Filed Pursuant to Rule 424(b)(3)
Registration No. 333-82223
PROSPECTUS
13,083,465 SHARES
nSTOR TECHNOLOGIES, INC.
COMMON STOCK
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This Prospectus relates to an aggregate of up to 13,083,465 shares of
common stock of nStor Technologies, Inc. being offered for sale from time to
time by the selling stockholders named in this Prospectus as follows:
o up to 100,000 shares issuable upon the exercise of stock
options issued in connection with the acquisition of the
assets of Parity Systems, Inc.;
o up to 1,686,799 shares issuable upon the exercise of warrants
issued in connection with the issuance of shares of the
Company's convertible preferred stock, loans to the Company
and the acquisition of the assets of Parity Systems, Inc.;
o up to 1,211,667 shares of common stock of the Company issued
in private transactions; and
o up to 10,084,999 shares issuable upon the conversion of shares
of the Company's Series A, Series C, Series D, Series E and
Series F convertible preferred stock.
If all of the warrants and options listed above are exercised, we would
receive $4,609,687. See "USE OF PROCEEDS." We are paying all expenses of
registration incurred in connection with this offering, but all brokerage
commissions, discounts and other expenses incurred by individual selling
stockholders will be borne by the individual selling stockholders. We will not
be entitled to any of the proceeds from sales by selling stockholders.
Our common stock is quoted on the American Stock Exchange under the
symbol "NSO". On August 10, 1999, the last reported sales price of the common
stock on the American Stock Exchange was $2.00 per share.
This investment involves a high degree of risk. See "Risk Factors"
beginning on Page 4.
We may amend or supplement this Prospectus from time to time by filing
amendments or supplements as required. You should read the entire Prospectus and
any amendments or supplements carefully before you make your investment
decision.
Our principal executive offices are located at 450 Technology Park,
Lake Mary, Florida 32746. Our telephone number is (407) 829-3500.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
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The date of this Prospectus is August 13, 1999
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Table of Contents
Page
WHERE YOU CAN FIND MORE INFORMATION......................................... 1
THE COMPANY.................................................................. 3
THE OFFERING................................................................. 4
RISK FACTORS................................................................. 5
RECENT DEVELOPMENTS......................................................... 10
SELLING STOCKHOLDERS........................................................ 11
USE OF PROCEEDS............................................................. 13
DESCRIPTION OF SECURITIES................................................... 13
PLAN OF DISTRIBUTION........................................................ 14
LEGAL MATTERS............................................................... 15
EXPERTS ................................................................... 15
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we 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. Our SEC
filings are also available to the public at the SEC's web site at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings made with the SEC under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act").
1. The Company's Annual Report filed 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. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1999;
3. The Company's Current Report on Form 8-K filed on June 23, 1999, as
amended by Form 8-K/A filed on July 2, 1999; and
4. The description of the common stock contained in the Company's
Registration Statement filed on Form 8-A, as filed with the SEC on
April 16, 1997, pursuant to Section 12(b) of the Exchange Act.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Lawrence F. Steffann
nStor Technologies, Inc.
450 Technology Park
Lake Mary, Florida 32746
(407) 829-3500
You should rely only on information incorporated by reference or
provided in this Prospectus and any prospectus supplement. We have not
authorized anyone else to provide you with different information.
From time to time, information we provide or statements made by our
directors, officers or employees may constitute "forward-looking" statements
under the Private Securities Litigation Reform Act of 1995 and are subject to
numerous risks and uncertainties. Any statements made in this Prospectus,
including any statements incorporated herein by reference, that are not
statements of historical fact are forward-looking statements (including, but not
limited to, statements concerning the characteristics and growth of our market
and customers, our objectives and plans for future operations and products and
our liquidity and capital resources). Such forward-looking statements and other
forward- looking statements are based on a number of assumptions and involve a
number of risks and uncertainties, and, accordingly, actual results could differ
materially. Factors that may cause such differences include, but are not limited
to:
o the continued and future acceptance of our products;
o the rate of growth in the industries to which we market our
products;
o the presence of competitors with greater technical, marketing
and financial resources;
o our ability to promptly and effectively respond to
technological change to meet evolving customer needs;
o capacity and supply constraints or difficulties; and
o our ability to successfully expand our operations.
