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Nstor Technologies Inc – ‘PRES14A’ for 1/10/02

On: Thursday, 11/29/01 · For: 1/10/02 · Accession #: 75448-1-500028 · File #: 1-12895

  As Of                Filer                Filing    For·On·As Docs:Size

11/29/01  Nstor Technologies Inc            PRES14A     1/10/02    1:116K

Preliminary Proxy Solicitation Material — Special Meeting — Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: PRES14A     Preliminary Proxy Statement                           35    167K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Executive Compensation Incentive Stock Options Information Concerning Stockholder Proposals Information Concerning the Proxy Outstanding Voting Securities and Voting Rights Proposal 1 Proposals Purposes of the Meeting Security Ownership of Management and Certain Beneficial Owners
1	1st Page - Filing Submission
4	Purposes of the Meeting
"	Information Concerning the Proxy
5	Outstanding Voting Securities and Voting Rights
6	Security Ownership of Management and Certain Beneficial Owners
8	Proposals
"	Proposal 1
16	Incentive Stock Options
18	Executive Compensation
22	Information Concerning Stockholder Proposals

PRES14A 1st Page of 35 TOC ↑Top Previous Next ↓Bottom Just 1st
 
SCHEDULE 14A
 INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

 Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

 Filed by the Registrant [x]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:                                                      

[x] Preliminary proxy statement                                                 
[ ] Confidential, for Use of the Commission Only                                
(as permitted by Rule 14a-6(e)(2))                                  
[ ] Definitive proxy statement                                                  
[ ] Definitive Additional Materials                                             
[ ] Soliciting Material Pursuant to/section/240.14a-11(c) or /section/240.14a-12

nSTOR TECHNOLOGIES, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)

 (Name of Persons(s) Filing proxy statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):                              

[x] No fee required.                                                            
[ ] Fee computed on the table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
   (1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
     (3) Per unit price or other underlying value of transaction  computed
pursuant to Exchange                                
            Act Rule 0-11  (set  forth the  amount  on which the  filing  fee is
calculated and state how it was determined):            
(4) Proposed maximum aggregate value of transaction:            
(5) Total fee paid:                                             

[ ] Fee paid previously with preliminary materials.                             

[ ] Check box if any part of the fee is offset as  provided  by  Exchange  Act  
    Rule  0-11(a)(2)  and identify the filing for which the  offsetting  fee was
    paid  previously.  Identify the previous  filing by  registration  statement
number, or the Form or Schedule and the date of its filing.             

(1) Amount previously paid:                                     
(2) Form, Schedule or Registration Statement No.:               
(3) Filing Party:                                               
(4) Date:                                                       
(5) Filed:                                                      

PRES14A 2nd Page of 35 TOC 1st Previous Next ↓Bottom Just 2nd

nSTOR TECHNOLOGIES, INC.
 10140 Mesa Rim Road
 San Diego, California 92121

 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 10, 2002

To the Stockholders of                                                          
nStor Technologies, Inc.                                                        

        The board of directors of nStor Technologies, Inc. invites you to attend
the 2001  Special  Meeting of  Stockholders  of nStor to be held on January  10,
2002,  at 10:00  a.m.,  local  time,  at The  Hilton  Palm  Beach  Airport,  150
Australian Avenue, West Palm Beach,  Florida for the following purposes,  all of
which are described more completely in the accompanying proxy statement:        

          (1)  To  approve  the   issuance   of  (a)   39,000,000   shares,   or
               approximately  34%, of our common stock to Halco Investments L.C.
               ("Halco"), an entity controlled by Maurice Halperin, the chairman
               of our  board  of  directors,  upon  conversion  of our  Series K
               Convertible Preferred Stock; (b) approximately  16,257,000 shares
               of our  common  stock  to all of our  preferred  stockholders  to
               induce such holders to convert  their  shares of preferred  stock
               and any accrued  dividends  thereon  into common  stock;  and (c)
               750,000  shares  of  our  common  stock  to H.  Irwin  Levy,  the
               vice-chairman of our board of directors, in exchange for $300,000
owed to Mr. Levy by our company.                  

          (2)  To approve  an  amendment  to our  certificate  of  incorporation
               increasing  the number of authorized  shares of common stock from
75,000,000 to 200,000,000.                        

          (3)  To approve  an  amendment  to our  certificate  of  incorporation
   eliminating the Series J Convertible Preferred Stock.

(4)  To approve and adopt our 2001 Stock Option Plan.       

        Approval  of  proposals  1 and 4 is  conditioned  upon the  approval  of
proposal  2. If proposal 2 is not  approved,  proposals 1 and 4 will also not be
approved even if proposals 1 and 4 receive the requisite stockholder approval.  

        Current  stockholders  who own,  as of the  record  date,  shares of our
common and/or preferred stock representing approximately 47% of the voting power
of our capital stock have executed  proxies  instructing the proxyholder to vote
in favor of, or have otherwise agreed to vote in favor of, proposals 1 and 2.   

        The board of  directors  has fixed the close of  business on December 7,
2001 as the record date for determining  those  stockholders  entitled to notice
of, and to vote at, the special meeting and any  adjournments  or  postponements
thereof.                                                                        

        Whether or not you expect to be present,  please promptly mark, sign and
date the enclosed proxy and return it in the enclosed pre-addressed envelope. No
postage is required if mailed in the United States.                             

                  By Order of the Board of Directors

          Orilla F. Floyd, Secretary

West Palm Beach, Florida                                                        
December __, 2001                                                               

ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. THOSE STOCKHOLDERS
WHO ARE  UNABLE TO ATTEND  ARE  RESPECTFULLY  URGED TO  EXECUTE  AND  RETURN THE
ENCLOSED  PROXY CARD AS PROMPTLY AS POSSIBLE.  STOCKHOLDERS  WHO EXECUTE A PROXY
CARD MAY  NEVERTHELESS  ATTEND THE  MEETING,  REVOKE  THEIR PROXY AND VOTE THEIR
SHARES IN PERSON.                                                               

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 TABLE OF CONTENTS

PURPOSES OF THE MEETING........................................................1

INFORMATION CONCERNING THE PROXY...............................................1

OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS................................2

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS.................3

PROPOSALS......................................................................5

EXECUTIVE COMPENSATION........................................................15

INFORMATION CONCERNING STOCKHOLDER PROPOSALS..................................19

PRES14A 4th Page of 35 TOC 1st Previous Next ↓Bottom Just 4th

2001 SPECIAL MEETING OF STOCKHOLDERS
OF
nSTOR TECHNOLOGIES, INC.

----------------------

 PROXY STATEMENT

----------------------

        This proxy statement is furnished in connection with the solicitation by
our board of  directors  of proxies  from the holders of our common  stock,  par
value $.05 per share, and our preferred stock, par value $.01 per share, for use
at our 2001  Special  Meeting of  Stockholders  to be held at 10:00 a.m.,  local
time,  on Thursday,  January 10,  2002,  at The Hilton Palm Beach  Airport,  150
Australian  Avenue,  West  Palm  Beach,  Florida,  or at any  adjournment(s)  or
postponement(s),   pursuant  to  the  enclosed  Notice  of  Special  Meeting  of
Stockholders.                                                                   

        The  approximate  date on which this proxy  statement  and the  enclosed
proxy are first being sent to  stockholders  is December 14, 2001. Our executive
offices are located at 10140 Mesa Rim Road, San Diego, California 92121, and our
telephone number is (858) 453-9191.                                             

 PURPOSES OF THE MEETING

        At the special meeting, our stockholders will consider and vote upon the
following matters:                                                              

        (1)  To approve the issuance of (a) 39,000,000  shares, or approximately
             34%, of our common stock to Halco  Investments L.C.  ("Halco"),  an
             entity controlled by Maurice Halperin, the chairman of our board of
             directors,  upon  conversion of our Series K Convertible  Preferred
             Stock; (b)  approximately  16,257,000 shares of our common stock to
             all of our preferred stockholders to induce such holders to convert
             their shares of preferred stock and any accrued  dividends  thereon
             into common stock; and (c) 750,000 shares of our common stock to H.
             Irwin  Levy,  the  vice-chairman  of our  board  of  directors,  in
exchange for $300,000 owed to Mr. Levy by our company;

        (2)  To  approve  an  amendment  to  our  certificate  of  incorporation
             increasing  the number of  authorized  shares of common  stock from
75,000,000 to 200,000,000;                            

        (3)  To  approve  an  amendment  to  our  certificate  of  incorporation
   eliminating the Series J Convertible Preferred Stock; and

(4)  To approve and adopt our 2001 Stock Option Plan.           

