FBCA. NStor shall, as soon as practicable following the date hereof, establish a
record date for, duly call, give notice of, convene and hold a meeting of its
shareholders, to be held as promptly as practicable after the date of this
Agreement, for the purpose of voting upon the issuance of the nStor Common Stock
in the Merger.
7.5 Notice and Cure. nStor will notify the Company promptly in writing
of, and contemporaneously will provide the Company with true and complete copies
of any and all information or documents relating to, and will use its best
efforts to cure before the Effective Time, any event, transaction or
circumstance occurring after the date of this Agreement that results in or will
result in any covenant or agreement of nStor under this Agreement to be
breached, or that renders or will render untrue any representation or warranty
of nStor contained in this Agreement as if the same were made on or as of the
date of such event, transaction or circumstance. nStor also will use its best
efforts to cure, at the earliest practicable date and before the Effective Time,
any
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violation or breach of any representation, warranty, covenant or agreement made
by it in this Agreement, whether occurring or arising before or after the date
of this Agreement.
7.6 Best Efforts and Consents. Subject to the terms and conditions
herein provided, nStor shall use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable Legal Requirements and otherwise to consummate and
make effective the transactions contemplated by this Agreement and shall use its
best efforts to obtain all necessary actions or non-actions, extensions,
waivers, Consents, Licenses and clearances and to effect all registrations,
filings and notices with, to or from other Persons or Tribunals required of
nStor or the nStor Subsidiary that are necessary or desirable to effect the
Merger and the transactions contemplated hereby.
7.7 Information for Proxy Statement for the Company's Shareholders.
nStor will furnish to the Company such data and information relating to it as
the Company may reasonably request for the purpose of including such data and
information in the Proxy Statement.
7.8 Board Approval, Shareholder Approval, Proxy Statement and
Registration Statement.
(a) The Board of Directors of nStor, at a meeting duly called
and held, duly adopted resolutions approving the issuance of the nStor Common
Stock to be issued in the Merger. nStor will, through its Board of Directors,
recommend to its shareholders that the shareholders vote in favor of, or
otherwise consent to, the approval of the issuance of the nStor Common Stock to
be issued in the Merger.
(b) nStor promptly shall prepare, with the Company's
cooperation and assistance, and file with the SEC the Proxy Statement and nStor
promptly shall prepare and file with the SEC the Registration Statement relating
to the issuance of the Merger Consideration, in which the Proxy Statement will
be included as a prospectus. Each of nStor and the Company shall use its best
efforts to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing.
(c) nStor shall use its best efforts to obtain, prior to the
effective date of the Registration Statement, all necessary state securities law
or "Blue Sky" permits or approvals in connection with the issuance of nStor
Common Stock in the Merger and under the Company Stock Options, except that
nStor shall not be required to execute or file any general consent to service of
process in any jurisdiction in which it is not qualified to transact business or
to register as a dealer in any jurisdiction. nStor shall advise the Company
(promptly after it receives notice thereof) of the time when the Registration
Statement has become effective, of any supplement or amendment that has been
filed, of the issuance of any stop order, of the suspension of the qualification
of the shares of nStor Common Stock for offering or sale in any jurisdiction, or
of any request by the SEC for amendment of the Registration Statement or for
additional information.
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(d) If at any time prior to the Effective Time any event
relating to nStor or any of its subsidiaries should be discovered which should
be set forth in an amendment of, or a supplement to, the Proxy Statement, nStor
promptly shall so inform the Company and shall furnish all necessary information
to the Company relating to such event.
7.9 Financial Statements and Reports.
(a) As promptly as practicable after each calendar month
ending during the Pre- Closing Period, but in no event later than 30 days after
the end of each such month, nStor will deliver to the Company true and correct
copies of the unaudited financial statements (including a balance sheet, a
statement of operations and changes in shareholders' equity and cash flows) of
nStor as of and for the month then ended, prepared in accordance with GAAP
(except for the absence of footnotes) and which shall present fairly the
financial condition and assets and liabilities (whether accrued, absolute,
contingent or otherwise) of nStor as of the end of such month and the results of
operations of nStor for and during the period then ended, subject to normal and
recurring year-end audit and quarter-end adjustments.
7.10 Agreements and Covenants. nStor shall not make any commitment,
either in writing or orally, which would violate any of the provisions set forth
in this ARTICLE VII.
ARTICLE VIII
CONDITIONS
8.1 General Conditions. Notwithstanding any other provisions of this
Agreement, the obligations of all of the parties hereto to effect the Merger
shall be subject to satisfaction prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. This Agreement and the Merger shall
have been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote at a
special meeting of the shareholders of the Company. The issuance of nStor Common
Stock pursuant to the Merger shall have been approved by the affirmative vote of
the holders of a majority of the outstanding shares of nStor Common Stock
entitled to vote at a special meeting of the shareholders of nStor.
(b) No Violations or Proceedings. Consummation of the Merger
shall not violate any Order of any Tribunal having competent jurisdiction, and
no action or proceeding shall have been instituted by any Person or threatened
by any Tribunal which, in either such case, in the good faith judgment of either
nStor or the Company has a reasonable probability of resulting in an Order,
restraining, prohibiting or rendering unlawful the consummation of the
transactions contemplated by this Agreement or the ownership and operation by
nStor after the Effective Time of the Surviving Corporation or all of the
material assets and business of the Company.
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(c) Registration Statement. The Registration Statement shall
have been declared effective, and no stop order terminating the effectiveness of
the Registration Statement shall have been issued or threatened.
(d) Amex Listing. The shares of nStor Common Stock included in
the Merger Consideration shall have been duly listed for trading on Amex,
subject to official notice of issuance.
(e) Approvals of Tribunals and Other Persons. All
authorizations, consents, orders or approvals of, or declarations or filings
with, or expiration or termination of any notice and waiting period imposed by,
any Tribunal or any other Person upon the consummation of the transactions
contemplated by this Agreement, the failure of which to obtain could reasonably
be expected to have a material adverse effect on the Company, nStor or nStor
Subsidiary, shall have been filed or obtained or shall have occurred. All of
such authorizations, consents, orders or approvals shall have been obtained
without the imposition of any conditions which would require the divestiture of
any of the Company's or nStor's assets or would otherwise materially adversely
affect nStor's ability to operate the businesses of the Company and its
subsidiaries following the Effective Time.
8.2 Conditions to the Obligation of nStor and The nStor Subsidiary.
Notwithstanding any other provisions of this Agreement (including, without
limitation, SECTION 2.2), the obligations of nStor and the nStor Subsidiary to
effect the Merger shall be subject to satisfaction prior to the Closing Date of
the following conditions:
(a) Representations and Warranties True and Correct. The
representations and warranties of the Company that are qualified as to
materiality shall have been true and correct and such representations and
warranties that are not so qualified shall have been true and correct in all
material respects, in each case as of the date of this Agreement and the date of
the Merger, except in the case of any representation and warranty that speaks as
of a particular date, which shall be true and correct or true and correct in all
material respects, as applicable, as of such date.
(b) Satisfaction of Obligations. The Company shall have
performed in all material respects its material obligations, and shall have
complied in all material respects with its material covenants and agreements,
under this Agreement.
(c) Opinion of Counsel. nStor and nStor Subsidiary shall have
received an opinion of counsel to the Company, dated the Effective Time, in form
reasonably satisfactory to nStor.
8.3 Conditions to Obligations of The Company. Notwithstanding any other
provisions of this Agreement (including, without limitation, SECTION 2.2), the
obligations of the Company to effect the Merger shall be subject to satisfaction
prior to the Closing Date of the following conditions:
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(a) Representations and Warranties. The representations and
warranties of nStor and nStor Subsidiary in this Agreement that are qualified as
to materiality shall have been true and correct and such representations and
warranties that are not so qualified shall have been true and correct in all
material respects, in each case as of the date of this Agreement and the date of
the Merger, except in the case of any representation and warranty that speaks as
of a particular date, which shall be true and correct or true and correct in all
material respects, as applicable, as of such date.
(b) Satisfaction of Obligations. nStor and nStor Subsidiary
shall have performed in all material respects their material obligations, and
shall have complied in all material respects with their material covenants and
agreements, under this Agreement.
(c) Opinion of Counsel. The Company shall have received an
opinion of counsel to nStor and nStor Subsidiary, dated the Effective Time, in
form reasonably satisfactory to the Company.
(d) Fairness Opinion. The Company shall have received the
opinion of Fleming, Lessard & Shields LLC to the effect that the consideration
to be paid to the holders of Company Common Stock pursuant to the Merger is fair
from a financial point of view, and such opinion shall not have been withdrawn
or modified to a materially adverse extent.