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For a further discussion of these and other significant factors to consider in
connection with forward-looking statements, see the discussion in this
Prospectus under the heading "RISK FACTORS."
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THE COMPANY
Since 1996, nStor Technologies, Inc. has been designing, manufacturing,
and marketing a full line of cross- platform storage solutions, including
advanced external RAID (Redundant Array of Independent Disks) subsystems (which
we refer to as our "RAID Business"), data storage products and tape backup
solutions. The Company was incorporated as a Delaware corporation in 1959.
In October 1992, we exchanged substantially all of the operating assets
of our previous business for securities issued by IMNET Systems, Inc. In 1996,
we sold those securities and in June 1996, through our wholly owned subsidiary,
nStor Corporation, Inc., acquired the RAID Business from Seagate Technologies,
Inc. In December 1996, nStor Corporation, Inc. acquired substantially all of the
assets and assumed certain liabilities of Parity Systems, Inc. The assets
acquired from Parity Systems are used in the design, manufacture and sale of
computer storage subsystems, memory devices and peripheral equipment, and the
integration of storage management solutions, digital media management, and
client/server systems for UNIX and Windows NT server environments. (UNIX and
Windows NT are computer operating systems.) On April 23, 1998, nStor
Corporation, Inc. acquired all of the outstanding common stock of Borg Adaptive
Technologies, Inc. Borg Adaptive Technologies is the developer of AdaptiveRAID,
a patented RAID technology.
On June 8, 1999, we acquired 76% of the outstanding common stock of
Andataco, Inc., a Massachusetts corporation. We currently intend to acquire the
remaining outstanding shares of Andataco by merging Andataco with and into a
wholly-owned subsidiary which we will create for that purpose and issuing new
shares of our common stock to the former Andataco shareholders. In the purchase
agreement with the selling stockholders of Andataco, we have agreed that, if we
acquire the remaining outstanding shares of Andataco, we will pay the greater of
the per share amount paid for the initial shares ($.283) or the fair market
value as determined by an independent valuation. Andataco designs, develops,
manufactures, markets and supports high performance, high availability
information storage solutions for the open system market in the Windows NT and
UNIX environments, including Sun Microsystems, Hewlett-Packard, Silicon Graphics
and NT-based computing systems.
On June 1, 1999, we had 77 full-time employees and Andataco had 141
full-time employees. nStor Corporation, Inc.'s operations are primarily
conducted, and its executive offices are located, at a facility in Lake Mary,
Florida 32746 (in the Orlando area). Its telephone number is (407) 829-3500.
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THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common stock outstanding as of August 1, 1999 22,640,258 shares
Shares offered by selling stockholders: 13,083,465 shares
Shares issuable upon exercise of stock options 100,000 shares
Shares issuable upon exercise of warrants 1,686,799 shares
Shares issuable upon conversion of preferred stock 10,084,999 shares
Shares of common stock issued private placements 1,211,667 shares
Risk Factors The shares involve a high degree of risk.
Investors should carefully consider the
information set forth under "RISK FACTORS."
Proceeds to Company if the warrants and stock options $4,609,687
are exercised in full
Use of Proceeds Working capital and general corporate purposes. See
"USE OF PROCEEDS."
Amex trading symbol NSO
</TABLE>
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RISK FACTORS
In addition to the other information in this Prospectus or incorporated
herein by reference, the following risk factors should be considered carefully
in evaluating the Company and its business before purchasing the shares offered
in this Prospectus.
WE HAVE EXPERIENCED RECENT LOSSES AND MAY REQUIRE ADDITIONAL FINANCING TO
SATISFY OUR WORKING CAPITAL NEEDS
We have experienced net losses for the fiscal years ended December 31,
1997 ($7,886,000), December 31, 1998 ($10,407,000) and for the fiscal quarter
ended March 31, 1999 ($2,471,000), respectively. We also expect to have a net
loss for the fiscal quarter ending June 30, 1999. At March 31, 1999, we had an
accumulated deficit of ($40,974,000) and we expect to have an accumulated
deficit as of June 30, 1999. There can be no assurance that we will be able to
achieve or maintain profitability on a quarterly or annual basis or that we will
be able to achieve revenue growth.
Andataco, Inc. has experienced net losses for the fiscal years ended
October 31, 1997 ($6,209,000), October 31, 1998 ($2,434,000) and for the fiscal
quarters ended January 31, 1999 ($697,000) and April 30, 1999 ($894,000),
respectively. 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.