INFORMATION CONCERNING THE PROXY

        You must follow the  instructions  on the enclosed proxy card to vote on
each proposal to be considered at the special meeting. The proxyholders named on
the proxy  will vote your  shares as you  instruct.  If you sign and  return the
proxy but do not vote on a proposal,  the proxyholder  will vote for you on that
proposal.  Unless contrary instructions are indicated on the enclosed proxy, all
shares  represented by valid proxies received pursuant to this solicitation (and
which have not been revoked in accordance  with the  procedures set forth below)
will be voted (a) FOR the issuances of common stock  described  under  "Proposal
1", (b) FOR the amendment of our  certificate  of  incorporation  increasing the
number of authorized shares of common stock from 75 million to 200 million,  (c)
FOR the amendment of our certificate of  incorporation  eliminating the Series J
Convertible  Preferred  Stock and (d) FOR the  approval and adoption of our 2001
Stock Option Plan.  In the event a stockholder  specifies a different  choice by
means of the enclosed proxy, his/her shares will be voted in accordance with the
specification so made.                                                          

PRES14A 5th Page of 35 TOC 1st Previous Next ↓Bottom Just 5th

        Once you have completed the enclosed proxy,  sign and date the proxy and
mail it back to us in the  enclosed  envelope.  The  giving of a proxy  does not
preclude you from voting in person at the special meeting.  Stockholders have an
unconditional right to revoke their proxy at any time prior to exercise,  either
by voting in person at the special  meeting or by filing with our  Secretary  at
our offices located at 100 Century Boulevard,  West Palm Beach, Florida 33417, a
written revocation or duly executed proxy bearing a later date. However, no such
revocation will be effective  unless we receive written notice of the revocation
or a duly  executed  proxy  bearing  a later  date at or  prior  to the  special
meeting.                                                                        

        We will bear the cost of  preparing,  assembling  and mailing this proxy
statement, the Notice of Special Meeting of Stockholders and the enclosed proxy.
In  addition to the use of mail,  our  directors,  officers  and  employees  may
solicit  proxies  personally  and by  telephone.  Those  persons will receive no
compensation for soliciting  proxies other than their regular  compensation.  We
may request banks,  brokers and other  custodians,  nominees and  fiduciaries to
forward  copies  of the  proxy  material  to  their  principals  and to  request
authority for the execution of proxies.  We may reimburse such persons for their
expenses in so doing.                                                           

 OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS

        The board of directors has set the close of business on December 7, 2001
as the record rate for  determining  stockholders  entitled to notice of, and to
vote at, the  special  meeting.  As of the record  date,  there were  37,719,022
shares of our common stock issued and outstanding,  all of which are entitled to
be voted at the special  meeting.  Each share of common stock is entitled to one
vote on each matter submitted for approval at the special meeting.  In addition,
as of the  record  date,  there  were  an  aggregate  of  17,692  shares  of our
convertible  preferred  stock  (together  with our common  stock,  the  "capital
stock")  issued and  outstanding,  which  shares are entitled to an aggregate of
20,877,432  votes on each matter  submitted for approval at the special meeting.
All of the shares of our  capital  stock vote as a single  class on all  matters
submitted to stockholders for a vote.                                           

        The  attendance,  in person or by proxy, of the holders of a majority of
the outstanding  shares of capital stock entitled to vote at the special meeting
is necessary to  constitute a quorum.  Shares  represented  by proxies which are
marked  "abstain" will only be counted for determining the presence of a quorum.
For all of the proposals, an abstention will have the effect of a negative vote.

        If you hold  your  shares  in  "street  name"  through a broker or other
nominee,  your  broker  or  nominee  may not be  permitted  to  exercise  voting
discretion with respect to some of the matters to be acted upon. Thus, if you do
not give your broker or nominee  specific  instructions,  your shares may not be
voted on those  matters  and will not be  counted in  determining  the number of
shares  necessary for approval.  Shares  represented by such "broker  non-votes"
will, however, be counted in determining the presence of a quorum.              

        The  affirmative  vote of a majority  of votes cast by all  stockholders
entitled to vote at the meeting other than Mr.  Halperin or his affiliates  (the
"disinterested stockholders"),  will be required for approval of proposal 1. The
affirmative  vote  of a  majority  of  shares  entitled  to  vote  held  by  our
disinterested  stockholders  will be required for approval of proposals 2 and 3.
The affirmative vote of a majority of the shares present, in person or by proxy,
and entitled to vote, will be required for approval of proposal 4.              

        Approval  of  proposals  1 and 4 is  conditioned  upon the  approval  of
proposal  2. If proposal 2 is not  approved,  proposals 1 and 4 will also not be
approved even if proposals 1 and 4 receive the requisite stockholder approval.  

        Current  stockholders  who own,  as of the  record  date,  shares of our
common and/or preferred stock representing approximately 47% of the voting power
of our capital stock have executed  proxies  instructing the proxyholder to vote
in favor of, or have otherwise agreed to vote in favor of, proposals 1 and 2.   

        A list of the stockholders  entitled to vote at the special meeting will
be available at our offices located at 100 Century  Boulevard,  West Palm Beach,
Florida  33417,  for a period  of ten  days  prior to the  special  meeting  for
examination by any stockholder.                                                 

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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

        The  following  table sets forth,  as of November 15, 2001,  information
with respect to the beneficial  ownership of our common stock by (i) each person
known by us to beneficially own more than 5% of the outstanding shares of common
stock,  (ii) our chief  executive  officer and other  executive  officers  whose
compensation  is  required  to be  disclosed  pursuant  to the  rules of the SEC
(collectively  referred to as the "Named  Officers")  and each of our directors,
and (iii) all of our directors and executive officers as a group.               

Name and Address                                                                
of Beneficial                  Amount and Nature of           Percent of Common 
Owner                          Beneficial Ownership(1)        Stock Outstanding 
--------------------------    --------------------------    --------------------

H. Irwin Levy                              13,309,977(2)               28.2%    
100 Century Blvd.                                                               
West Palm Beach, FL 33417                                                       

Bernard Marden                              6,935,811                  17.1%    
1290 S. Ocean Blvd.                                                             
Palm Beach, FL  33480                                                           

W. David Sykes                              7,238,466                  16.1%    
2016 Ocean Front                                                                
Del Mar, CA  92014                                                              

Sykes Family Trust                          6,676,750                  15.0%    
5415 Oberlin Drive                                                              
San Diego, CA 92121                                                             

Maurice Halperin                            3,077,844(3)                8.2%    
17890 Deauville Lane                                                            
Boca Raton, FL 33496                                                            

Michael L. Wise                               666,412(4)                1.8%    

Larry Hemmerich                               477,653                   1.3%    

Bernard R. Green                              341,348                   *       

Jonathan Ash                                    --                      *       

Roger H. Felberbaum                            52,500(5)                *       

James A. Habuda                                53,000                   *       

Lawrence F. Steffann                          245,100(6)                *       

David W. Tweed                                  2,000(7)                *       

Thomas G. Wrightson                            64,333                   *       

All executive officers                         18,191,400              37.7%    
and directors as a group                                                        
(12 persons)                                                                    

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* Less than 1%                                                                  
(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 or convertible equity securities  (including
     our various classes of preferred stock) that are exercisable or convertible
     within 60 days of the date  hereof:  Mr.  Levy -  9,513,916  shares  (which
     includes  2,877,988  shares of common stock  issuable  upon  conversion  of
     preferred  stock owned by two  corporations  controlled by Mr.  Levy);  Mr.
     Sykes - 7,238,466  shares (which  Includes  6,676,750  shares held by Sykes
     Family Trust for which Mr. Sykes is a trustee,  and 406,583  shares held by
     Sykes Children's Trust of 1993 over which Mr. Sykes has dispositive power);
     Sykes Family Trust - 6,676,750 shares; Mr. Marden - 2,907,890 shares (which
     includes  1,878,057  shares  held by a  trust  of  which  Mr.  Marden  is a
     trustee);  Mr.  Wise -  212,000  shares;  Mr.  Green - 60,000  shares;  Mr.
     Felberbaum - 20,000  shares;  Mr. Habuda - 53,000 shares;  Mr.  Hemmerich -
     477,653  shares;  Mr.  Steffann - 225,000  shares;  Mr.  Wrightson - 64,333
     shares;  and all  executive  officers and directors as a group - 10,534,235
shares. See "Executive Compensation".                                 
(2)  Includes  335,897 shares of common stock owned by a corporation  controlled
by Mr. Levy.                                                          
(3)  Represents  shares  deemed to be  beneficially  owned by Halco  Investments
     L.C.,an entity controlled by Maurice Halperin, the chairman of our board of
     directors.  Does not include the 39,000,000  shares Halco will acquire upon
     conversion of the Series K Convertible  Preferred  Stock or the  10,000,000
     shares that will be placed into a voting trust over which Mr. Halperin will
     have the power to direct  the vote  since  such  issuances  are  subject to
     stockholder  approval.   Upon  stockholder  approval,   Mr.  Halperin  will
     beneficially  own 52,077,844  shares or,  approximately  45%, of the voting
power of our capital stock. See "Proposal 1."                         
(4)  Includes 227,410 shares owned by a retirement trust controlled by Mr. Wise.
     Also  includes the  following,  as to which Mr. Wise  disclaims  beneficial
     ownership:  92,602  shares owned by Mr.  Wise's  spouse,  and 50,400 shares
owned jointly by Mr. Wise's spouse and his mother.                    
(5)  Includes 7,500 shares held by Mr. Felberbaum's spouse.                     
(6)  Effective  January 26, 2000, we entered into a termination  agreement  with
     Mr.  Steffann.  Mr.  Steffann's  beneficial  ownership is based on the last
     Statement  of  Changes  in  Beneficial  Ownership  on Form 4  filed  by Mr.
   Steffann in January 2000 for transactions that occurred in December 1999.
(7)  Mr.  Tweed's  employment  with our company was  terminated in January 2001.
     Includes  1,000  shares  held by Mr.  Tweed's  spouse  for which Mr.  Tweed
     disclaims beneficial  ownership.  Mr. Tweed's beneficial ownership is based
     on the last Statement of Changes in Beneficial Ownership on Form 4 filed by
Mr. Tweed for transactions that occurred in November 1999.            