(e) nStor Stock Options. The Company shall have received from
nStor, at least five (5) business days prior to the Closing Date, a list of
Andataco employees to whom nStor will grant stock options pursuant to the nStor
Stock Option Plan, including the number of options to be granted and the vesting
schedule.
ARTICLE IX
TERMINATION; PAYMENT OF EXPENSES
9.1 Termination of Agreement and Abandonment of Merger. Anything herein
to the contrary notwithstanding, this Agreement and the Merger contemplated
hereby may be terminated at any time before the Effective Time, whether before
or after approval of this Agreement by the shareholders of the Company, as
follows:
(a) Mutual Consent. By mutual written consent of nStor
and the Company.
(b) nStor or the Company. By either nStor or the Company (i)
if the Merger shall not have occurred prior to December 31, 1999; PROVIDED,
HOWEVER, that the right to terminate the Agreement pursuant to this SECTION
9.1(b)(i) shall not be available to any party whose failure to perform any of
its obligations under the Agreement results in the failure of any such condition
or if the failure of such condition results from facts or circumstances that
constitute a breach of a representation or warranty under the Agreement by such
party; or (ii) if any Tribunal
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shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the acceptance for
payment of, or payment for, shares of Capital Stock pursuant to the Merger and
such order, decree or ruling or other action shall have become final and
nonappealable.
(c) nStor or the nStor Subsidiary. By nStor if (i) any of the
representations and warranties of the Company contained in this Agreement shall
not have been, or shall cease to be, true and correct in all material respects
(whether because of circumstances or events occurring in whole or in part prior
to, on or after the date of this Agreement), or (ii) the Company shall have
breached or failed to perform in any material respect any covenant or agreement
to be performed by it pursuant to this Agreement; provided, that nStor or nStor
Subsidiary may not terminate the Agreement pursuant to this SECTION 9.1(c) if
nStor or nStor Subsidiary is at such time in breach of its obligations under
this Agreement.
(d) Company. By the Company (i) in connection with entering
into a definitive agreement in accordance with SECTION 6.3(b), provided it has
complied with all provisions thereof, including the notice provisions therein;
or (ii) if (A) any of the representations and warranties of nStor or the nStor
Subsidiary contained in this Agreement shall not have been, or shall cease to
be, true and correct in all material respects (whether because of circumstances
or events occurring in whole or in part prior to, on or after the date of this
Agreement) or (B) nStor or the nStor Subsidiary shall have breached or failed to
perform in any material respect any covenant or agreement to be performed by
them pursuant to this Agreement, provided, that the Company may not terminate
the Agreement pursuant to this SECTION 9.1(d) if the Company is at such time in
breach of its obligations under this Agreement.
9.2 Effect of Termination. In the event of a termination of this
Agreement by either the Company or nStor as provided in SECTION 9.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the party of nStor, nStor Subsidiary or the Company or their
respective officers or directors, except with respect to SECTION 4.5, this
SECTION 9.2 and ARTICLE XI; PROVIDED, HOWEVER, that nothing herein shall relieve
any party for liability for any breach hereof.
9.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after obtaining the approval of the Company's shareholders (if
required by law), but, after any such approval, no amendment shall be made which
by law requires further approval by such shareholders without obtaining such
further approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
9.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any
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document delivered pursuant hereto or (c) subject to the proviso of SECTION 9.3,
waive compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under the
Agreement or otherwise shall not constitute a waiver of those rights.
9.5 Fees and Expenses. Except as provided below in this SECTION 9.5,
all fees and expenses incurred in connection with the Merger, this Agreement and
the transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated.
ARTICLE X
FURTHER COVENANTS
10.1 nStor to Cause nStor Subsidiary and Surviving Corporation To
Perform. nStor shall cause nStor Subsidiary prior to the Merger and the
Surviving Corporation after the Merger to perform their obligations and comply
with their covenants and agreements under this Agreement.
10.2 Indemnification and Insurance of Company Officers and Directors.
(a) Insurance. For a period of three (3) years after the
Closing Date, nStor shall cause the Surviving Corporation to maintain in effect,
at no expense to the insureds thereunder, the current policy (or policies) of
director's and officer's liability insurance maintained by the Company;
provided, however, that such policy (or policies) need cover only wrongful acts
of the insureds that occurred prior to June 8, 1999. If the annual premium
therefor exceeds 125% of the annual premium that the Company spent in the last
fiscal year to maintain or procure its current policy (or policies) of
director's and officer's liability insurance, then the Surviving Corporation
shall only be obligated to maintain a policy of director's and officer's
liability insurance providing the amount of coverage that can be purchased for
125% of such premium. For the period from June 8, 1999 through and including the
date upon which such individual ceases to be an officer or director of nStor or
any of its affiliates, each of the insureds under the Company's director's and
officer's liability insurance policy as of June 8, 1999 shall be insured under
the director's and officer's liability insurance policy of nStor.
(b) Indemnification.
(i) The Company shall, and from and after the
Effective Time the Surviving Corporation shall, indemnify, defend and hold
harmless each Person who is now, or who becomes prior to the Effective Time, an
executive officer or director of the Company or any of its subsidiaries (the
"INDEMNIFIED PARTIES") against all losses, claims, damages, costs, expenses,
liabilities or judgments or amounts that are paid in settlement with the
approval of the indemnifying
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party (which approval shall not be withheld unreasonably) of or in connection
with any claim, action, suit, proceeding or investigation based in whole or in
part on or arising in whole or in part out of the fact that such Person is or
was a director or executive officer of the Company or any of its subsidiaries,
whether pertaining to any matter existing or occurring at or prior to the
Effective Time and whether asserted or claimed prior to, or at or after, the
Effective Time ("INDEMNIFIED LIABILITIES"), in each case to the full extent
provided under the Articles of Organization and Bylaws of the Company as in
effect as of the date hereof or permitted under Massachusetts law, as
applicable, to indemnify directors and officers. As of the date hereof, the
Company has no knowledge, after due inquiry of its directors and executive
officers, of any pending or threatened claims, actions or other matters which
reasonably could give rise to Indemnified Liabilities.
(ii) After the Effective Time, any Indemnified
Party wishing to claim indemnification under this Section, upon learning of any
Indemnified Liability shall notify the Surviving Corporation within ten (10)
days thereof; provided, however, that any failure so to notify the Surviving
Corporation of any obligation to indemnify such Indemnified Party or of any
other obligation imposed by this Section shall not affect such obligations
except to the extent the Surviving Corporation is materially prejudiced thereby.
The Surviving Corporation shall be entitled to assume the defense of any such
action, suit, claim, proceeding or investigation with counsel of its choice (who
shall be reasonably acceptable to the Indemnified Party), unless there is a
conflict between the position of the Surviving Corporation, on the one hand, and
the Indemnified Party, on the other hand, in which event the Indemnified Party,
together with all other similarly situated Indemnified Parties in the same
proceeding as a group, may retain one law firm to represent them with respect to
such matter, the reasonable cost of which shall be borne by the Surviving
Corporation. Neither the Surviving Corporation, on the one hand, nor any
Indemnified Party, on the other hand, may settle any such action, suit, claim,
proceeding or investigation without the prior written consent of the other
party, which consent shall not be unreasonably withheld or delayed.
If for a period of six (6) years after the Effective Time, the
Surviving Corporation or any of its successors or assigns (i) shall consolidate
with or merge into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) shall transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation shall assume the obligations of the Surviving Corporation set forth
in this SECTION 10.2(b). If the Surviving Corporation shall liquidate, dissolve
or otherwise wind up its business, then nStor shall indemnify, defend and hold
harmless each Indemnified Party to the same extent and on the same terms that
the Surviving Corporation was so obligated pursuant to this SECTION 10.2(b).
10.3 Binding Effect. The provisions of this ARTICLE X are intended for
the benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and executors for a period of six (6) years after the Effective Time.
The Indemnified Parties shall be deemed third-party beneficiaries of this
ARTICLE X and shall be entitled to enforce its provisions directly against the
Surviving Corporation.
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ARTICLE XI
GENERAL
11.1 Release of Information. The Company and nStor shall, subject to
their respective legal obligations (including requirements of the Nasdaq and
Amex and other similar regulatory bodies), cooperate with each other in
releasing information concerning this Agreement and the transactions
contemplated hereby. Each of the Company and nStor shall furnish to the other
drafts of all releases prior to publication and agree to promptly consult with
each other prior to issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and in making
any filings with any federal or state governmental or regulatory agency or with
the Nasdaq or Amex with respect thereto; provided, however, that each party
shall have the right, in the event of any disagreement between nStor and the
Company about the timing or content of any such releases or other public
statements or filings, to issue such releases or other public statements or to
file such filings as it is advised by counsel that it is required to make to
assure continued compliance with federal and state securities laws.