In late 1997, we determined that amounts available under our bank line
of credit would not be sufficient to satisfy our 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, we have 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 our line of credit will be sufficient to satisfy our presently contemplated
working capital needs for the foreseeable future, there can be no assurance that
we may not require additional capital beyond our currently forecasted needs. In
addition, there can be no assurance that any such additional required capital
would be available on terms acceptable to us, 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, nStor and Andataco 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 nStor or Andataco
are unsuccessful in their negotiations with their lenders, they would be
required to seek other sources of capital to satisfy their obligations under
their lines of credit. There can be no assurance that any such additional
required capital would be available on acceptable terms, if at all, at such time
or times as nStor or Andataco might require such funds. In such event, our
business, financial condition and results of operations could be materially and
adversely affected.
WE HAVE A LIMITED HISTORY OF OPERATING AND INTEGRATING OUR ACQUIRED BUSINESSES
We have acquired all of our operating assets within the last three
years. The success of our recent business combinations will depend in large part
on our ability to consolidate our operations, integrate departments, systems and
procedures and obtain business efficiencies, economies of scale and related cost
savings. The significant management challenges presented by such consolidation
and integration may prevent the desired cost savings. There can be no assurance
that we will be able to successfully consolidate our business operations or
achieve returns that would justify our investment in our acquired businesses.
This consolidation process will require substantial time and attention on the
part of our management. We may not be able to successfully integrate the
operations of these companies, if at all. If
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we are unable to integrate or successfully manage the companies we have
acquired, our business, financial condition and results of operations could be
materially and adversely affected.
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.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE
If our current stockholders sell substantial amounts of our common
stock, including shares issued upon the exercise of outstanding options and
warrants or the conversion of outstanding preferred stock, in the public market
following this offering, then the market price of our common stock could fall.
Restrictions under the securities laws and certain lock-up agreements limit the
number of shares of common stock available for sale in the public market. Except
as provided below, substantially all of the shares of the common stock
(22,639,258 shares as of the date of this Prospectus) are freely tradable
without restriction or further registration under the Securities Act, unless
such shares are held by our "affiliates" as that term is defined in Rule 144
under the Securities Act. Approximately 11,804,000 shares of common stock are
held by officers and directors and are deemed restricted securities within the
meaning of Rule 144. Restricted securities may be sold in the public market only
if they have been registered under the Securities Act or if their sales qualify
under Rule 144 or another available exemption from the registration requirements
of the Securities Act. All of the Shares offered for sale in this Prospectus
will be freely tradable if sold using this Prospectus.
See "SELLING STOCKHOLDERS."
WE MAY BE UNABLE TO DEVELOP NEW PRODUCTS OR RESPOND TO TECHNOLOGICAL CHANGES
The markets for our products are characterized by rapidly changing
technology, evolving industry standards and relatively short product life
cycles. Our ability to compete successfully will depend on our ability to
enhance our existing products and introduce new products on a timely and
cost-effective basis. There can be no assurance that we will be successful in
introducing such new products or enhancements. Delays in product enhancements
and developments or the failure of our new products or enhancements to gain
market acceptance would have an adverse effect on our business and operating
results. In addition, there can be no assurance that new products or
technologies developed by others, or the emergence of new industry standards,
will not render our products or technologies noncompetitive or obsolete. Despite
testing, new products may be affected by quality, reliability or
interoperability problems, which could result in:
o returns;
o delays in collecting accounts receivable;
o unexpected service or warranty expenses;
o reduced orders; or
o a decline in our competitive position.
WE MAY BE UNABLE TO SUCCESSFULLY COMPETE WITH OTHER COMPANIES IN THE INDUSTRY
The market for our products is highly competitive. Our competitors may
offer systems at lower prices than we offer and we must compete on the basis of
product performance in specific applications. Some of these competitors have
greater financial, manufacturing and marketing resources than we have.
Our ability to compete successfully depends upon our ability to
continue to develop high performance products that obtain market acceptance and
can be sold at competitive prices. Although we believe that our products have
certain significant competitive advantages, there can be no assurance that we
will be able to compete successfully in the future
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or that other companies may not develop products with better performance and
thus reduce the demand for our products. As more companies enter the markets in
which we sell our products, we may encounter increased price competition for
such products which could materially and adversely affect our operating results.