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 PROPOSALS

Proposal  1.      To  approve  the  issuance  of  (a)  39,000,000   shares,  or 
approximately  34%, of our common  stock to Halco  Investments  L.C.,  an entity
controlled by Maurice  Halperin,  the chairman of our board of  directors,  upon
conversion  of our  Series K  Convertible  Preferred  Stock;  (b)  approximately
16,257,000  shares of our common stock to all of our preferred  stockholders  to
induce such holders to convert  their shares of preferred  stock and any accrued
dividends  thereon into common stock; and (c) 750,000 shares of our common stock
to H. Irwin Levy, the  vice-chairman of our board of directors,  in exchange for
$300,000 owed to Mr. Levy by our company.                                       

The Halco Stock Purchase Transaction                                            

        On November  20,  2001,  we  completed a  transaction  (the "Halco Stock
Purchase  Transaction")  with Halco  Investments  L.C., an entity  controlled by
Maurice  Halperin,  the  chairman  of our  board  of  directors,  pursuant  to a
Preferred Stock Purchase  Agreement dated as of November 20, 2001 between us and
Halco (the "Purchase Agreement").                                               

        Pursuant to the Purchase Agreement,  Halco purchased 8,970 shares of our
Series K  Convertible  Preferred  Stock  ("Series K Preferred  Stock") for $2.86
million in cash and marketable  securities  having a fair market value (based on
the closing  market price for such  securities on November 19, 2001, as reported
on the national  securities  exchange or inter-dealer  quotation system on which
the securities are traded) of $6.11 million.  The  disinterested  members of our
board of  directors  authorized  the sale of the  Series  K  Preferred  Stock on
November 19, 2001. On November 19, 2001, we filed with the Secretary of State of
Delaware a Certificate of Designation establishing the Series K Preferred Stock,
consisting of 14,000 shares with a stated value of $1,000 per share.            

        Mr.  Halperin first  submitted an investment  proposal to us on June 26,
2001. We negotiated  the terms of the offer from July to November  2001.  During
that time,  Halco made  short-term  working capital loans to us in the aggregate
amount of $4.96  million.  Of that  amount,  $3.1 million was  converted  into a
5-year  term loan at the  closing  of the Halco  transaction  and the  remaining
amount  was  applied  to the  cash  paid by Halco at the  closing  of the  Halco
transaction for the Series K Preferred  Stock. The loan bears interest at 8% per
annum,  payable  quarterly,  and there is no  requirement to repay any principal
until November 20, 2006, the maturity date of the loan. The accrued  interest on
all amounts owed to Halco as of the closing date totaled  approximately  $81,000
and was paid to  Halco  after  the  closing.  In  connection  with  the  interim
financing  provided by Halco, in August 2001, our board of directors elected Mr.
Halperin as chairman of our board of directors.                                 

        If both the issuance of the common stock upon conversion of the Series K
Preferred  Stock and the increase in our  authorized  shares of common stock are
approved by our stockholders, the Series K Preferred Stock will automatically be
converted  into  39,000,000  shares of our common  stock  (based on a conversion
price of $0.23 per share) which represents  approximately  34% of our issued and
outstanding common stock on the date of conversion (assuming the issuance of the
Inducement Shares (as defined below) and the Note Shares (as defined below)).   

        We have  agreed to  register  for  resale  the  shares  of common  stock
issuable  upon  conversion  of the Series K Preferred  Stock with the SEC and to
list such shares with The American Stock Exchange.                              

        As a condition to the closing of the Halco Stock  Purchase  Transaction,
holders of  approximately  47% of our  outstanding  common  stock and  preferred
stock, collectively, (including 26% represented by proxies delivered to H. Irwin
Levy,  the vice chairman of our board of directors,  and 21% owned or controlled
by Mr. Levy ) have agreed to vote FOR proposals 1 and 2.                        

        In connection  with the Halco Stock Purchase  Transaction,  our board of
directors has increased the size of the board of directors  from six to seven in
accordance with the provisions of our certificate of  incorporation  and bylaws.
Immediately  after the special  meeting,  Mr. Michael Wise and Mr. Bernard Green
will resign as directors of our company and our board of directors  will appoint
three  persons  designated  by Halco,  Mariano L. Cueva,  Jeffrey W. Kleiman and
Robert S. Gottdenker,  to fill the vacancies created by the increase in the size
of the  board  and the  resignations  of Mr.  Wise  and Mr.  Green,  to serve as
directors  until the next annual meeting of  stockholders or until their earlier
death, resignation or removal.                                                  

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        In connection  with the Halco Stock Purchase  Transaction,  Mr. Levy has
agreed  that,  upon  issuance  of the  shares  of  common  stock to  Halco  upon
conversion of the Series K Preferred Stock, he will cause  10,000,000  shares of
our common  stock  owned or  controlled  by Mr.  Levy to be placed into a voting
trust.  Pursuant to the terms of the voting trust,  Halco will have the right to
direct the vote on all of the shares of nStor  common  stock that are  deposited
into the voting trust. The 10,000,000  shares deposited into the voting trust by
Mr. Levy,  together with the 3,019,744  shares of common stock currently held by
Mr.  Halperin and the  39,000,000  shares of common stock issuable to Halco upon
conversion of the Series K Preferred Stock, will constitute approximately 45% of
the voting power of our capital stock.                                          

        As a condition to the closing of the Halco Stock  Purchase  Transaction,
all of the holders of our preferred  stock have agreed,  subject to  stockholder
approval of the issuance of the Inducement Shares (as defined below), to convert
their shares of preferred  stock into common stock  pursuant to the terms of the
relevant certificates of designation for the preferred stock (referred to as the
"Preferred Stock Conversion").                                                  

        In addition, in connection with the Halco Stock Purchase Transaction, we
will  issue,  subject to  stockholder  approval,  shares of our common  stock as
follows:                                                                        

     (i)  750,000  shares  to H.  Irwin  Levy,  vice-chairman  of our  board  of
          directors  in exchange  for  $300,000  owed to Mr. Levy by our company
          (the shares issued in the exchange are referred to herein as the "Note
          Shares"  and the  issuance  of the  Note  Shares  in the  exchange  is
referred to herein as the "Note Exchange"); and             

     (ii) approximately   16,257,000   shares  to  our  preferred   stockholders
          participating  in the  Preferred  Stock  Conversion in order to induce
          them to convert  their  shares of  preferred  stock,  all of which are
          entitled to periodic dividends, into shares of common stock which have
          never  received  a  dividend  (the  shares  issued  to  the  preferred
          stockholders are referred to herein as the "Inducement  Shares").  The
          number of Inducement Shares to be issued to the preferred stockholders
          is based on $0.45  (which  is  greater  than the  market  price of our
          common stock on the date immediately preceding the closing date of the
          Halco Stock  Purchase  Transaction)  and  includes  approximately  3.3
          million   shares   to  be  issued   to  the   preferred   stockholders
          participating  in the Preferred  Stock  Conversion in  satisfaction of
          accrued  dividends owed to such preferred  stockholders on the date of
conversion.                                                 

Purposes of the Halco Stock Purchase Transaction                                

        As  previously  reported in our filings with the SEC, we have received a
"going-concern"  opinion  from our  auditors  with  respect  to our most  recent
audited financial statements,  i.e., our financial statements for the year ended
December  31,  2000.  As more fully  described  in the notes to those  financial
statements, our recurring operating losses, our continued experience of negative
cash  flows  from  operations  and the fact that we are not in  compliance  with
certain financial covenants under our existing bank facility,  raise substantial
doubt  about our  ability to  continue as a going  concern.  As  described  more
completely under "Certain  Relationships and Related  Transactions",  during the
past several years our working  capital needs have been  satisfied  primarily by
loans from our  principal  stockholders.  As a result of our  adverse  financial
condition, we have been unable to raise money in the traditional equity markets.
Consequently,  we have explored  various  capital  raising  transactions  with a
variety of private  investors,  including  Halco.  Halco is the only  definitive
offer that we have  received and our board of directors,  after having  reviewed
and  considered the proposal,  has  determined  that the completion of the Halco
Stock Purchase Transaction is in our best interest.                             

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Effect of Stock Issuances                                                       

        The  proposed  issuances  of common  stock in the Halco  Stock  Purchase
Transaction  will result in immediate and  substantial  dilution to our existing
stockholders.  After the Series K Preferred  Stock is converted  into our common
stock and we issue the  Inducement  Shares  and the Note  Shares,  there will be
approximately  115,000,000  shares of common stock  outstanding and our existing
stockholders will own  approximately 66% of the outstanding  common stock of our
company.  Halco and Mr. Halperin will own  approximately  37% of our company and
through the voting trust, will control  approximately 45% of the voting power of
our capital stock.                                                              

        In addition,  as a result of the appointment of three persons designated
by Halco to serve as  directors  of our company as  described  above,  after the
special meeting, Halco will effectively control our board of directors.         