11.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (which
is confirmed), sent by overnight courier (provided proof of delivery) or mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by light notice):
(a) If to nStor or the nStor Subsidiary, to:
nStor Technologies, Inc.
100 Century Blvd.
West Palm Beach, Florida 33417
Attention: Irwin Levy, Chairman
Telecopy No.: (561) 640-3160
With a copy (which shall not constitute effective
notice) to:
Akerman, Senterfitt & Eidson, P.A.
450 East Las Olas Blvd.
Ft. Lauderdale, Florida 33301
Attention: Donn Beloff, Esq.
Telecopy No.: (954) 463-2224
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(b) If to the Company prior to the Closing Date, to:
Andataco, Inc.
10140 Mesa Rim Road
San Diego, CA 92121
Attention: Harris Ravine, Chief Executive Officer
Telecopy No.: (704) 714-4187
With a copy (which shall not constitute effective
notice) to:
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attention: Jeremy D. Glasser, Esq.
Telecopy No.: (858) 453-3555
11.3 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors,
heirs, executors, administrators, legal representatives and permitted assigns,
provided that neither this Agreement nor any rights or obligations hereunder may
be assigned without the written consent of the other parties except that (i)
nStor may assign any or all of its rights hereunder to any Affiliate of nStor,
and (ii) the nStor Subsidiary may assign any or all of its rights hereunder to
any other newly organized corporation under the laws of the State of Delaware or
Florida, all of the capital stock of which is owned directly or indirectly by
nStor or an Affiliate of nStor. Nothing in this Agreement, express or implied,
is intended to or shall confer upon any Person (other than the parties hereto,
any permitted assignee, holders of shares of Capital Stock, holders of Options
and indemnitees) any rights, benefits or remedies of any nature whatsoever under
or by reason of this Agreement, and no Person (other than as so specified) shall
be deemed a third party beneficiary under or by reason of this Agreement.
11.4 Further Assurances. Each party hereto agrees to use its best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things that may be necessary or appropriate to consummate and to make
effective the transactions contemplated by this Agreement, including, without
limitation, the execution and delivery of such other certificates, agreements,
instruments and documents and the provision of all such information as may be
necessary or appropriate as aforesaid.
11.5 Specific Performance. All remedies, either under this Agreement or
by law or otherwise afforded to any party hereto, shall be cumulative and not
alternative. Each party hereto acknowledges and agrees to any breach of the
agreements and covenants contained in this Agreement would cause irreparable
injury to the other parties hereto for which such parties would have no adequate
remedy at law. In addition to any other remedy to which any party hereto may be
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entitled, each party hereto agrees that temporary and permanent injunctive and
other equitable relief and specific performance may be granted without proof of
actual damages or inadequacy of legal remedy in any proceeding that may be
brought to enforce any of the provisions of this Agreement.
11.6 Severability. If any provision of this Agreement or the
application of any such provision to any Person or circumstance, shall be
declared judicially to be invalid, unenforceable or void, such decision shall
not have the effect of invalidating or voiding the remainder of this Agreement,
it being the intent and agreement of the parties that this Agreement shall be
deemed amended by modifying such provision to the extent necessary to render it
valid, legal and enforceable while preserving its intent or, if such
modification is not possible, by substituting therefor another provision that is
valid, legal and enforceable and that achieves the same objective.
11.7 Entire Agreement. This Agreement (including the exhibits and
schedules hereto) and the documents and instruments executed and delivered in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements and understandings, whether written or oral, among the parties or any
of them with respect to the subject matter hereof, and there are no
representations, understandings or agreements relating to the subject matter
hereof that are not fully expressed in this Agreement and the documents and
instruments executed and delivered in connection herewith. All exhibits and
schedules attached to this Agreement are expressly made a part of, and
incorporated by reference into, this Agreement.
11.8 Governing Law. This Agreement shall be construed in accordance
with, and the rights of the parties shall be governed by, the substantive laws
of the State of Florida, without giving effect to any choice-of-law rules that
may require the application of the laws of another jurisdiction.
11.9 Certain Construction Rules. The article and section headings and
the table of contents contained in this Agreement are for convenience of
reference only and shall in no way define, limit, extend or describe the scope
or intent of any provisions of this Agreement. Whenever the context may require,
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa. In addition, as used in this Agreement,
unless otherwise provided to the contrary, (a) all references to days, months or
years shall be deemed references to calendar days, months or years and (b) any
reference to a "Section," "Article," "Exhibit" or "Schedule" shall be deemed to
refer to a section or article of this Agreement or an exhibit or schedule
attached to this Agreement. The words "hereof," "herein," and "hereunder" and
words of similar import referring to this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Unless otherwise
specifically provided for herein, the term "or" shall not be deemed to be
exclusive.
11.10 Survival of Covenants, Representations and Warranties. The
respective covenants, representations and warranties of nStor, the Company and
the nStor Subsidiary contained
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herein shall expire and be terminated on the Effective Time, unless otherwise
specifically herein provided.
11.11 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one instrument binding on all the parties,
notwithstanding that all the parties are not signatories to the original or the
same counterpart.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first above written.
THE COMPANY:
ANDATACO, INC.
By:_____________________________
Harris Ravine
Chief Executive Officer
NSTOR:
NSTOR TECHNOLOGIES, INC.
By:_____________________________
Lawrence F. Steffann
President
THE NSTOR SUBSIDIARY:
NTI ACQUISITION CORP.
By:_____________________________
Lawrence F. Steffann
President
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SCHEDULE 1.1
DEFINITIONS
"33 ACT" means the Securities Act of 1933, as amended.
"AFFILIATE" means, with respect to any specified Person, any other
Person that, directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with such specified
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
Contract or otherwise.
"AGREEMENT" has the meaning specified in the preamble hereof.
"AMEX" has the meaning specified in SECTION 3.1(a).
"AVERAGE PRICE" has the meaning specified in SECTION 3.1(a).
"CAPITAL STOCK" means the Company's capital stock.
"CCC" has the meaning specified in SECTION 3.2(a).
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and as in effect on the date hereof.
"CERTIFICATES" has the meaning specified in SECTION 3.3(b).
"CLOSING" has the meaning specified in SECTION 2.2.
"CLOSING DATE" means the date on which the Closing occurs.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated and the rulings issued thereunder.
"COMPANY" has the meaning specified in the preamble hereof.
"COMPANY 10-K" has the meaning specified in SECTION 6.2(c).
"COMPANY COMMON STOCK" has the meaning specified in the recitals
hereof.
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"COMPANY FILED SEC DOCUMENTS" has the meaning specified in SECTION 4.7.
"COMPANY OPTION PLANS" has the meaning specified in SECTION 3.6(a).
"COMPANY SEC DOCUMENTS" has the meaning specified in SECTION 4.6.
"COMPANY SPECIAL MEETING" has the meaning specified in SECTION 6.4(b).
"CONFIDENTIALITY CONTRACT" has the meaning specified in SECTION
4.12(c)(ii).
"CONSENT" means any consent, approval, permit, notice, action,
authorization or giving of notice to any Person not a party to this Agreement.
"DISSENTING SHARES" has the meaning specified in SECTION 3.2(a).
"EFFECTIVE TIME" means the date and time at which the Merger becomes
effective as provided in SECTION 2.2.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGENT" has the meaning specified in SECTION 3.3(a).
"EXCHANGE FUND" has the meaning specified in SECTION 3.3(a).
"EXCHANGE RATIO" has the meaning specified in SECTION 3.1(a).
"FBCA" has the meaning specified in SECTION 2.1.
"GAAP" means generally accepted accounting principles and practices
which are recognized as such by the American Institute of Certified Public
Accountants acting through its Accounting Principles Board or other appropriate
board or committee (other than the Emerging Standards Committee), and which are
consistently applied for all periods so as to present fairly the financial
condition, the results of operations and the cash flows of the relevant Person
or Persons.
"INDEMNIFIED LIABILITIES" has the meaning specified in SECTION 10.2(b).
"INDEMNIFIED PARTIES" has the meaning specified in SECTION 10.2(b).
"LEGAL REQUIREMENT" means any domestic, foreign or international law,
treaty, ordinance, statute, rule or regulation of any Tribunal or any Order.
"LIEN" means, with respect to any properties or assets, any mortgage,
pledge, hypothecation, assignment, security interest, lien, tax lien,
assessment, lease, sublease, adverse claim, levy, charge,
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liability or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or character whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
under the Uniform Commercial Code or comparable law of any jurisdiction) in
respect of such properties or assets.
"MBCL" has the meaning specified in SECTION 2.1.