Our original equipment manufacturer customers and other manufacturers could
develop their own disk arrays or could integrate competitive RAID disk arrays
into their systems rather than purchasing our products, which could materially
and adversely affect our operating results.
WE ARE A PARTY TO LITIGATION WHICH COULD ADVERSELY AFFECT THE COMPANY
In June and August 1996, we and two of our 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. Our counsel believes that we
have good defenses to both claims and that we will not incur any material
liability. We are unaware of any facts that would support any of the plaintiffs'
claims and, accordingly, we believe that the claims are without merit. An
unfavorable outcome in such litigation could have an adverse effect on the
Company.
WE HAVE NO LONG-TERM PURCHASE COMMITMENTS FROM OUR CUSTOMERS
We have no long-term purchase commitments from our customers and
customers generally may cancel their orders on 30 days' notice. Accordingly,
there can be no assurance that orders from existing customers, including our
principal customers, will continue at their historical levels, or that we will
be able to obtain orders from new customers. In addition, there can be no
assurance that existing customers, including our principal customers, will not
develop their own storage solutions internally and as a result reduce or
eliminate purchases. Loss of one or more of our principal customers, or
cancellation or rescheduling of material orders already placed, could materially
and adversely affect our operating results.
WE MAY NOT BE ABLE TO SUCCESSFULLY PROTECT OUR PATENTS AND OTHER INTELLECTUAL
PROPERTY RIGHTS, AND MAY BE SUBJECT TO CLAIMS OF INFRINGEMENT BY OTHERS
We currently hold one patent and have one patent pending on our
products. In addition, we rely on a combination of trade secrets, copyrights and
trademarks and employee and third-party nondisclosure agreements to protect our
intellectual property rights. There can be no assurance that the steps taken to
protect our rights will be adequate to prevent misappropriation of our
technology or to preclude competitors from developing products with features
similar to our products. Furthermore, there can be no assurance that, in the
future, third parties will not assert infringement claims against us or with
respect to our products for which we have indemnification obligations to certain
of our customers. Asserting our rights or defending against third-party claims
could involve substantial expense, which we may not be able to afford and which
could have a material adverse effect on our operating results. In the event a
third party were successful in a claim that one of our products infringed the
third party's proprietary rights, we 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 our
operating results.
THE INABILITY TO OBTAIN MATERIALS FROM SUPPLIERS COULD DISRUPT OUR BUSINESS
We depend heavily on our suppliers to provide high quality materials on
a timely basis and at reasonable prices. Although many of the components for our
products are available from numerous sources at competitive prices, certain of
the components used in our products are presently available from a limited
number of suppliers or from a single supplier. Furthermore, because of increased
industry demand for many of those components, their manufacturers may, from time
to time, not be able to make delivery of orders on a timely basis. In addition,
manufacturers of components on which we rely may choose, for numerous reasons,
not to continue to make those components, or the next generation of those
components, available to us.
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We have no long-term supply contracts. There can be no assurance that
we will be able to obtain, on a timely basis, all of the components we require.
If we cannot obtain essential components as required, we could be unable to meet
demand for our products, thereby materially adversely affecting our operating
results and allowing competitors to gain market share. In addition, scarcity of
such components could result in cost increases and adversely affect our
operating results.
THE PRICE OF OUR COMMON STOCK HAS BEEN, AND MAY CONTINUE TO BE, VOLATILE
Our 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 the actual or our anticipated
financial results;
o announcements by us, our competitors or our 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.
WE MAY NOT HAVE ACCESS TO SUFFICIENT FUNDING TO SUPPORT OUR OPERATIONS
We have expended and will continue to be required to expend substantial
funds to continue research and development, and for other aspects of our
business. Although we believe that we have access to resources sufficient to
fund our operations for at least the next twelve months, we may need or elect to
raise additional capital. Our capital requirements will depend on many factors,
including:
o the problems, delays, expenses and complications frequently
encountered by technology companies;
o the progress of our research, development and product testing
programs;
o the success of our sales and marketing programs;
o costs in filing, prosecuting, defending and enforcing
intellectual property rights;
o the extent and terms of any collaborative research,
manufacturing, marketing or other arrangements; and
o changes in economic, regulatory or competitive conditions or
our planned business.