Interests of Certain Directors and Significant Stockholders                     

        In connection with the Halco Stock Purchase  Transaction and the related
transactions, certain of our directors and significant stockholders will acquire
direct or indirect  ownership of  additional  shares of our common  stock.  Upon
stockholder approval,                                                           

     (i)  Maurice  Halperin,  the  principal  of Halco,  will  beneficially  own
          approximately  37% of our company and, through the voting trust,  will
       control approximately 45% of the voting power of our capital stock;

     (ii) H.  Irwin  Levy,  vice-chairman  of  our  board  of  directors  and  a
          significant   stockholder,   will  acquire  beneficial   ownership  of
          8,391,419  shares of our common stock upon conversion of his preferred
          stock,    approximately   6,612,000   Inducement   Shares   (including
          approximately  1,377,000  shares  issued in  satisfaction  of  accrued
dividends owed to Mr. Levy) and 750,000 Note Shares; and    

     (iii)Bernard Marden,  a significant  stockholder,  or a trust controlled by
          him,  will acquire  beneficial  ownership  of 2,087,057  shares of our
          common  stock  upon  conversion  of  his or its  preferred  stock  and
          approximately  1,832,000  Inducement Shares (including  446,000 shares
    issued in satisfaction of accrued dividends owed to Mr. Marden).

Stockholder Approval Required                                                   

        Section 713 of the Listing  Standards,  Policies and Requirements of The
American Stock Exchange (AMEX) requires  stockholder approval prior to approving
the listing of additional  shares to be issued in connection  with a transaction
involving  the sale or issuance of common stock or securities  convertible  into
common stock equal to 20% or more of the presently  outstanding stock at a price
less than the  greater of book or market  value of the common  stock.  The total
amount of  consideration  paid by Halco  for the  Series K  Preferred  Stock was
$8,969,899.  As described  above, we will issue Halco  39,000,000  shares of our
common  stock upon  conversion  of the Series K  Preferred  Stock,  representing
approximately  34% of our outstanding  common stock (based on a conversion price
of $0.23 per share) as of the date of  conversion.  Halco will pay no additional
amounts to us upon conversion of the Series K Preferred Stock. The closing price
of our common  stock,  as reported by the AMEX,  on November 19, 2001,  the date
immediately  preceding the date we closed the transaction  with Halco was $0.34.
Because we are issuing more than 20% of our presently  outstanding  common stock
for a price that is below both the book and  market  price of our common  stock,
approval by our  disinterested  stockholders  of the issuance of common stock to
Halco upon  conversion of the Series K Preferred  Stock is required by the AMEX.
In addition,  because the issuance of the Inducement  Shares and the Note Shares
is a condition  to the closing of the Halco Stock  Purchase  Transaction,  those
issuances  are  deemed to be part of the same  transaction  as the  issuance  of
shares to Halco, and as such, the AMEX requires that we obtain approval from our
disinterested  stockholders  prior to issuing the Inducement Shares and the Note
Shares.                                                                         

Vote Required                                                                   

        For this proposal to be approved in accordance with the  requirements of
the  AMEX,  the  affirmative  vote  of a  majority  of  the  votes  cast  by our
disinterested stockholders, in person or by proxy, on the proposal is required. 

        Approval of this proposal 1 is conditioned upon the approval of proposal
2. If proposal 2 is not approved, this proposal 1 will also not be approved even
if it receives the requisite stockholder approval.                              

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        Current  stockholders  who own,  as of the  record  date,  shares of our
common and/or preferred stock representing approximately 47% of the voting power
of our capital stock have executed  proxies  instructing the proxyholder to vote
in favor of, or have otherwise agreed to vote in favor of, this proposal 1.     

Recommendation of the Board of Directors                                        

        The disinterested  members of our board of directors  recommend that you
vote "FOR" the approval of proposal 1.                                          

Proposal 2.      To approve an amendment  to our  certificate  of  incorporation
increasing  the number of authorized  shares of our common stock from 75 million
to 200 million.                                                                 

     Our  board  of  directors  has  proposed  amending  Article  Fourth  of our
certificate of incorporation to increase the number of authorized  shares of our
common  stock  from 75 million to 200  million  shares.  The number of shares of
preferred stock will remain unchanged at 1,000,000 shares. The full text of this
proposed amendment is attached to this proxy statement as Exhibit A.            

Purpose of the Increase in Authorized Shares                                    

        Of the 75  million  shares  of common  stock  presently  authorized  for
issuance,  approximately 7.2 million shares are unissued and unreserved.  On the
record date, we had  37,719,022  shares of common stock issued and  outstanding.
The following  chart  summarizes  (i) the number of common shares  necessary for
issuance  pursuant to the proposals  described in this proxy  statement and (ii)
the number of common shares reserved for issuance as described below.           

                                                        No. of Shares Issuable
Halco Shares                                                     39,000,000     
Inducement Shares                                                16,257,000(1)  
Note Shares                                                         750,000     

Total Shares Required in connection with the Halco                    
  Transaction                                               56,007,000

Currently Outstanding Preferred Stock                            20,877,000     
Currently Outstanding Warrants                                    3,304,000     
Currently Outstanding Stock Options                               3,043,000     
Stock Options Available for Issuance under 2001 Stock                           
Option Plan                                                     5,000,000   

Total Shares Reserved for Issuance                          32,224,000

          Total                                             88,231,000

------------                                                                    
(1) Includes 3,264,000 shares issuable in satisfaction of accrued dividends owed
to the preferred stockholders.                                                  

        As  described  above,  we will  require up to  88,231,000  shares of our
common stock (i) to complete the stock  issuances  described in proposal 1, (ii)
to issue shares of common  stock upon the  conversion  of currently  outstanding
preferred  stock,  (iii) to issue  shares of common  stock upon the  exercise of
currently outstanding warrants and (iv) to issue shares of our common stock upon
the exercise of stock options that are currently issued and outstanding or, upon
stockholder  approval,  are available  for issuance  under our 2001 Stock Option
Plan. As a result,  we will need to increase the number of authorized  shares in
order to consummate these transactions.                                         

        In addition,  given that we may have to issue shares of our common stock
or  securities  convertible  into  our  common  stock  in the  future  to  raise
additional capital to effectively  operate our business,  our board of directors
believes  that our  authorized  common  stock should be increased to 200 million
shares.  Adoption  of the  amendment  to our  certificate  of  incorporation  is
required in order for us to issue these shares.                                 

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        Our board of directors believes that it is in our best interests to have
the ability to issue the shares  required to complete  the Halco Stock  Purchase
Transaction and also have the flexibility to issue  additional  shares of common
stock or  securities  convertible  into common stock as needs may arise  without
further  stockholder  action,  unless  required by applicable  law,  regulation,
listing  requirements or our certificate of  incorporation.  Except as set forth
herein,  we have no agreements,  understandings or plans for the issuance or use
of the  additional  shares  of  common  stock  proposed  to be  authorized.  The
availability  of additional  shares will enhance our  flexibility  in connection
with possible future actions, such as corporate mergers, stock dividends,  stock
splits,  financings and other  corporate  purposes.  The board of directors will
decide  whether,  when and on what terms the  issuance of shares of common stock
may be appropriate in connection with any of the foregoing purposes, without the
expense and delay of a special meeting of stockholders.                         

        The  issuance  of  additional  shares of common  stock may,  among other
things,  have a dilutive  effect on  earnings  per share,  and on  stockholders'
equity and voting rights.  The issuance of additional  shares, or the perception
that additional shares may be issued, may also adversely effect the market price
of our common stock. Holders of our common stock have no preemptive rights.     

        The availability for issuance of additional  shares of common stock also
could have the effect of rendering more difficult or  discouraging an attempt to
obtain  control of us.  For  example,  the  issuance  of shares of common  stock
(within the limits  imposed by applicable law and the rules of any exchange upon
which the common  stock may be listed)  in a public or private  sale,  merger or
similar  transaction  would increase the number of outstanding  shares,  thereby
possibly  diluting the interest of a party  attempting to obtain  control of us.
The issuance of  additional  shares of common stock could also be used to render
more  difficult  a  merger  or  similar  transaction  even if it  appears  to be
desirable to a majority of stockholders.  Other than as set forth herein, we are
not aware of any efforts to obtain control of us.                               

        In sum, the board  believes that the increase in authorized  shares will
provide  us  with  sufficient  shares  to  complete  the  Halco  Stock  Purchase
Transaction  and enhance our  flexibility  to satisfy our future  financing  and
capitalization needs.                                                           

        Our board of directors may approve the issuance of additional  shares of
common stock only if the action is  permissible  under Delaware law and the AMEX
rules.  For example,  if our board of directors  were to approve the issuance of
our stock,  which resulted in an increase of 20% or more in the number of shares
of our  common  stock  outstanding  at a price  that is below the higher of book
value or market value, Amex rules would require stockholder approval.           

Vote Required                                                                   

        The  affirmative  vote of the holders of not less than a majority of our
outstanding  shares of capital stock entitled to vote held by our  disinterested
stockholders is required for approval of the amendment increasing our authorized
shares of common stock to 200 million shares.                                   

        Current  stockholders  who own,  as of the  record  date,  shares of our
common and/or preferred stock representing approximately 47% of the voting power
of our capital stock have executed  proxies  instructing the proxyholder to vote
in favor of, or have otherwise agreed to vote in favor of, this proposal 2.     

Recommendation of the Board of Directors                                        

        The disinterested  members of our board of directors  recommend that you
vote "FOR" the approval of proposal 2.                                          

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Proposal  3.         To approve an amendment to our certificate of incorporation
eliminating the Series J Convertible Preferred Stock.                           