"MERGER" has the meaning specified in SECTION 2.1.
"MERGER CONSIDERATION" has the meaning specified in SECTION 3.3(b).
"NASDAQ" has the meaning specified in SECTION 4.4(b).
"NOTICE OF SUPERIOR PROPOSAL" has the meaning specified in SECTION
6.3(b).
"nSTOR" has the meaning specified in the preamble hereof.
"nSTOR FILED SEC DOCUMENTS" has the meaning specified in SECTION 5.8.
"nSTOR OPTIONS" means options to purchase shares of nStor Common Stock
as granted pursuant to nStor's 1996 Stock Option Plan that are described in
Schedule 5.4.
"nSTOR SEC DOCUMENTS" has the meaning specified in SECTION 5.7.
"nSTOR NOTES" means promissory notes issued by nStor that are
convertible into nStor Common Stock and are described on Schedule 5.4.
"nSTOR SUBSIDIARY" has the meaning specified in the preamble hereof.
"nSTOR WARRANTS" means warrants to purchase shares of nStor Common
Stock that are described on Schedule 5.4.
"OPTIONS" means options of the Company to purchase shares of Company
Common Stock, as granted pursuant to the Company Option Plan that are described
in Schedule 4.3.
"ORDER" means any decision, judgment, order, writ, injunction, decree,
award or determination of any Tribunal.
"PERSON" means any corporation, association, partnership, joint
venture, organization, individual, business, trust or any other entity or
organization of any kind or character, including a Tribunal.
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"PRE-CLOSING PERIOD" has the meaning specified in SECTION 6.2(a).
"PROXY STATEMENT" means the proxy statement relating to approval by the
shareholders of the Company of the Merger and approval by the shareholders of
nStor of the issuance of the Merger Consideration consisting of nStor Common
Stock.
"REGISTRATION STATEMENT" has the meaning specified in SECTION 4.29.
"SEC" means the Securities and Exchange Commission.
"SUPERIOR PROPOSAL" has the meaning specified in SECTION 6.3(b).
"SURVIVING CORPORATION" has the meaning specified in SECTION 2.1.
"TAKEOVER PROPOSAL" has the meaning specified in SECTION 6.3(a).
"TAXES" means all taxes, charges, fees, levies or other similar
assessments or liabilities (including, without limitation, income, receipts, ad
valorem, value added, excise, property (whether real property or personal
property), windfall profit, sales, occupation, service, stamp, use, licensing,
withholding, employment, payroll, share, capital, surplus, franchise,
occupational or other taxes imposed by any Tribunal, whether computed on a
separate, consolidated, unitary or combined basis or in any other manner, and
includes any interest, fines, penalties, assessments, deficiencies, or additions
to tax.
"TRIBUNAL" means any government, any arbitration panel, any court or
any governmental department, commission, board, bureau, agency or
instrumentality of the United States or any foreign or domestic state, province,
commonwealth, nation, territory, possession, country, parish, town, township,
village or municipality.
"WARRANTS" means warrants of the Company to purchase shares of Company
Common Stock that are described in the Company Disclosure Schedule.
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ANNEX B
[LETTERHEAD OF FLEMMING, LESSARD & SHIELDS LLC]
August 4, 1999
Mr. Harris Ravine
Chairman and Chief Executive Officer
Andataco, Inc.
10140 Mesa Rim Road
San Diego, CA 92121
Dear Harris:
Andataco, Inc. retained Flemming, Lessard & Shields LLC ("FLS") to express our
opinion as to the fairness, from a financial point of view, to the minority
shareholders of Andataco of the consideration to be paid per minority share of
Andataco common stock as defined in the Merger Agreement between Andataco and
nStor Technologies, Inc. The Merger Agreement calls for nStor to pay $0.31 per
minority common share of Andataco.
FLS, as an integral part of our business, is continually engaged in the
valuation of both privately held and publicly traded businesses and their
securities in connection with mergers and acquisitions, divestitures, equity and
debt capital formation, recapitalizations, and other objectives.
In conducting our investigation and arriving at our opinion, we have reviewed
the Agreement and taken into account such accepted financial procedures and
considerations as we have deemed relevant. We have reviewed a draft of the
Merger Agreement between nStor and Andataco and taken into account such accepted
financial procedures and considerations as we have deemed relevant. We have
reviewed the 10-K filing, along with audited financial statements of Andataco as
of October 31, 1998 and 1997; the 10-Q filings for the fiscal quarters of
January 31, 1999 and April 30, 1999; and the projections prepared by Andataco's
management for the fiscal years ending October 31, 1999. We have reviewed the
S-3 filing (as amended) of nStor Technologies, Inc., filed on July 23, 1999. We
have visited Andataco's headquarters, met with Andataco's management and
discussed the current business and future prospects of Andataco. We have
analyzed financial information regarding comparable public companies. We have
reviewed material discussing the economic outlook and the outlook for the
storage industry, and other material as we deemed appropriate. We did not, as
part of our review, meet with management of nStor Technologies other than with
David Sykes, who has signed an employment contract with nStor contingent upon
the closing of the acquisition of the minority shares. We also did not consider
the fairness of the proposed transaction, from a financial point of view, to the
majority shareholders of Andataco nor to the shareholders of nStor Technologies.
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In rendering our opinion, we have assumed, without independent verification, the
accuracy and completeness of the financial and other information and
representations which have been provided to us by Andataco or which are publicly
available.
Based on our analysis of the factors deemed relevant, it is our opinion that the
proposed offer of $0.31 per minority share of Andataco, is fair, from a
financial point of view, to the minority shareholders.
Very truly yours,
/s/ FLEMMING, LESSARD & SHIELDS LLC
- -----------------------------------
FLEMMING, LESSARD & SHIELDS LLC
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ANNEX C
July 7, 1999 File Reference: 31-7168
The Board of Directors
nStor Technologies, Inc.
100 Century Boulevard
West Palm Beach, FL 33417
This letter was furnished at the request of the Board of Directors of nStor
Technologies, Inc. ("NSTOR") for the purpose of expressing an opinion (the
"Opinion"), as to the fair market value, on a minority basis, of the common
stock of ANDATACO, INC. ("ANDATACO). It is our understanding that this study
will be used pursuant to a transaction wherein NSTOR intends to acquire 24% of
ANDATACO's outstanding stock.
Opinion Date
The date of this Opinion is June 7, 1999.
Definition of Fair Market Value
Fair market value is defined as the amount at which property or a business
enterprise would exchange hands between a willing buyer and a willing seller,
both having full knowledge of all relevant facts, neither being under undue
influence, and with equity to both.
SCOPE
For purposes of this Opinion we have made such reviews, studies and analyses as
we deemed necessary and pertinent including, but not limited to, the following:
o Discussions with the management of NSTOR and ANDATACO;
o NSTOR=s SEC Form 8-K dated June 8, 1999;
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The Board of Directors
nStor Technologies, Inc.
July 7, 1999
Page 2
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o ANDATACO=S SEC Form 10-Q for the quarterly periods ending January
31, 1999 and April 30, 1999;
o ANDATACO'S SEC Schedule 14A filed February 17, 1999;
o ANDATACO'S SEC Form 10-K for the fiscal year ending October 31,
1998;
o ANDATACO'S historical financial statements for the fiscal years
ending October 31, 1995 through 1998, audited by Price Waterhouse
LLP;
o ANDATACO's interim financial statements for the month and fiscal
quarter ending May 31, 1999;
o ANDATACO'S projected financial statements for the fiscal year
ending October 31, 1999;
o Historical trading activity in ANDATACO's common stock as
registered on the NASDAQ Over-The-Counter Bulletin Board;
o Publicly-held actively-traded companies with business operations
similar to ANDATACO;
o The economic environment of the industry and markets in which
ANDATACO operates; and
o Such other financial studies, analyses and investigations as we
deemed relevant for the purpose of this Opinion.
In rendering this Opinion we have relied, without independent verification, on
the accuracy and completeness of all financial and other information which was
publicly available or provided by ANDATACO.
Conclusion
Based upon the investigation and analysis described in this letter, it is our
Opinion that the fair market value, on a minority per share basis, of the common
stock in ANDATACO is thirty one cents ($0.31) per share.
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The Board of Directors
nStor Technologies, Inc.
July 7, 1999
Page 3
- -------------------------
The opinions express in this letter are contingent upon the statement of
Assumptions and Limiting Conditions attached to this letter, and upon business
and market conditions as they exist at the date of this letter, and involves
assumptions and uncertainties, not all of which can be qualified or ascertained
prior to any actual or proposed transaction.
Sincerely,
MARSHALL & STEVENS INCORPORATED
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ASSUMPTIONS AND LIMITING CONDITIONS
Title
No investigation of legal title was made, and we render no opinion as to
ownership of the Company or the underlying assets.