Estimates about the adequacy of funding for our activities are based on certain
assumptions, including the assumption that research, development and testing
relating to our products under development can be conducted at projected costs
and within projected time frames and that such products can be successfully
marketed.
To satisfy our capital requirements, we may seek to raise funds in the
public or private capital markets. Our ability to raise additional funds in the
public or private markets will be adversely affected if the results of our
ongoing or future research and development programs are not favorable. We may
seek additional funding through corporate collaborations and other financing
vehicles. There can be no assurance that any such funding will be available, or
if available, that it will be available on acceptable terms. If adequate funds
are not available, we may be required to curtail our operations significantly,
or we may be required to obtain funds through arrangements with future
collaborative partners or others that may require us to relinquish rights to
some or all of our technologies or products under development. If we are
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 our common stock.
FUTURE ACQUISITIONS COULD ADVERSELY AFFECT OUR STOCK PRICE OR DISRUPT OUR
OPERATIONS
We 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
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related to goodwill and intangible assets that could adversely affect our
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 our earnings.
Acquisitions also may involve numerous other risks, including:
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 we have 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 our
business or operating results.
THE YEAR 2000 ISSUE COULD DISRUPT OUR BUSINESS
As many computer systems, software programs and other equipment with
embedded chips or processors (collectively, "Information Systems") use only two
digits rather than four to define the applicable year, they may be unable to
process accurately certain data, during or after the year 2000. As a result,
business and governmental entities are at risk for possible miscalculations or
systems failures causing disruptions in their business operations. This is
commonly known as the Year 2000 ("Y2K") issue. The Y2K issue concerns not only
Information Systems used solely within a company, but also concerns third
parties, such as customers, vendors and creditors, using Information Systems
that may interact with or affect a company's operations.
If needed remediations and conversions to the 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 their companies' customers and
vendors to identify and resolve their own Y2K issues, and our ability to respond
to unforeseen Y2K complications.
We have implemented a Y2K readiness program with the objective of
having all of our significant Information Systems functioning properly with
respect to Y2K before January 1, 2000. The first component of our 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 to the second component of the Y2K readiness program, we have
identified our 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,
we have ascertained that we have no significant exposure to Y2K problems at this
time. However, there can be no assurance that the representations made to us by
third parties are accurate or complete and there is a possibility that normal
business operations could be disrupted.
The third component of our Y2K readiness program was the evaluation of
our existing products', and planned future products', Y2K functionality. All of
the date dependent software which we have developed has been validated as being
Y2K compliant using commercially acceptable methods, including: expanding year
fields to four digits; windowing; and date encoding techniques. Our 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 these 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 our best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no assurance that these estimates will be
achieved and
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actual results could differ from the estimates. Our 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.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND DELAWARE LAW COULD
MAKE AN ACQUISITION OF OUR COMPANY MORE DIFFICULT
Our Restated Certificate of Incorporation authorizes the issuance of
1,000,000 shares of preferred stock. Our Board of Directors has the power to
issue any or all of the shares of preferred stock, including the authority to
establish one or more classes or series and to fix the powers, preferences,
rights and limitations of such class or series, without seeking shareholder
approval. See "DESCRIPTION OF SECURITIES - Preferred Stock." Furthermore, as a
Delaware corporation, we are subject to Section 203 of the Delaware General
Corporation Law regarding "business combinations." This statutory provision and
the power to issue preferred stock may, in certain circumstances, deter or
discourage takeover attempts and other changes in control not approved by
management and the Board of Directors. As a result, our shareholders may lose
opportunities to dispose of their shares at the higher prices generally
available in takeover attempts or that may be available under a merger proposal.
In addition, the statutory provision and the existence of preferred stock may
have the effect of permitting our current management to retain its position and
place it in a better position to resist changes that shareholders may wish to
make if they are dissatisfied with the conduct of the business.
RECENT DEVELOPMENTS
In March 1999, we entered into a new Original Equipment Manufacturer
relationship to supply high-performance RAID storage enclosures to Silicon
Graphics, Inc., a major server manufacturer. We began shipping products under
Silicon Graphic's initial $5.8 million purchase order in May 1999. The initial
term of the arrangement is expected to be for three years. A discontinuation or
significant reduction of orders under that relationship could have a material
adverse effect on our business.