     Our  board  of  directors  has  proposed   amending  our   certificate   of
incorporation  to eliminate the Series J Convertible  Preferred  Stock. The full
text of this proposed  amendment is attached to this proxy  statement as Exhibit
B.                                                                              

     In connection with a prior  investment  proposal  submitted to us by Halco,
our  board of  directors  approved  the  designation  of  13,300  shares  of our
preferred  stock  as  "Series  J  Convertible   Preferred  Stock."  The  rights,
privileges  and  preferences  of the Series J  Convertible  Preferred  Stock are
identical  to those of the  Series K  Preferred  Stock  except  with  respect to
conversion  rights.  The Certificate of Designation for the Series J Convertible
Preferred  Stock was filed with the  Secretary of State of the State of Delaware
on November 15, 2001.                                                           

     The prior investment  proposal was subsequently  modified and, as a result,
our board of directors  approved the designation of the Series K Preferred Stock
and the issuance of the Series K Preferred Stock to Halco.  Because no shares of
Series J Convertible Preferred Stock have been issued and our board of directors
has no intention of issuing any shares of Series J Convertible  Preferred  Stock
to Halco  or any  other  person,  the  board of  directors  also  approved,  and
recommended  that our stockholders  approve,  an amendment to our certificate of
incorporation to eliminate the Series J Convertible Preferred Stock.            

Vote Required                                                                   

        The  affirmative  vote of the holders of not less than a majority of our
outstanding shares of capital stock entitled to vote is required for approval of
the amendment eliminating the Series J Convertible Preferred Stock.             

Recommendation of the Board of Directors                                        

        The members of our board of directors  recommend that you vote "FOR" the
approval of proposal 3.                                                         

Proposal 4.        To approve and adopt our 2001 Stock Option Plan.             

General                                                                         

        Our 2001 Stock  Option  Plan (the  "Plan")  was  adopted by our board of
directors  effective as of October 29, 2001 (the "Effective  Date"),  subject to
stockholder approval at the special meeting, to provide for the grant of options
to purchase  shares of common stock to our employees,  directors and independent
contractors.                                                                    

        We believe that stock  options are important to attract and to encourage
the continued employment and service of officers, other key employees, directors
and key independent contractors, by facilitating their acquisitions of an equity
interest in our company.  The  acquisition  and holding of an equity interest by
such persons aligns their interest with those of our stockholders.              

        The  adoption  of the Plan is subject  to  stockholder  approval  at the
special  meeting.  Stockholder  approval will allow us to obtain a tax deduction
for the full amount  allowable  with respect to the exercise of options  granted
under the Plan and will provide us with flexibility to grant options  qualifying
as incentive stock options for tax purposes.                                    

        Our board of directors has also  determined to cease issuing  options to
purchase our common stock under our 1996 Stock Option Plan. Any shares of common
stock reserved for issuance upon the exercise of stock options that have not yet
been issued under the 1996 Stock Option Plan will be canceled.  The terms of any
option  issued under the 1996 Stock Option Plan will  continue to be governed by
the 1996 Stock Option Plan and the option agreement currently in effect for such
option.                                                                         

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        The principal  provisions of the Plan are summarized below. Such summary
does not,  however,  purport to be complete  and is qualified in its entirety by
the terms of the Plan. A copy of the Plan is attached hereto as Exhibit C and is
incorporated herein by reference.                                               

Summary of the 2001 Stock Option Plan                                           

In furtherance  of its purposes,  the 2001 Stock Option Plan  authorizes,  among
other things:                                                                   

                    o    the granting of incentive or nonqualified stock options
                         to purchase our common stock to persons selected by our
                         board  of  directors  from a  class  of our  employees,
                         directors,   officers   and   consultants,    including
                         non-employees who render valuable  contributions to our
               company (presently approximately 90 persons);

                    o    initial grants of stock options to purchase such number
                         of shares of common stock as the board of directors may
                         determine,  to  non-employee  directors  elected to the
                         board by the  stockholders or appointed to the board by
                the board, subsequent to October 29, 2001; 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 our board
or, if a committee is not designated, then by the entire board.                 

        Except for the annual  grants to  non-employee  directors,  our board of
directors,  in its 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 our board of directors  with  respect to the Plan are final,  conclusive
and  binding  upon all  persons.  The Plan's  administrators,  however,  have no
discretion  with  respect to options  granted  pursuant to the annual  grants to
non-employee directors.                                                         

        If the Plan is approved,  an  aggregate  of  5,000,000  shares of common
stock will be reserved for issuance upon  exercise of options  granted under the
Plan.  The  maximum  number of shares  subject  to  options  granted  in any one
calendar year to our employees covered by Section 162(m) of the Internal Revenue
Code is 1,500,000.  The shares  acquired upon exercise of options  granted under
the Plan are authorized and issued shares of common stock. Our 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.                                       

Certain Terms and Conditions                                                    

        All grants of options under the 2001 Stock Option Plan must be evidenced
by a written option  agreement  between us 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,  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 American Stock Exchange ("AMEX") or such other exchange or  over-the-counter
market on which our common stock is traded on the date of grant,  as reported by
the Wall Street Journal.  The closing price per share of our common stock on the
date immediately  preceding the date of this proxy statement as reported by AMEX
was $_______.  The exercise price of an option may be paid in cash, by certified
check,  or by a  combination  of the  foregoing.  Cash payments will be used for
general corporate  purposes.  The Board of Directors (or committee) may provide,
but is not  required  to,  that the  exercise  price of an option may be paid by
delivery of already  owned  shares of common  stock  having a fair market  value
equal to the exercise price.                                                    

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        To the extent the Board of Directors provides that the exercise price of
an option may be paid by delivery of already owned shares of common stock having
a fair market value equal to the exercise price, 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.      

        No  incentive  stock  option  granted  under the Plan is  assignable  or
transferable,  other  than by will or by the laws of descent  and  distribution.
Non-qualified  stock  options are  transferable  to the extent  permitted by our
board of directors and applicable  law.  During the lifetime of an optionee,  an
option is  exercisable  only by the optionee or its  permitted  transferee.  Our
board of directors determine the expiration date of an option 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. Options will vest in accordance with the terms set
forth in a written option  agreement  between us and the optionee.  Our board of
directors may, in its sole  discretion,  accelerate the date on which any option
may be exercised.  The Board of Directors  may provide,  but is not required to,
that each outstanding option will automatically  become exercisable in the event
of certain transactions,  including certain changes in control,  certain mergers
and reorganizations, and certain dispositions of substantially all our assets.  

        Unless otherwise provided for by our board of directors,  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 shall
expire. Unless otherwise provided by the Plan's administrators,  the unexercised
portion of any  vested  options  granted  under the Plan will  automatically  be
terminated  thirty  days  after the date on which an  optionee's  employment  is
terminated  for any other reason,  other than  retirement,  death or disability,
provided,  however,  that if an optionee's employment is terminated for "cause,"
as defined in the Plan,  the  unexercised  portion  of any vested  options  will
automatically  be terminated  immediately on the date of the  termination of the
optionee's employment.                                                          

        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
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 our
capital  stock  resulting  from  a  stock  dividend,  recapitalization,  merger,
reorganization  or other capital  adjustment.  The board has  discretion to make
appropriate  antidilution  adjustments to outstanding  options in the event of a
merger, consolidation or other reorganization.                                  

        The Plan will expire on October 29, 2011, and any option  outstanding on
such date will remain outstanding until it expires or is exercised. Our board of
directors 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. No such amendment may, without approval of our stockholders,
increase  the number of shares of common stock  reserved for issuance  under the
Plan or modify the  requirements  for  eligibility to receive  options under the
Plan.  In addition,  stockholder  approval is required for any  amendment to the
Plan if such stockholder approval is required by federal or state law.          

Federal Income Tax Consequences                                                 

        Our 2001 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.  

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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 we 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
and is reasonable, and provided that either the optionee includes that amount in
his or her income, or we timely satisfy our reporting  requirements with respect
to that amount.                                                                 

        If an  optionee  exercises a  nonqualified  stock  option by  delivering
shares of our common stock,  the optionee will be taxed as described  above with
respect to the  exercise of the  nonqualified  stock  option as if he or she had
paid the exercise price in cash,  and we likewise  generally will be entitled to
an equivalent tax deduction.  The optionee,  however, 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.  Provided a separate
identifiable stock certificate is issued therefore,  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  to  employees  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. 

        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.                                              

PRES14A 17th Page of 35 TOC 1st Previous Next ↓Bottom Just 17th

        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 us 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.                             

Vote Required                                                                   

        The affirmative vote of a majority of the votes present, in person or by
proxy, and entitled to vote is required to approve the adoption of the Plan.    