Date of Opinion
The date of this opinion is June 7, 1999. The dollar amount of any value
reported is based on the purchasing power of the U.S. dollar as of that date.
The financial analysts assumes no responsibility for economic or physical
factors occurring subsequent to the date of the opinion which may affect the
opinion reported.
Visitation
At the request of the client, the scope of this analysis did not include a visit
to Andataco. When the date of the analysis differs from the transaction or
effective date, the financial analyst has assumed no material change in the
operations of the Company or the underlying assets, unless otherwise noted in
the report.
Non Financial Expertise
No opinion is intended to be expressed for matters which require legal or
specialized expertise, investigation or knowledge, beyond that customarily
employed by financial analysts.
Information and Data
Information supplied by others that was considered in this valuation and
analysis is from sources believed to be reliable, and no further responsibility
is assumed for its accuracy. We reserve the right to make such adjustments to
the valuation and analysis herein reported based upon consideration of
additional or more reliable data subsequent to the issuance of this letter.
In rendering this Opinion we have relied, without independent verification, on
the accuracy and completedness of all financial and other information which was
publicly available or furnished to us by Andataco. Further, we have assumed that
there has been no material adverse change in the business, prospects, or
financial condition of the Company subsequent to the date of the latest
financial statements made available to us or to the time the information was
provided to us.
Confidentiality/Advertising
This letter and supporting documentation are confidential. Neither all nor any
part of the contents of this letter shall be copied or disclosed to any party or
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conveyed to the public orally or in writing through advertising, public
relations, news, sales, or in any other manner without prior written consent and
approval of both Marshall & Stevens Incorporated and its client.
Litigation Support
Depositions, expert testimony, attendance in court, and all preparations /
support for same, arising from this analysis and opinion shall not be required
unless arrangements for such services have been previously made.
Management
The Opinion expressed herein assumes the continuation and/or implementation of
prudent management policies of Andataco over whatever period of time that is
deemed reasonable and necessary to maintain the character and integrity of
Andataco.
Purpose
All opinions are presented as Marshall & Stevens Incorporated=s considered
opinion based on the facts and data obtained during the course of the
investigation. This opinion letter has been prepared for the sole purpose stated
herein and shall not be used for any other purpose.
Unexpected Conditions
We assume there are no hidden or unexpected conditions associated with Andataco
that might adversely affect value. Further, we assume no responsibility for
changes in market condition which may require an adjustment in the analysis.
Hazardous Substances
Hazardous substances, if present within a business, can introduce an actual or
potential liability that may adversely affect the marketability and value of the
subject companies or the underlying assets. In this analysis, no consideration
has been given to such liability or its impact on value.
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ANNEX D
SECTIONS 86 THROUGH 98
OF THE
MASSACHUSETTS BUSINESS CORPORATION LAW
APPRAISAL
ss. 86. Sections applicable to appraisal; prerequisites
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such
action shall have the right to demand payment for his shares and an
appraisal thereof, sections eighty-seven to ninety-eight, inclusive,
shall apply except as otherwise specifically provided in any section of
this chapter. Except as provided in sections eighty-two and
eighty-three, no stockholder shall have such right unless (i) he files
with the corporation before the taking of the vote of the shareholders
on such corporate action, written objection to the proposed action
stating that he intends to demand payment for his shares if the action
is taken and (2) his shares are not voted in favor of the proposed
action.
ss. 87. Statement of rights of objecting stockholders in notice of meeting; form
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the
rights of objecting stockholders. The giving of such notice shall not
be deemed to create any rights in any stockholder receiving the same to
demand payment for his stock, and the directors may authorize the
inclusion in any such notice of a statement of opinion by the
management as to the existence or non-existence of the right of the
stockholders to demand payment for their stock on account of the
proposed corporate action. The notice may be in such form as the
directors or officers calling the meeting deem advisable, but the
following form of notice shall be sufficient to comply with this
section:
"If the action proposed is approved by the stockholders at the
meeting and effected by the corporation, any stockholder (1) who
files with the corporation before the taking of the vote on the
approval of such action, written objection to the proposed action
stating that he intends to demand payment for his shares if the
action is taken and (2) whose shares are not voted in favor of
such action has or may have the right to demand in writing from
the corporation (or, in the case of a consolidation or merger, the
name of the resulting or surviving corporation shall be inserted),
within twenty days after the date of mailing to him of notice in
writing that the corporate action has become effective, payment
for his shares and an appraisal of the value thereof. Such
corporation and any such stockholder shall in such cases have the
rights and duties and shall follow the procedure set forth in
sections 88 to 98, inclusive, of chapter 156B of the General Laws
of Massachusetts."
ss. 88. Notice of effectiveness of action objected to
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The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten
days after the date on which such corporate action became effective,
notify each stockholder who filed a written objection meeting the
requirements of section eighty-six and whose shares were not voted in
favor of the approval of such action, that the action approved at the
meeting of the corporation of which he is a stockholder has become
effective. The giving of such notice shall not be deemed to create any
rights in any stockholder receiving the same to demand payment for his
stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in
the records of the corporation.
ss. 89. Demand for payment; time for payment
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section
eighty-three, or section eighty-eight, any stockholder to whom the
corporation was required to give such notice shall demand in writing
from the corporation taking such action, or in the case of a
consolidation or merger from the resulting or surviving corporation,
payment for his stock, the corporation upon which such demand is made
shall pay to him the fair value of his stock within thirty days after
the expiration of the period during which such demand may be made.
ss. 90. Demand for determination of value; bill in equity; venue
If during the period of thirty days provided for in section eighty-nine
the corporation upon which such demand is made and any such objecting
stockholder fail to agree as to the value of such stock, such
corporation or any such stockholder may within four months after the
expiration of such thirty-day period demand a determination of the
value of the stock of all such objecting stockholders by a bill in
equity filed in the superior court in the county where the corporation
in which such objecting stockholder held stock had or has its principal
office in the commonwealth.
ss. 91. Parties to suit to determine value; service
If the bill is filed by the corporation it shall name as parties
respondent all stockholders who have demanded payment for their shares
and with whom the corporation has not reached agreement as to the value
thereof. If the bill is filed by a stockholder, he shall bring the bill
in his own behalf and in behalf of all other stockholders who have
demanded payment for their shares and with whom the corporation has not
reached agreement as to the value thereof, and service of the bill
shall be made upon the corporation by subpoena with a copy of the bill
annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall
thereupon be deemed to have been added as parties to the bill. The
corporation shall give notice in such form and returnable on such date
as the court shall order to each stockholder party to the bill by
registered or certified mail, addressed to the last known address of
such stockholder as shown in the records of the corporation, and the
court may order such additional notice by publication or otherwise as
it deems advisable. Each stockholder who makes demand as provided in
section eighty-nine shall be deemed to have consented to the provisions
of this section relating to notice, and the giving of notice by the
corporation to any such stockholder in compliance with the order of the
court shall be a sufficient service of process on him. Failure to give
notice to any stockholder making demand shall not invalidate the
proceedings as to other stockholders to whom notice was properly given,
and the court may at any time before the entry of a final decree make
supplementary orders of notice.
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ss. 92. Decree determining value and ordering payment; valuation date
After hearing the court shall enter a decree determining the fair value
of the stock of those stockholders who have become entitled to the
valuation of and payment for their shares, and shall order the
corporation to make payment of such value, together with interest, if
any, as hereinafter provided, to the stockholders entitled thereto upon
the transfer by them to the corporation of the certificates
representing such stock if certificated or, if uncertificated, upon
receipt of an instruction transferring such stock to the corporation.