On June 8, 1999, we purchased 18,021,281 shares of the common stock of
Andataco, Inc., representing approximately 76% of the total issued and
outstanding capital stock of Andataco, from the Sykes Family Trust and the Sykes
Children's Trust of 1993 for $5.1 million. The purchase price was paid in the
form of two, 9.5% subordinated promissory notes. The principal balance of the
notes is due on June 17, 2004 and interest is payable monthly.
As part of the acquisition of Andataco, we also acquired from W. David
Sykes, the President of Andataco, a promissory note in the original principal
amount of $5,196,000 payable by Andataco to Sykes. The purchase price for the
promissory note was: $500,000 in cash, $150,000 of which had been paid prior to
the closing; 4,654 shares of our newly-issued Series F convertible preferred
stock which are convertible into an aggregate of 1,551,333 shares of our common
stock based on a conversion price of $3.00 per share; and three-year warrants to
purchase an additional 155,133 shares of our common stock for $3.30 per share.
Mr. Sykes has entered into a three year employment agreement with
nStor Corporation, Inc., our wholly-owned subsidiary, which will become
effective upon our acquisition of the remaining 24% of the outstanding shares of
capital stock of Andataco. In connection with that employment agreement, Mr.
Sykes received three-year options to purchase 1.1 million shares of our common
stock at $2.00 per share. Mr. Sykes will continue to serve as the President of
Andataco.
On July 16, 1999, we acquired an additional 1,612,904 shares of
Andataco common stock in exchange for a working capital investment of $500,000.
We now own 77.2% of the outstanding shares of common stock of Andataco.
10
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with regard to the
beneficial ownership of common stock by the selling stockholders.
<TABLE>
<CAPTION>
Percentage of
Shares of Shares of Shares of Common Stock
Common Stock Common Stock Common Stock Owned After the
Selling Stockholder Owned Offered Hereby Retained Offering
- ------------------- ----- -------------- -------- --------
<S> <C> <C> <C> <C>
H. Irwin Levy(1) 7,570,099 4,010,000(2) 3,560,099 28.7%
Bernard Marden 3,973,025 2,116,666(3) 1,856,359 16.4%
Maurice Halperin 2,989,700 2,817,000(4) 172,700 11.9%
Herbert Gimelstob 2,131,133 1,566,666(5) 564,467 8.8%
W. David Sykes(6) 1,706,466 1,706,466(7) - 7.0%
James P. Marden 276,750 100,000(8) 176,750 1.2%
Patrice Auld 276,750 100,000(8) 176,750 1.2%
Norbert D. Witt 172,157 172,157(9) - (10)
Jack R. Faraone 108,509 108,509(11) - (10)
Quarterdeck Investment 66,667 66,667(12) - (10)
Partners, Inc.
Joseph E. Nance 34,181 34,181(11) - (10)
Cecil H. Kaplinsky 29,839 29,839(11) - (10)
Richard C. Bush 27,127 27,127(11) - (10)
Michael N. Witt 25,498 25,498(11) - (10)
Stephen R. Witt 25,498 25,498(11) - (10)
Joanne M. Witt 25,498 25,498(11) - (10)
Nicholas M. Scharf 25,005 25,005(11) - (10)
Michael N. Witt, as Trustee 24,415 24,415(11) - (10)
for Bryan M. Witt
Warren Christensen 13,566 13,566(11) - (10)
George D. McCready 13,566 13,566(11) - (10)
John J. Dugan 13,566 13,566(11) - (10)
11
<PAGE>
Arthur H. Hale 13,566 13,566(11) - (10)
Michael N. Witt, as Trustee 11,936 11,936(11) - (10)
for Kyle Lawrence Witt
until age 25 C.U.T.M.A
Joanne M. Witt, as Trustee 10,307 10,307(11) - (10)
for Tylar Marie Witt
until age 25 C.U.T.M.A
Eugene A. Kruschke 8,136 8,136(11) - (10)
David L. Williamson 8,136 8,136(11) - (10)
John B. Miller 5,424 5,424(11) - (10)
Phillip Shreffler 4,070 4,070(11) - (10)
</TABLE>
- -----------
(1) Mr. Levy is the Chairman of our Board of Directors.