Recommendation of the Board of Directors                                        

        Our  board of  directors  recommends  that you vote  "FOR"  approval  of
Proposal 4.                                                                     

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EXECUTIVE COMPENSATION

        The following  table sets forth for the fiscal years ended  December 31,
2000, 1999 and 1998, the compensation awarded to, earned by or paid to the Named
Officers.                                                                       

                                                        [Enlarge/Download Table]

Summary Compensation Table                                                                     



                                                                       Securities              
                                                         All           Underlying              
Name and                                                 Other Annual  Options/    Other       
Principal Position      Year  Salary        Bonus        Compensation  SARs (#)    Compensation
                                                                                               
Larry Hemmerich         2000  $297,917(1)   $125,000(2)  --            1,250,000(3)--          
Former President and    1999  --            --           --            --          --          
Chief Executive         1998  --            --           --            --          --          
Officer                                                                                        

Lawrence F. Steffann    2000  $  28,846(4)  --           $837,422(5)   --           $27,175(6) 
Former President and    1999  $ 253,900     --           $188,750(7)   --           --         
Chief Executive         1998  $103,007(8)   --           --            750,000      --         
Officer                                                                                        

Jonathan Ash            2000  $108,285(9)   $  30,000    --            155,000      --         
Former Vice President,  1999  --            --           --            --           --         
Direct Sales            1998  --            --           --            --           --         

James A. Habuda         2000  $114,231(10)  --           $ 46,500(11)  165,000      --         
Vice President,         1999  --            --           --            --           --         
OEM/Channel Sales       1998  --            --           --            --           --         

David W. Tweed          2000  $209,134(12)  --           --            175,000      --         
Former Vice President,  1999  --            --           --            --           --         
Solution Sales          1998  --            --           --            --           --         

Thomas G. Wrightson     2000  $114,231(10)  --           $ 26,046(13)  205,000      --         
Vice President,         1999  --            --           --            --           --         
Operations              1998  --            --           --            --           --         

------------------                                                              
 (1)  Represents salary received by Mr. Hemmerich  commencing  January 17, 2000,
      the  first  date Mr. Hemmerich became  employed  by  us.  Mr.  Hemmerich's
employment with us terminated on June 22, 2001.                     
 (2)  Mr.  Hemmerich  received payment of this bonus in the form of a promissory
      note dated January 17, 2001,  bearing  interest at 10% per annum,  payable
      quarterly and maturing thirty days after demand,  but no earlier than June
      30, 2001.  Effective April 12, 2001, Mr.  Hemmerich agreed to exchange his
      note and  accrued  interest  of  $2,900  for 128  shares  of our  Series I
      Convertible  Preferred Stock with a stated value of $127,900 which accrues
      quarterly  dividends  at 10% per annum  and is  convertible  into  177,653
      shares of our common stock.  In connection  with the Halco Stock  Purchase
      Transaction,  Mr. Hemmerich has agreed to convert his 128 shares of Series
      I Convertible  Preferred Stock and as a result, upon stockholder approval,
      will  receive   approximately   128,000   Inducement   Shares   (including
      approximately  21,000 shares issued in satisfaction  of accrued  dividends
owed to Mr. Hemmerich).                                             
 (3)  In connection  with a Separation  Agreement,  effective June 22, 2001, Mr.
      Hemmerich's  options to purchase 1,250,000 shares of our common stock were
      canceled and he was granted new options to purchase 300,000 shares on that
date.                                                               
 (4)  Represents  salary  received by Mr.  Steffann  from  January 1, 2000 until
January 26, 2000, the date on which he resigned as our President.   
 (5)  Represents the dollar value of the  difference  between the price paid for
      the  purchase of 225,000  shares of our common stock  underlying  Employee
      Incentive Stock Options and the fair market value at the dates of purchase
      ($614,375) and the dollar value of 43,479 shares given to Mr.  Steffann as
part of his severance compensation ($223,047).                      

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(6)   Represents cash paid to Mr. Steffann as severance compensation.           
(7)   Represents the dollar value of the  difference  between the price paid for
      the  purchase of 150,000  shares of our common stock  underlying  Employee
      Incentive  Stock  Options  and the  fair  market  value  at the  dates  of
purchase.                                                           
 (8)  Represents  salary  received  by Mr. Steffann commencing June 1, 1998, the
first date Mr. Steffann was employed by us.                         
 (9)  Represents salary received by Mr. Ash commencing March 20, 2000, the first
      date  Mr. Ash  was  employed  by us.  Mr. Ash's  employment  with  us  was
terminated on May 29, 2001.                                         
(10)  Represents  salary  received  by  Mr. Habuda  and Mr. Wrightson commencing
      March  13, 2000, the first date  Mr. Habuda  and  Mr. Wrightson became our
employees.                                                          
(11)  Represents commissions earned by Mr. Habuda.                              
(12)  Represents  salary  received  by  Mr. Tweed commencing April 10, 2000, the
      first date Mr. Tweed was  employed by us.  Mr. Tweed's  employment with us
was terminated on January 1, 2001.                                  
(13)  Represents  reimbursement of relocation expenses incurred by Mr. Wrightson
      in connection with his relocation  efforts upon commencement of employment
with us in April 2000.                                              

Option Grants During Last Fiscal Year                                           

        The following table sets forth information regarding options to purchase
our  common  stock  that  were  granted  during  fiscal  year  2000 to the Named
Officers.  Options were granted to the Named Officers on three separate dates in
fiscal year 2000; one grant to Larry Hemmerich  effective December 29, 1999, one
grant in April 2000 to each of Messrs. Ash, Habuda,  Tweed and Wrightson and one
grant in  October  2000 to each of Messrs.  Hemmerich,  Ash,  Habuda,  Tweed and
Wrightson. No SARs were granted.                                                

                                                        [Enlarge/Download Table]

Individual Grants                                                                                 


                                   Percent of                                                     
                     Number of     Total                               Potential Realizable Value 
                     Securities    Options                             at Assumed Annual Rates of 
                     Underlying    Granted to    Exercise               Stock Price Appreciation  
                     Options       Employees in  or Base                    for Option Term       
                     Granted       Fiscal        Price     Expiration  ---------------------------
                     (#)           2000          ($/sh)    Date            5% ($)         0% ($)  
                     ------------  -----------   --------  ----------  ---------------------------
                                                                                                  
Larry Hemmerich      1,000,000(1)      30%         $2.50    12/29/09     $4,072,237    $6,484,356 
                     250,000(1)         7%         $2.00    10/11/10     $  814,447    $1,296,871 

Jonathan Ash         125,000(2)         4%         $2.94    04/18/10     $  598,619    $  953,200 
                     30,000(2)          1%         $2.00    10/11/10     $   97,734    $  155,625 

James A. Habuda      150,000            4%         $2.94    04/18/10     $  718,343    $1,143,840 
                     15,000             *          $2.00    10/11/10     $   48,867    $   77,812 

David W. Tweed       150,000(3)         4%         $2.94    04/18/10     $  718,343    $1,143,840 
                     25,000(3)          1%         $2.00    10/11/10     $   81,445    $  129,687 

Thomas G. Wrightson  175,000            5%         $2.94    04/18/10     $  838,066    $1,334,480 
                     30,000             1%         $2.00    10/11/10     $   97,734    $  155,625 

* Less than 1%                                                                  
------------                                                                    
(1)   The  option to  purchase  1,000,000  shares was  granted to Mr.  Hemmerich
      effective  December  29,  1999,  the  date  on  which  the  terms  of  Mr.
      Hemmerich's employment were agreed to by us and Mr. Hemmerich.  Options to
      purchase an  additional  250,000  shares were granted to Mr.  Hemmerich in
      October  2000.  Options  granted to Mr.  Hemmerich  aggregating  1,250,000
      shares were  cancelled  effective  June 22, 2001  pursuant to a Separation
Agreement between Mr. Hemmerich and our company.                    

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 (2)  Options  granted to Mr. Ash  aggregating  155,000  shares  were  cancelled
      effective  June 28,  2001,  thirty  days  following  the date Mr.  Ash was
terminated as our employee.                                         

(3)   Options  granted to Mr. Tweed  aggregating  175,000  shares were cancelled
      effective  January  1,  2001,  the date Mr.  Tweed was  terminated  as our
employee.                                                           

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
Table                                                                           

        The  following  table  sets forth  certain  information  concerning  the
exercise of stock options by the Named Officers  during fiscal year 2000 and the
value of unexercised stock options held by the Named Officers as of December 31,
2000. No SARs have been granted or are outstanding.                             

                                                        [Enlarge/Download Table]


                                                   Number of              Value of Unexercised    
                     Shares                   Unexercised Options at     In-the-Money Options at  
                     Acquired                  December 31, 2000 (#)      December 31, 2000($)(1) 
                     on        Value        --------------------------  --------------------------
Name                 Exercise  Realized     Exercisable  Unexercisable  Exercisable  Unexercisable
-------------------- --------  -----------  -----------  -------------  -----------  -------------
                                                                                                  
Larry Hemmerich        -0-      -0-            -0-        1,250,000(2)     -0-           -0-      

Lawrence F. Steffann  225,000   $614,375(3)    -0-           -0-           -0-           -0-      

Jonathan Ash           -0-      -0-            -0-          155,000(4)     -0-           -0-      

James A. Habuda        -0-      -0-            -0-          165,000        -0-           -0-      

David W. Tweed         -0-      -0-            -0-          175,000(5)     -0-           -0-      

Thomas G. Wrightson    -0-      -0-            -0-          205,000        -0-           -0-      

-------------------                                                             
(1)     The closing price for our common stock, as reported by AMEX, on December
        29, 2000 was $1.25.  Since the exercise  price exceeds the closing price
        at  year-end,  none of the  unexercised  options  were in-  the-money at
December 31, 2000.                                              
(2)     These  options were  cancelled  effective  June 22, 2001,  pursuant to a
Separation Agreement between Mr. Hemmerich and our company.     
(3)     The closing price for our common stock,  as reported by AMEX, on January
        10, 2000 was $3.25,  $5.00 on February 4, 2000 and $4.13 on February 24,
        2000,  the dates on which Mr.  Steffann  exercised  options to  purchase
        100,000,  50,000 and 75,000  shares,  respectively.  Value  realized  is
        calculated by multiplying  (a) the difference  between the closing price
        and the  option  exercise  price of $1.20 by (b) the number of shares of
common stock underlying the option.                             
(4)     These  options  were  cancelled  effective  June 28,  2001,  thirty days
following the date Mr. Ash was terminated as our employee.      
(5)     These  options  were  cancelled  effective January 1, 2001, the date Mr.
Tweed was terminated as our employee.                           