For this purpose, the value of the shares shall be determined as of the
day preceding the date of the vote approving the proposed corporate
action and shall be exclusive of any element of value arising from the
expectation or accomplishment of the proposed corporate action.
ss. 93. Reference to special master
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and
report the same to the court, all in accordance with the usual practice
in suits in equity in the superior court.
ss. 94. Notation on stock certificates of pendency of bill
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon
of the pendency of the bill and may order the corporation to note such
pendency in its records with respect to any uncertificated shares held
by such stockholder parties, and may on motion dismiss the bill as to
any stockholder who fails to comply with such order.
ss. 95. Costs; interest
The costs of the bill, including the reasonable compensation and
expenses of any master appointed by the court, but exclusive of fees of
counsel or of experts retained by any party, shall be determined by the
court and taxed upon the parties to the bill, or any of them, in such
manner as appears to be equitable, except that all costs of giving
notice to stockholders as provided in this chapter shall be paid by the
corporation. Interest shall be paid upon any award from the date of the
vote approving the proposed corporate action, and the court may on
application of any interested party determine the amount of interest to
be paid in the case of any stockholder.
ss. 96. Dividends and voting rights after demand for payment
Any stockholder who has demanded payment for his stock as provided in
this chapter shall not thereafter be entitled to notice of any meeting
of stockholders or to vote such stock for any purpose and shall not be
entitled to the payment of dividends or other distribution on the stock
(except dividends or other distributions payable to stockholders of
record at a date which is prior to the date of the vote approving the
proposed corporate action) unless:
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(1) A bill shall not be filed within the time provided in
section ninety;
(2) A bill, if filed, shall be dismissed as to such
stockholder; or
(3) Such stockholder shall with the written approval of
the corporation, or in the case of a consolidation or
merger, the resulting or surviving corporation,
deliver to it a written withdrawal of his objections
to and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so
demand payment for his stock as provided in this chapter.
ss. 97. Status of shares paid for
The shares of the corporation paid for by the corporation pursuant to
the provisions of this chapter shall have the status of treasury stock,
or in the case of a consolidation or merger the shares or the
securities of the resulting or surviving corporation into which the
shares of such objecting stockholder would have been converted had he
not objected to such consolidation or merger shall have the status of
treasury stock or securities.
ss. 98. Exclusive remedy; exception
The enforcement by a stockholder of his right to receive payment for
his shares in the manner provided in this chapter shall be an exclusive
remedy except that this chapter shall not exclude the right of such
stockholder to bring or maintain an appropriate proceeding to obtain
relief on the ground that such corporate action will be or is illegal
or fraudulent as to him.
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ANNEX E
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. Dissenters' Rights
ss. 1300. Shareholder in short-form merger; Purchase at fair market
value; "Dissenting shares"; "Dissenting shareholder"
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and
(b) or subdivision (e)or (f) of Section 1201, each shareholder of the
corporation entitled to vote on the transaction and each shareholder of
a subsidiary corporation in a short-form merger may, by complying with
this chapter, require the corporation in which the shareholder holds
shares to purchase for cash at their fair market value the shares owned
by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the
day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for
any stock split, reverse stock split, or share dividend which becomes
effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by
the Board of Governors of the Federal Reserve System, and the notice of
meeting of shareholders to act upon the reorganization summarizes this
section and Sections 1301, 1302, 1303 and 1304; provided, however, that
this provision does not apply to any shares with respect to which there
exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not
apply to any class of shares described insubparagraph (A) or (B) if
demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not
voted in favor of the reorganization or, (B) if described in
subparagraph (A) or (B) of paragraph (1) (without regard to the
provisos in that paragraph), were voted against the reorganization, or
which were held of record on the effective date of a short-form merger;
provided, however, that subparagraph (A)
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rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written
consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with
Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
ss. 1301. Notice to holder of dissenting shares of reorganization
approval; Demand for purchase of shares; Contents of demand
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the
corporation to purchase their shares for cash, such corporation shall
mail to each such shareholder a notice of the approval of the
reorganization by its outstanding shares (Section 152) within 10 days
after the date of such approval, accompanied by a copy of Sections
1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be
followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as
defined in subdivision (b) of Section 1300, unless they lose their
status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject
to compliance with paragraphs (3) and (4) of subdivision (b) thereof,
and who desires the corporation to purchase such shares shall make
written demand upon the corporation for the purchase of such shares and
payment to the shareholder in cash of their fair market value. The
demand is not effective for any purpose unless it is received by the
corporation or any transfer agent thereof (1) in the case of shares
described in clause (i) or (ii) of paragraph (1) of subdivision (b) of
Section 1300 (without regard to the provisos in that paragraph), not
later than the date of the shareholders' meeting to vote upon the
reorganization, or (2) in any other case within 30 days after the date
on which the notice of the approval by the outstanding shares pursuant
to subdivision (a) or the notice pursuant to subdivision (i) of Section
1110 was mailed to the shareholder.
(c) The demand shall state the number and class of the shares held
of record by the shareholder which the shareholder demands that the
corporation purchase and shall
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contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of
the proposed reorganization or short-form merger. The statement of fair
market value constitutes an offer by the shareholder to sell the shares
at such price.
ss. 1302. Stamping or endorsing dissenting shares
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section
1110 was mailed to the shareholder, the shareholder shall submit to the
corporation at its principal office or at the office of any transfer
agent thereof, (a) if the shares are certificated securities, the
shareholder's certificates representing any shares which the
shareholder demands that the corporation purchase, to be stamped or
endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or
endorsed or (b) if the shares are uncertificated securities, written
notice of the number of shares which the shareholder demands that the
corporation purchase. Upon subsequent transfers of the dissenting
shares on the books of the corporation, the new certificates, initial
transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original
dissenting holder of the shares.
ss. 1303. Dissenting shareholder entitled to agreed price with interest
thereon; When price to be paid
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the
dissenting shareholder is entitled to the agreed price with interest
thereon at the legal rate on judgments from the date of the agreement.
Any agreements fixing the fair market value of any dissenting shares as
between the corporation and the holders thereof shall be filed with the
secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after
the amount thereof has been agreed or within 30 days after any
statutory or contractual conditions to the reorganization are
satisfied, whichever is later, and in the case of certificated
securities, subject to surrender of the certificates therefor, unless
provided otherwise by agreement.
ss. 1304. Action by dissenters to determine whether shares are
dissenting shares or fair market value of dissenting shares or both;
Joinder of shareholders; Consolidation of actions; Determination of
issues; Appointment of appraisers
(a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the fair
market value of the shares, then the shareholder
E-3
<PAGE>
demanding purchase of such shares as dissenting shares or any
interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the
shares are dissenting shares or the fair market value of the dissenting
shares or both or may intervene in any action pending on such a
complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or
be joined as defendants in any such action and two or more such actions
may be consolidated.
(c) On the trial of the action, the court shall determine the
issues. If the status of the shares as dissenting shares is in issue,
the court shall first determine that issue. If the fair market value of
the dissenting shares is in issue, the court shall determine, or shall
appoint one or more impartial appraisers to determine, the fair market
value of the shares.
ss. 1305. Duty and report of appraisers; Court's confirmation of
report; Determination of fair market value by court; Judgment, and
payment; Appeal; Costs of action
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within
the time fixed by the court, the appraisers, or a majority of them,
shall make and file a report in the office of the clerk of the court.
Thereupon, on the motion of any party, the report shall be submitted to
the court and considered on such evidence as the court considers
relevant. If the court finds the report reasonable, the court may
confirm it.
(b) If a majority of the appraisers appointed fail to make and file
a report within 10 days from the date of their appointment or within
such further time as may be allowed by the court or the report is not
confirmed by the court, the court shall determine the fair market value
of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the
fair market value of each dissenting share multiplied by the number of
dissenting shares which any dissenting shareholder who is a party, or
who has intervened, is entitled to require the corporation to purchase,
with interest thereon at the legal rate from the date on which judgment
was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities,
only upon the endorsement and delivery to the corporation of the
certificates for the shares described in the judgment.
Any party may appeal from the judgment.
E-4
<PAGE>
(e) The costs of the action, including reasonable compensation to
the appraisers to be fixed by the court, shall be assessed or
apportioned as the court considers equitable, but, if the appraisal
exceeds the price offered by the corporation, the corporation shall pay
the costs (including in the discretion of the court attorneys' fees,
fees of expert witnesses and interest at the legal rate on judgments
from the date of compliance with Sections 1300, 1301 and 1302 if the
value awarded by the court for the shares is more than 125 percent of
the price offered by the corporation under subdivision (a) of Section
1301).
ss. 1306. Prevention of payment to holders of dissenting shares of fair
market value; Effect
To the extent that the provisions of Chapter 5 prevent the payment
to any holders of dissenting shares of their fair market value, they
shall become creditors of the corporation for the amount thereof
together with interest at the legal rate on judgments until the date of
payment, but subordinate to all other creditors in any liquidation
proceeding, such debt to be payable when permissible under the
provisions of Chapter 5.
ss. 1307. Disposition of dividends upon dissenting shares
Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of approval of the reorganization by
the outstanding shares (Section 152) and prior to payment for the
shares by the corporation shall be credited against the total amount to
be paid by the corporation therefor.
ss. 1308. Rights and privileges of dissenting shares; Withdrawal of
demand for payment
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their
shares, until the fair market value of their shares is agreed upon or
determined. A dissenting shareholder may not withdraw a demand for
payment unless the corporation consents thereto.
ss. 1309. When dissenting shares lose their status
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be
entitled to require the corporation to purchase their shares upon the
happening of any of the following:
E-5
<PAGE>
(a) The corporation abandons the reorganization. Upon abandonment
of the reorganization, the corporation shall pay on demand to any
dissenting shareholder who has initiated proceedings in good faith
under this chapter all necessary expenses incurred in such proceedings
and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for
conversion into shares of another class in accordance with the
articles.