(2) Represents: 3,000,000 shares issuable upon conversion of shares of the
Company's Series C Convertible preferred stock; and 65,000 shares
issuable upon the exercise of currently exercisable (at $2.35 per
share) warrants, expiring October 1, 2000; both of which are owned of
record by Mr. Levy. Also includes: 500,000 shares issuable upon
conversion of shares of the Company's Series E Convertible preferred
stock; 50,000 shares issuable upon the exercise of currently
exercisable (at $3.30 per share) warrants, expiring June 8, 2002; both
of which are owned of record by Hilcoast Development Corp., an
affiliate of Mr. Levy; and 395,000 shares sold to Mr. Levy in March
1999 in a private placement transaction.
(3) Represents: 500,000 shares sold to Mr. Marden in April 1999 in a
private placement transaction; 1,000,000 shares issuable upon
conversion of shares of the Company's Series D Convertible preferred
stock; 333,333 shares issuable upon conversion of the Company's Series
E Convertible preferred stock; 250,000 shares issuable upon the
exercise of currently exercisable (at $2.00 per share) warrants,
expiring October 1, 2000; and 33,333 shares issuable upon the exercise
of currently exercisable (at $3.30 per share) warrants, expiring June
8, 2002.
(4) Represents: 1,667,000 shares issuable upon conversion of shares of the
Company's Series A Convertible preferred stock; 700,000 shares issuable
upon conversion of shares of the Company's Series D Convertible
preferred stock; 200,000 shares issuable upon the exercise of currently
exercisable (at $3.00 per share) warrants, expiring January 25, 2002;
and 250,000 shares sold to Mr. Halperin in March 1999 in a private
placement transaction.
(5) Represents: 1,000,000 shares issuable upon conversion of shares of the
Company's Series D Convertible preferred stock; 333,333 shares issuable
upon conversion of the Company's Series E Convertible preferred stock;
200,000 shares issuable upon the exercise of currently exercisable (at
$3.00 per share) warrants, expiring January 25, 2002; and 33,333 shares
issuable upon the exercise of currently exercisable (at $3.30 per
share) warrants, expiring June 8, 2002.
(6) Mr. Sykes is the President of Andataco and Vice President-Sales of the
Company.
(7) Represents: 1,551,333 shares issuable upon conversion of shares of the
Company's Series F Convertible preferred stock; and 155,133 shares
issuable upon the exercise of currently exercisable (at $3.30 per
share) warrants, expiring June 8, 2002.
(8) Represents shares issuable upon the exercise of currently exercisable
(at $3.00 per share) warrants, expiring January 25, 2002.
(9) Represents: 100,000 shares issuable upon the exercise of currently
exercisable (at $2.10 per share) stock options, expiring December 31,
1999; and 72,157 shares issuable upon the exercise of currently
exercisable (at $2.10 per share) warrants, expiring December 30, 1999.
(10) Less than 1%.
(11) Represents shares issuable upon the exercise of currently exercisable
(at $2.10 per share) warrants, expiring December 30, 1999.
(12) Represents shares issued in a private placement transaction in July
1999.
12
<PAGE>
USE OF PROCEEDS
If all of the warrants and options are exercised, we will receive
proceeds in the amount of $4,609,687. Such proceeds will be used for working
capital and general corporate purposes. We will not receive any proceeds from
the sale of the Shares by the selling stockholders.
DESCRIPTION OF SECURITIES
The following description of our capital stock is not complete and is
subject in all respects to the Delaware General Corporation Law and to the
provisions of our Restated Certificate of Incorporation, as amended (the
"Charter"), and Bylaws.
Our authorized capital stock consists of 40,000,000 shares of common
stock having a par value of $.05 per share and 1,000,000 shares of preferred
stock having a par value of $.01 per share.
Preferred Stock
The Board of Directors is permitted to issue shares of preferred stock
in one or more series and to fix the relative rights, preferences and
limitations of each series. Among such rights, preferences and limitations are
dividend rates, provisions of redemption, rights upon liquidation, conversion
privileges and voting powers. Should the Board of Directors elect to exercise
this authority, the rights and privileges of holders of shares of common stock
could be made subject to the rights and privileges of any such series of
preferred stock. The issuance of preferred stock could have the effect of making
it more difficult for a third party to acquire, or discouraging a third party
from acquiring, a majority of our outstanding voting stock.