Compensation Committee Interlocks and Insider Participation                     

        Because we did not have a  compensation  committee  during  fiscal  year
2000, the entire board of directors  participated  in  deliberations  concerning
compensation paid to our executive officers. Lawrence F. Steffann, our President
and Chief  Executive  Officer  until January 26, 2000 and Larry  Hemmerich,  our
President  and Chief  Executive  Officer from January 27, 2001 to June 22, 2001,
were members of our board of directors and participated in these deliberations. 

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Directors Compensation                                                          

        Our non-employee  directors  receive $1,500 for each directors'  meeting
attended.  With the exception of Lawrence F. Steffann and Larry Hemmerich,  none
of our  directors  were  employees in 2000.  During  fiscal  2000,  non-employee
directors earned compensation in the form of monthly management/consulting fees,
board fees, and the exercise of stock options  (represented by the excess of the
market  value on the date of  exercise  over the  exercise  price) for  services
rendered  to us in their  respective  capacities  as  directors  or  officers as
follows:  Michael L. Wise - $44,187  (including  $26,187  from the  purchase  of
10,000 shares of our common stock underlying  stock options);  H. Irwin Levy and
Bernard R. Green - $16,500;  and Roger H.  Felberbaum - $15,500.  Commencing  in
February  2000,  all directors  agreed to defer receipt of all fees earned until
certain events occurred.  Mr. Wise's compensation is payable to Yadgim Partners,
a partnership of which Mr. Wise's wife is a general partner.                    

        Pursuant to our 1996 Stock Option Plan, and, upon stockholder  approval,
our 2001 Stock Option Plan, each non-employee director is automatically granted,
effective each anniversary of the director's appointment to the board, an option
to purchase  20,000  shares of common stock at the then fair market value of the
common stock. During fiscal year 2000, Messrs.  Levy, Green, Wise and Felberbaum
received  their annual grant of options to purchase  20,000 shares of our common
stock.                                                                          

Employment Agreements                                                           

        We entered into an employment agreement with Larry Hemmerich,  effective
January 27, 2000, pursuant to which Mr. Hemmerich was employed as our President,
Chief  Executive  Officer  and  a  director.  The  agreement  provided  for  the
employment of Mr.  Hemmerich  through January 16, 2002, at an annual base salary
of $325,000.  The agreement  further  provided for a $125,000 cash bonus for the
first year of  employment,  and an  undetermined  bonus in year two based on the
achievement of certain performance objectives set by our board of directors. Mr.
Hemmerich was also granted  options to purchase  1,000,000  shares of our common
stock at $2.50 per share, with one-third vesting on January 17, 2001,  one-third
on July 17, 2001 and the remainder on January 17, 2002. The employment agreement
provided that 50% of Mr. Hemmerich's options would vest immediately in the event
we terminated his employment  without cause (as defined in the  agreement).  The
agreement  further provided that if Mr. Hemmerich  resigned his employment or we
terminated Mr.  Hemmerich for cause (as defined in the  agreement),  he would be
entitled to receive his base  compensation  through the date of  resignation  or
termination. In the case of voluntary resignation, all unexercised options would
expire 30 days from the date of resignation  and in the case of termination  for
cause, all of the unexercised options would immediately terminate.              

        On October  18,  2000,  we agreed to extend the term of Mr.  Hemmerich's
employment  agreement to January 16, 2003,  and made the following  revisions to
the  original  agreement:  (i) a bonus of $100,000 to be paid in January 2002 in
the event that during 2001 we experienced three consecutive  quarters of revenue
growth of not less than 5% of the previous quarter,  or in the event the closing
market  price of our common  stock was equal to or  exceeded  $5.00 per share on
December  31,  2001;  (ii) Mr.  Hemmerich  was  granted an option to purchase an
additional  250,000  shares of common stock at $2.00 per share with 100% vesting
on January 16, 2003; and (iii) in the event of the sale of substantially  all of
our  assets or a change in control  of more than 51% of our  current  ownership,
100% of all options granted would vest immediately.                             

        Effective  January 17, 2001, Mr. Hemmerich agreed to accept a promissory
note in the amount of  $125,000  as payment  for the bonus due to him for fiscal
2000.  The note bore  interest at 10% per annum,  payable  quarterly and was due
thirty days from demand, but no earlier than June 30, 2001.  Effective April 12,
2001,  Mr.  Hemmerich  agreed to  exchange  his  $125,000  note and the  accrued
interest of $2,900 for 128 shares of our Series I  Convertible  Preferred  Stock
with a face value of  $127,900,  which  accrues  quarterly  dividends at 10% per
annum and is convertible  into 177,653 shares of our common stock. In connection
with the Halco Stock Purchase  Transaction,  Mr. Hemmerich has agreed to convert
his 128 shares of Series I  Convertible  Preferred  Stock and as a result,  upon
stockholder  approval,  will receive  approximately  128,000  Inducement  Shares
(including  approximately  21,000  shares  issued  in  satisfaction  of  accrued
dividends owed to Mr. Hemmerich).                                               

        Effective  June  22,  2001,  pursuant  to a  Separation  Agreement,  Mr.
Hemmerich ceased to hold the positions of President and Chief Executive Officer.
Mr.  Hemmerich  continued  to be a  member  of the  board of  directors  and was
retained  as a  consultant  for a period of six months at $5,000 per month.  The
Separation Agreement further provided for cancellation of all options previously
granted  to Mr.  Hemmerich  and the grant of a new  option to  purchase  300,000
shares of our common stock at $.45 per share.                                   

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        Effective   June 26, 2001,  M.  Thomas  Makmann   was  appointed  as our
President and Chief Operating Officer.                                          

        We entered  into an  employment  agreement  with  Lawrence F.  Steffann,
effective  as of June 1, 1998,  pursuant to which Mr.  Steffann  was employed as
President and Chief Executive Officer. The agreement provided for the employment
of Mr.  Steffann  through  June 1, 2001,  at an annual  base  salary of $200,000
(which salary was  increased to $250,000  annually  effective  January 1, 1999),
subject to annual  increases at the  discretion of the board of  directors.  Mr.
Steffann was also granted options to purchase 750,000 shares of our common stock
at $1.20 per share with  125,000  shares  vesting  every six  months.  Effective
January 26, 2000, we entered into an agreement with Mr. Steffann relating to the
termination  of his  employment.  Pursuant to the  agreement,  we issued  43,479
shares of our common stock to Mr. Steffann and paid him $27,175 in cash.        

INFORMATION CONCERNING STOCKHOLDER PROPOSALS

        Pursuant to Rule 14a-8  promulgated by the SEC, a stockholder  intending
to present a proposal to be included in our proxy  statement for our 2002 Annual
Meeting of  Stockholders  must  deliver a proposal  in writing to our  principal
executive offices no later than December 27, 2001, assuming that the 2002 Annual
Meeting of Stockholders will be held in June 2002.                              

        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 2002
Annual Meeting of Stockholders,  and the proposal is received by us on or before
March 12, 2002,  assuming that the 2002 Annual Meeting of  Stockholders  will be
held in June 2002, we will provide  information in the proxy statement  relating
to the 2002 Annual Meeting of  Stockholders as to the nature of the proposal and
how persons  named in the proxy  solicited by our board of  directors  intend to
exercise their discretion to vote on the proposal.                              

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                                                                       EXHIBIT A

TEXT OF PROPOSED AMENDMENT TO nSTOR'S CERTIFICATE OF INCORPORATION              

The Certificate of Incorporation of nStor Technologies, Inc. is to be amended as
follows:                                                                        

1.  Article Fourth (a) thereof is amended in its entirety to read as follows:   

The total number of shares which the  Corporation  is authorized to issue is Two
Hundred and One Million  (201,000,000).  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 Two Hundred  Million  (200,000,000).  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
$10,000,000.                                                                    

A-1   

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                                                                       EXHIBIT B

TEXT OF PROPOSED AMENDMENT TO nSTOR'S CERTIFICATE OF INCORPORATION              

The Certificate of Incorporation of nStor Technologies, Inc. is to be amended as
follows:                                                                      

1. The  Certificate  of  Designation  for the  Series  J  Convertible  Preferred
Stock is to be deleted in its entirety.                                         

B-1 

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                                                                       EXHIBIT C

nSTOR TECHNOLOGIES, INC.