(c) The dissenting shareholder and the corporation do not agree
upon the status of the shares as dissenting shares or upon the purchase
price of the shares, and neither files a complaint or intervenes in a
pending action as provided in Section 1304, within six months after the
date on which notice of the approval by the outstanding shares or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder.
(d) The dissenting shareholder, with the consent of the
corporation, withdraws the shareholder's demand for purchase of the
dissenting shares.
ss. 1310. Suspension of proceedings for compensation or valuation
pending litigation
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any
proceedings under Sections 1304 and 1305 shall be suspended until final
determination of such litigation.
ss. 1311. Shares to which chapter inapplicable
This chapter, except Section 1312, does not apply to classes of
shares whose terms and provisions specifically set forth the amount to
be paid in respect to such shares in the event of a reorganization or
merger.
ss. 1312. Attack on validity of reorganization or short-form merger;
Rights of shareholders; Burden of proof
(a) No shareholder of a corporation who has a right under this
chapter to demand payment of cash for the shares held by the
shareholder shall have any right at law or in equity to attack the
validity of the reorganization or short-form merger, or to have the
reorganization or short-form merger set aside or rescinded, except in
an action to test whether the number of shares required to authorize or
approve the reorganization have been legally voted in favor thereof;
but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the
event of a reorganization or short-form merger is entitled to payment
in accordance with those terms and provisions or, if the principal
terms of the reorganization are approved pursuant to
E-6
<PAGE>
subdivision (b) of Section 1202, is entitled to payment in accordance
with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger
is directly or indirectly controlled by, or under common control with,
another party to the reorganization or short-form merger, subdivision
(a) shall not apply to any shareholder of such party who has not
demanded payment of cash for such shareholder's shares pursuant to this
chapter; but if the shareholder institutes any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, the
shareholder shall not thereafter have any right to demand payment of
cash for the shareholder's shares pursuant to this chapter. The court
in any action attacking the validity of the reorganization or
short-form merger or to have the reorganization or short-form merger
set aside or rescinded shall not restrain or enjoin the consummation of
the transaction except upon 10 days' prior notice to the corporation
and upon a determination by the court that clearly no other remedy will
adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger
is directly or indirectly controlled by, or under common control with,
another party to the reorganization or short-form merger, in any action
to attack the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded,
(1) a party to a reorganization or short-form merger which controls
another party to the reorganization or short-form merger shall have the
burden of proving that the transaction is just and reasonable as to the
shareholders of the controlled party, and (2) a person who controls two
or more parties to a reorganization shall have the burden of proving
that the transaction is just and reasonable as to the shareholders of
any party so controlled.
E-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Delaware General Corporation Law (the "DGCL"), the state of
incorporation of nStor, and the Restated Certificate of Incorporation and Bylaws
of nStor provides for indemnification of directors and officers. Section 145 of
the DGCL provides generally that a person sued as a director, officer, employee
or agent of a corporation may be indemnified by the corporation for reasonable
expenses, including attorneys' fees, if, in cases other than actions brought by
or in the right of the corporation, he or she has acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation (and in the case of a criminal proceeding, had no
reasonable cause to believe that his or her conduct was unlawful). Section 145
provides that no indemnification for any claim or matter may be made, in the
case of an action brought by or in the right of the corporation, if the person
has been adjudged to be liable, unless the Court of Chancery or other court
determines that indemnity is fair and reasonable despite the adjudication of
liability. Indemnification is mandatory in the case of a director, officer,
employee or agent who has been successful on the merits, or otherwise, in
defense of a suit against him or her.
nStor has included in its Restated Certificate of Incorporation and
Bylaws provisions to (i) eliminate the personal liability of its directors for
monetary damages resulting from breaches of their fiduciary duty, provided that
such provision does not eliminate liability for breaches of the duty of loyalty,
acts or omissions not in good faith or which involves intentional misconduct or
a knowing violation of law, violations under Section 174 of the DGCL or for any
transaction from which the director derived an improper personal benefit and
(ii) indemnify its directors and officers to the fullest extent permitted by the
DGCL. nStor believes that these provisions are necessary to attract and retain
qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
The following is a list of exhibits filed as part of this
Registration Statement.
<TABLE>
<CAPTION>
Exhibit Number
--------------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of August 27, 1999, by and among nStor
Technologies, Inc., NTI Acquisition Corp. and Andataco, Inc. (included as Annex A to the
joint proxy statement/prospectus). (1)
3.1 Restated Certificate of Incorporation of nStor. (2)
3.2 Bylaws of nStor. (2)
5.1 Form of Opinion of Akerman, Senterfitt & Eidson, P.A., regarding the validity of the shares of nStor
common stock being registered. (1)
21.1 Subsidiaries of nStor. (2)
23.1 Consent of BDO Seidman, LLP. (1)
23.2 Consent of PriceWaterhouseCoopers LLP. (1)
23.3 Consent of Akerman, Senterfitt & Eidson, P.A. (included in the opinion filed as Exhibit 5.1
to this Registration Statement). (1)
23.4 Consent of Flemming, Lessard and Shields, LLC. (1)
II-1
<PAGE>
23.5 Consent of Marshall & Stevens Incorporated. (1)
24.1 Powers of Attorney (included on signature page to this Registration Statement). (1)
99.1 Form of Proxy of nStor. (1)
99.2 Form of Proxy of Andataco. (1)
- -----------------
(1) Filed herewith.
(2) Incorporated by reference.
</TABLE>
Item 22. Undertakings
(a) nStor hereby undertakes:
(1) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of
this Registration Statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to
paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to rule 415, will be
filed as a part of an amendment to the Registration Statement and will
not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(4) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
II-2
<PAGE>
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, nStor Technologies, Inc., certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form S-4 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of West Palm Beach, State of
Florida, on the 27 day of August, 1999.
nSTOR TECHNOLOGIES, INC.
/s/ Jack Jaiven
------------------------------
Jack Jaiven, Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Mark F. Levy and Lawrence F. Steffann and
each of them, his true and lawful attorney-in-fact and agents, with full power
of substitution and resubstitution for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in their
capacities set forth below.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ H. Irwin Levy Chairman of the Board August 27, 1999
- -------------------------
H. Irwin Levy
/s/ Lawrence F. Steffann President (Principal Executive August 27, 1999
- ------------------------- Officer) and Director
Lawrence F. Steffann
/s/ Jack Jaiven Treasurer (Principal Financial and August 27, 1999
- ------------------------- Accounting Officer)
Jack Jaiven
/s/ Mark F. Levy Vice President and Director August 27, 1999
- -------------------------
Mark F. Levy
_________________________ Director August __, 1999
Michael L. Wise
/s/ Bernard R. Green Director August 27, 1999
- -------------------------
Bernard R. Green
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
5.1 Form of Opinion of Akerman, Senterfitt & Eidson,
P.A.
23.1 Consent of BDO Seidman, LLP
23.2 Consent of PriceWaterhouseCoopers LLP
23.4 Consent of Flemming, Lessard and Shields, LLC
23.5 Consent of Marshall & Stevens Incorporated
99.1 Form of Proxy of nStor
99.2 Form of Proxy of Andataco
[LETTERHEAD OF AKERMAN, SENTERFITT & EIDSON, P.A.]
____________, 1999
nStor Technologies, Inc.
100 Century Boulevard
West Palm Beach, Florida 33417
Re: Registration Statement on Form S-4 (File No. 333- )
Gentlemen:
We refer to the Registration Statement (the "Registration Statement")
on Form S-4 (File No. 333-_______, filed by nStor Technologies, Inc. (the
"Company") with the Securities and Exchange Commission, for the purpose of
registering under the Securities Act of 1933 an aggregate ______________ shares
of the Company's common stock, par value $.05 per share (the "Common Stock"), to
be offered to the stockholders of Andataco, inc. ("Andataco") pursuant to a
proposed merger between a subsidiary of the Company and Andataco (the "Merger").
In connection with the foregoing registration, we have acted as counsel
for the Company, and have examined originals, or copies certified to our
satisfaction of all such corporate records of the Company, certificates of
public officials, and representatives of the Company, and other documents as we
deemed necessary to require as a basis for the opinion hereafter expressed.
Based upon the foregoing, and having regard for legal considerations
that we deem relevant, it is our opinion that:
The Common Stock will be, when issued in accordance with the Merger and
the Company's Restated Certificate of Incorporation, as amended, duly
authorized, legally issued, fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus which is a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or the rules and regulations promulgated thereunder.