We have five series of preferred stock. The Series A preferred stock
accrues dividends at 8% per annum, payable quarterly, is convertible into shares
of the common stock based on a fixed conversion price of $0.60 per share,
commencing July 7, 1999, and has an automatic conversion feature in which each
share not converted as of July 7, 2000 shall automatically convert into shares
of the common stock. There are 1,666.67 shares of Series A preferred stock
issued and outstanding as of the date of this Prospectus.
The Series C preferred stock accrues dividends at 8% per annum, payable
quarterly, is convertible into shares of the common stock based on a fixed
conversion price of $1.00 per share, commencing July 7, 1999, and has an
automatic conversion feature in which each share not converted as of July 7,
2000 shall automatically convert into the common stock. There are 3,000 shares
of Series C preferred stock issued and outstanding as of the date of this
Prospectus.
The Series D preferred stock accrues dividends at 8% per annum, payable
quarterly, is convertible into shares of the common stock based on a fixed
conversion price of $1.00 per share, commencing April 27, 1999, and has an
automatic conversion feature in which any shares not converted into the 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 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 shares of the common
stock based on a fixed conversion price of $3.00 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 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 shares of the common
stock based on a fixed conversion price of $3.00 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 Prospectus.
13
<PAGE>
WARRANTS
The number of shares of common stock purchasable upon the exercise of
warrants is subject to adjustment in the event that we subdivide our outstanding
shares of common stock into a greater number of shares (including a stock split
effected as a stock dividend) or combine our outstanding shares of common stock
into a lesser number of shares. In addition, in the event of a capital
reorganization or reclassification of our capital stock, or our consolidation or
merger with another corporation, or sale of all or substantially all of our
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.
PLAN OF DISTRIBUTION
SHARES
We will issue shares of common stock, from time to time, upon the
exercise of warrants or stock options, or the conversion of the preferred stock,
by the holders thereof. We will receive from the warrant and option holders the
exercise price of the warrants or stock options, respectively, upon such
exercise. See "DESCRIPTION OF SECURITIES - Warrants."
We are registering this offering of shares on behalf of the selling
stockholders, and we will pay all costs, expenses and fees related to such
registration, including all registration and filing fees, printing expenses,
fees and disbursements of our counsel, blue sky fees and expenses and the
expenses of any special audits or "cold comfort" letters. The selling
stockholders will pay all selling expenses, including all underwriting discounts
and selling commissions, all fees and disbursements of their counsel and all
"road show" and other marketing expenses we incur or any marketing expenses
incurred by underwriters which are not otherwise paid by such underwriters.
The selling stockholders may sell their shares from time to time in one
or more transactions on AMEX or in private, negotiated transactions. The selling
stockholders will determine the prices at which they sell those shares. Such
transactions may or may not involve brokers or dealers.
If the selling stockholders use a broker-dealer to complete their sale
of the shares, such broker-dealer may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders or from you,
as purchaser (which compensation might exceed customary commissions).
We have agreed to indemnify the selling stockholders, and the selling
stockholders have agreed to indemnify us, against certain liabilities arising
under the Securities Act of 1933. The selling stockholders may indemnify any
agent, dealer or broker-dealer that participates in sales of shares against
similar liabilities.
LOCK-UP AGREEMENTS
In connection with the issuance of our Series F preferred stock in the
Andataco transaction, each of the holders of our Series A, C, D and E preferred
stock (Messrs. Levy, Gimelstob, Halperin and Marden and Hilcoast Development
Corp.) agreed not to sell any shares of common stock issuable upon conversion of
the Series A, C, D or E preferred stock until the earlier to occur of:
o the six month anniversary of the date of effectiveness of the
registration statement which includes this prospectus;
o the sale by the initial holders of the Series F preferred
stock of all of such shares and any shares of common stock
into which any such shares of Series F preferred stock may
have been converted; or our completion of an underwritten
public offering of securities by the Company which includes
the shares of common stock into which the shares of Series F
preferred stock have been converted.
14
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares being offered hereby will be
passed upon for us by Akerman, Senterfitt & Eidson, P.A., Ft. Lauderdale,
Florida 33301.
EXPERTS
Our financial statements incorporated by reference in this Prospectus
have been audited by BDO Seidman, LLP, independent certified public accountants,
to the extent and for the periods set forth in their report incorporated herein
by reference, and are incorporated herein in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
The financial statements of Andataco, Inc. incorporated in this
Prospectus by reference to nStor Technologies, Inc.'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.
15