Sincerely,
AKERMAN, SENTERFITT & EIDSON, P.A.
Consent of Independent Certified Public Accountants
nStor Technologies, Inc.
Lake Mary, Florida
We hereby consent to the incorporation by reference in the joint proxy
statement/prospectus constituting a part of this Registration Statement of our
report dated March 5, 1999 (except for Note 15, which is as of April 15, 1999),
relating to the consolidated finanical statements of nStor Technologies, Inc.
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
We also consent to the reference to us under the caption "Experts" in the joint
proxy statement/prospectus.
/s/ BDO Seidman, LLP
--------------------
BDO Seidman, LLP
Orlando, Florida
August 26, 1999
Consent of Independent Accountants
We hereby consent to the incorporation by reference in this Registration
Statements on Form S-4 of nStor Technologies, inc. of our report dated January
13, 1999 relating to the finanical statements of Andataco, Inc. for the year
ended October 31, 1998, which appears in Andataco, Inc.'s Annual Report on Form
10-K for the year ended October 31, 1998 and in nStor Technologies Inc.'s Form
8-K filed June 23, 1999.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ PriceWaterhouseCoopers LLP
- ------------------------------
PriceWaterhouseCoopers LLP
San Diego, California
August 27, 1999
CONSENT OF FINANCIAL ADVISOR
nStor Technologies, Inc.
West Palm Beach, Florida
We hereby consent to the use in this Registration Statement on Form S-4 of nStor
Technologies, Inc. of our fairness opinion, dated August 4, 1999.
FLEMMING, LESSARD & SHIELDS LLC
/s/ Gary L. Shields, CFA
- ------------------------
Gary L. Shields, CFA
La Jolla, California
August 26, 1999
CONSENT OF VALUATION ADVISOR
nStor Technologies, Inc.
West Palm Beach, Florida
We hereby consent to the use in this Registration Statement on Form S-4 of nStor
Technologies, Inc. of our valuation opinion dated July 7, 1999.
/s/ Marshall & Stevens Incorporated
- -----------------------------------
Marshall & Stevens Incorporated
Philadelphia, Pennsylvania
August 27, 1999
PROXY CARD
nSTOR TECHNOLOGIES, INC.
100 Century Blvd.
West Palm Beach, FL 33417
THIS PROXY IS SOLICITED ON BEHALF OF THE
COMPANY'S BOARD OF DIRECTORS
The undersigned stockholder of nStor Technologies, Inc., a Delaware
corporation (the "Company"), hereby appoints Mark F. Levy and Orilla F. Floyd
and each of them, as proxies for the undersigned, each with full power of
substitution, for and in the name of the undersigned to act for the undersigned
and to vote, as designated below, all of the shares of stock of the
Company that the undersigned is entitled to vote at the 1999 Annual Meeting of
Stockholders of the Company, to be held at _________ _.m., local time, on
___________, ________, 1999, at the _______________________________________,
Florida and at any adjournment(s) or postponement(s) thereof.
(1) Issuance of shares of the Company's Common Stock to stockholders of
Andataco, Inc. in connection with the merger of NTI Acquisition Corp.,
a wholly-owned subsidairy of the Company with and into Andataco.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors unanimously recommends a vote FOR this proposal.
(2) Election of directors: Michael L. Wise, Bernard R. Green, H. Irwin
Levy, Mark F. Levy and Lawrence F. Steffann
[ ] VOTE FOR all nominees listed above, except vote withheld from the
following nominees (if any).
------------------------------------------------------
[ ] VOTE WITHHELD for all nominees.
Cumulative votes for one or more nominees as follows:
Michael L. Wise __________
Bernard R. Green __________
H. Irwin Levy __________
Mark F. Levy __________
Lawrence F. Steffann __________
<PAGE>
The Board of Directors unanimously recommends a vote
FOR the election of all the nominees for election as
directors.
(2) To amend the Company's Restated Certificate of Incorporation to
increase the authorized number of shares of Common Stock from
40,000,000 to 75,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors unanimously recommends a vote FOR this proposal.
(3) To amend the Company's Restated Certificate of Incorporation to
eliminate cumulative voting for directors
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors unanimously recommends a vote FOR this proposal.
(4) To amend the Company's 1996 Stock Option Plan, as amended, to increase
from 2,500,000 to 5,000,000 the number of shares reserved for issuance
thereunder.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors unanimously recommends a vote FOR this proposal.
(5) To ratify the reappointment of BDO Seidman, LLP, certified public
accountants, as the Company's independent auditors for fiscal 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors unanimously recommends a vote FOR this proposal.
(6) Upon such other matters as may properly come before the Annual Meeting
and any adjournments thereof. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before
the Annual Meeting, and any adjournments or postponements thereof.
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED IN FAVOR OF THE ISSUANCE OF SHARES OF THE COMPANY'S COMMON STOCK TO
ANDATACO STOCKHOLDERS. IF NO DIRECTION IS MADE, THIS PROXY WILL ALSO BE VOTED
CUMULATIVELY "FOR" THE ELECTION OF ALL NOMINEES LISTED ABOVE. IF NO DIRECTION IS
MADE, THIS PROXY WILL ALSO BE VOTED IN FAVOR OF AMENDING THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORTION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK FROM 40,000,000 TO 75,000,000, IN FAVOR OF AMENDING THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION TO ELIMINATE CUMULATIVE VOTING FOR
DIRECTORS, IN FAVOR OF AMENDING THE COMPANY'S 1996 STOCK OPTION PLAN TO INCREASE
FROM 2,500,000 TO 5,000,000 THE NUMBER OF SHARES RESERVED FOR ISSUANCE
THEREUNDER, AND IN FAVOR OF THE RATIFICATION OF THE REAPPOINTMENT OF BDO
SEIDMAN, LLP.
PURSUANT TO THE RESTATED CERTIFICATE OF INCORPORATION, THE ELECTION OF DIRECTORS
IS BY CUMULATIVE VOTING. EACH HOLDER OF CAPITAL STOCK SHALL BE ENTITLED TO AS
MANY VOTES AS SHALL EQUAL THE NUMBER OF VOTES WHICH HE/SHE WOULD BE ENTITLED TO
CAST FOR THE ELECTION OF DIRECTORS WITH RESPECT TO HIS/HER SHARES OF CAPITAL
STOCK MULTIPLIED BY THE NUMBER OF DIRECTORS TO BE ELECTED (5), AND HE/SHE MAY
CAST ALL OF SUCH VOTES FOR A SINGLE DIRECTOR OR MAY DISTRIBUTE THEM AMONG THE
NUMBER OF DIRECTORS TO BE VOTED FOR AS HE/SHE MAY SEE FIT. PLEASE INDICATE YOUR
VOTE FOR EACH DIRECTOR BY INSERTING THE APPROPRIATE NUMBER OF VOTES IN THE SPACE
NEXT TO EACH DIRECTOR'S NAME. BY GIVING YOUR PROXY, YOU ARE AUTHORIZING THE
HOLDERS THEREOF TO VOTE YOUR SHARES FOR THE NOMINEES AS THEY DETERMINE IS
APPROPRIATE. THE FIVE NOMINEES RECEIVING THE HIGHEST NUMBER OF VOTES WILL BE
ELECTED.
<TABLE>
<S> <C>
Dated_________________________, 1999 ____________________________________
(Signature)
------------------------------------
(Signature if held jointly)
</TABLE>
IMPORTANT: Please sign exactly as your name appears hereon and mail it promptly
even though you now plan to attend the meeting. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD
AND PROMPTLY RETURN IT IN THE ENVELOPE PROVIDED.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
ANDATACO, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ______________, 1999
The undersigned hereby appoints HARRIS RAVINE and RICHARD A. HUDZIK,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Andacto, Inc. which the
undersigned may be entitled to vote at the Special Meeting of Stockholders of
Andataco, Inc. to be held at _________________________, on ___________________,
_____________, 1999 at _________ __.m. (local time), and at any and all
postponements, continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
THE PROPOSAL AS MORE SPECIFICALLY DESCRIBED IN THE JOINT PROXY
STATEMENT/PROSPECTUS. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE
VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL.
PROPOSAL: To approve and adopt the Merger and the
Agreement and Plan of Merger dated August 27, 1999, among
the Company, nStor Technologies, Inc. ("nStor") and NTI
Acquisition Corp., a wholly-owned subsidiary of nStor.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on other side)
(Continued from other side)
DATED _______________ _________________________________
SIGNATURE(S)
---------------------------------
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name and have a
duly authorized officer sign, stating title.
If signer is a partnership, please sign in
partnership name by authorized person.
Please vote, date and promptly return this proxy in the enclosed return envelope
which is postage prepaid if mailed in the United States.