2001 STOCK OPTION PLAN

1. ESTABLISHMENT, EFFECTIVE DATE AND TERM                             

     nStor  Technologies,   Inc.,  a  Delaware  corporation  ("nStor"),   hereby
establishes  the "nStor  Technologies,  Inc.  Inc.  2001 Stock Option Plan" (the
"Plan").  The  effective  date of the  Plan  shall  be  October  29,  2001  (the
"Effective  Date"),  which is the date that the Plan was approved and adopted by
the Board of Directors of nStor (the "Board"), provided that the Company obtains
approval  by its  shareholders  within 12 months of such  date.  Unless  earlier
terminated  pursuant to Section 18 hereof, the Plan shall terminate on the tenth
anniversary of the Effective Date.                                              

2. PURPOSE                                                            

     The purpose of the Plan is to advance the  interests  of nStor by providing
Eligible  Individuals  (as  defined in Section 3 below) with an  opportunity  to
acquire or increase a proprietary  interest in nStor which thereby will create a
stronger incentive to expend maximum effort for the growth and success of nStor,
any parent of nStor (a "Parent") and any  subsidiary  of nStor (a  "Subsidiary")
(nStor, Parent and Subsidiary are collectively referred to as the "Company") and
will encourage such individuals to remain in the employ of the Company.         

3. ELIGIBILITY                                                        

     Options  (as  defined in Section 6 below) may be granted  under the Plan to
(i) any employee,  officer, or director (employee and non-employee directors) of
the  Company,  and (ii) any  independent  contractor  or  consultant  performing
services for the Company,  as  determined  by the Board from time to time on the
basis of their  importance  to the  business of nStor  (collectively,  "Eligible
Individuals"),  provided that  Incentive  Stock Options (as defined in Section 6
below)  may only be  granted  to  employees  of nStor  and  certain  "subsidiary
corporations"  or "parent  corporations"  as  described  in Section 6 below.  An
individual may hold more than one Option,  subject to such  restrictions  as are
provided herein.                                                                

4. ADMINISTRATION                                                     

     (a) Board.  The Plan shall be administered  by the Board,  which shall have
the full power and authority to take all actions, and to make all determinations
required  or  provided  for under the Plan,  any  Option  granted  or any Option
Agreement  (as defined in Section 9 below)  entered  into under the Plan and all
such other actions and  determinations  not inconsistent with the specific terms
and provisions of the Plan deemed by the Board to be necessary or appropriate to
the  administration  of the Plan,  any Option  granted  or any Option  Agreement
entered into hereunder.  The Board may correct any defect or supply any omission
or reconcile  any  inconsistency  in the Plan or in any Option  Agreement in the
manner and to the extent it shall deem  expedient  to carry the Plan into effect
and shall be the sole and final judge of such expediency. Whether an entity is a
Parent or  Subsidiary  of nStor shall be determined by the Board in its sole and
absolute  discretion.  All  such  actions  and  determinations  shall  be by the
affirmative  vote of a majority of the members of the Board present at a meeting
at which any issue relating to the Plan is properly raised for  consideration or
without a meeting by written  consent of the Board  executed in accordance  with
nStor's  Certificate  of  Incorporation  and By-Laws  and  applicable  law.  The
interpretation  and  construction by the Board of any provision of the Plan, any
Option granted or any Option Agreement entered into hereunder shall be final and
conclusive.                                                                     

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     (b) Committees. The Board may, in its discretion, from time to time appoint
one or more committees (the "Committees").  Where appropriate,  any reference to
the Board in this Plan or an Option Agreement shall also mean such Committees as
appointed by the Board.  The Board shall  appoint a committee  consisting of not
less than two  members of the  Board,  none of whom shall be an officer or other
salaried employee of the Company, and each of whom shall qualify in all respects
as a "non-employee  director" and an "outside director" as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and an "outside director" for purposes of Section 162(m) of the Code (the
"Outside Director  Committee").  The Board, in its sole discretion,  may provide
that the role of the Committees  shall be limited to making  recommendations  to
the Board  concerning any  determinations  to be made and actions to be taken by
the Board  pursuant to or with respect to the Plan, or the Board may delegate to
the Committees such powers and authorities  related to the administration of the
Plan,  as set  forth in  Section  4(a)  above,  as the  Board  shall  determine,
consistent  with the  Certificate  of  Incorporation  and  By-Laws  of nStor and
applicable law. The Board may remove members, add members, and fill vacancies on
the Committees from time to time, all in accordance with nStor's  Certificate of
Incorporation  and By-Laws,  and with  applicable  law. The majority vote of the
members of a Committee,  or acts reduced to or approved in writing by a majority
of the members of a Committee, shall be the valid acts of the Committee.        

     (c) No  Liability.  No member of the  Board or of the  Committees  shall be
liable for any action or  determination  made in good faith with  respect to the
Plan, any Option granted or any Option Agreement entered into hereunder.        

     (d)  Delegation to the  Committees.  In the event that the Plan, any Option
granted or an Option Agreement entered into hereunder provides for any action to
be taken by or determination  to be made by the Board,  such action may be taken
by or such  determination  may be made by a Committee if the power and authority
to do so has been  delegated  to such  Committee by the Board as provided for in
Section 4(b) above. Unless otherwise expressly determined by the Board, any such
action or determination by a Committee shall be final and conclusive.           

5. COMMON STOCK                                                       

     The capital stock of nStor that may be issued  pursuant to Options  granted
under the Plan shall be shares of common stock,  with $0.05 value per share,  of
nStor (the "Common  Stock"),  which shares may be treasury  shares or authorized
but  unissued  shares.  The total  number of shares of Common  Stock that may be
issued  pursuant  to  Options  granted  under  the Plan  shall  be Five  Million
(5,000,000),  subject to  adjustment  as  provided  in Section 15 below.  If any
Option expires, terminates, or is terminated or canceled for any reason prior to
exercise  in  full,  the  shares  of  Common  Stock  that  were  subject  to the
unexercised portion of such Option shall be available for future Options granted
under the Plan.                                                                 

6. TYPE OF OPTIONS                                                    

     Each stock option granted under the Plan (an "Option") may be designated by
the Board,  in its sole  discretion,  either as (i) an "incentive  stock option"
("Incentive  Stock  Options")  within the meaning of Section 422 of the Internal
Revenue Code of 1986,  as amended from time to time (the  "Code"),  or (ii) as a
non-qualified  stock option which is not  intended to meet the  requirements  of
Section 422 of the Code;  provided,  however,  that Incentive  Stock Options may
only be granted to employees of nStor,  any "subsidiary  corporation" as defined
in Section 424 of the Code or any "parent corporation" as defined in Section 424
of the Code. In the absence of any  designation,  Options granted under the Plan
will be deemed to be non-qualified stock options. The Plan shall be administered
and  interpreted so that all Incentive Stock Options granted under the Plan will
qualify as  incentive  stock  options  under  Section  422 of the Code.  Options
designated  as  Incentive  Stock  Options  that  fail to  continue  to meet  the
requirements of Section 422 of the Code shall be  redesignated as  non-qualified
stock options automatically on the date of such failure to continue to meet such
requirements without further action by the Board.                               

7. GRANT OF OPTIONS                                                   

     Subject to the terms and conditions of the Plan, the Board may, at any time
and from time to time,  prior to the date of termination  of the Plan,  grant to
such Eligible Individuals as the Board may determine  ("Optionees"),  Options to
purchase  such number of shares of Common Stock on such terms and  conditions as
the Board may  determine.  The date on which the Board  approves the grant of an
Option (or such later date as is specified by the Board) shall be considered the
date on which such Option is granted. Any Option granted to a "covered employee"
as defined in Section  162(m)(3) of the Code ("Covered  Employee") shall be made
by the Outside Director Committee.  The maximum number of shares of Common Stock
subject to Options that may be granted  during any calendar  year under the Plan
to any Covered Employee shall be One Million Five Hundred Thousand (1,500,000). 

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8. LIMITATION ON INCENTIVE STOCK OPTIONS                              

     (a) Ten Percent  Stockholder.  Notwithstanding  any other provision of this
Plan to the contrary,  no individual may receive an Incentive Stock Option under
the Plan if such  individual,  at the time the Option is  granted,  owns  (after
application  of the  rules  contained  in  Section  424(d)  of the  Code)  stock
possessing more than ten percent (10%) of the total combined voting power of all
classes  of stock of nStor,  unless  (i) the  purchase  price for each  share of
Common  Stock  subject to such  Incentive  Stock  Option is at least 110 percent
(110%) of the fair market  value of a share of Common Stock on the date of grant
(as determined in good faith by the Board) and (ii) such Incentive  Stock Option
is not  exercisable  after  the date  which is five (5)  years  from the date of
grant.                                                                          

     (b) Limitation on Grants.  The aggregate  fair market value  (determined at
the time such  Incentive  Stock Option is granted) of the shares of Common Stock
for which any  individual  may have  Incentive  Stock Options which first become
vested and  exercisable  in any calendar year (under all incentive  stock option
plans of the  Company)  shall  not  exceed  $100,000.  Options  granted  to such
individual  in  excess  of the  $100,000  limitation,  and  any  Options  issued
subsequently  which first become  vested and  exercisable  in the same  calendar
year, shall be treated as non-qualified Stock options.                          

9. OPTION AGREEMENTS                                                  

     All  Options  granted  pursuant to the Plan shall be  evidenced  by written
agreements ("Option  Agreements"),  to be executed by nStor and by the Optionee,
in such form or forms as the Board  shall  from time to time  determine.  Option
Agreements  covering  Options granted from time to time or at the same time need
not  contain  similar  provisions;  provided,  however,  that  all  such  Option
Agreements shall comply with all terms of the Plan.                             

10. OPTION PRICE                                                      

     Subject to the provisions of Section 8(a) above, the purchase price of each
share of Common Stock  subject to an Option (the "Option  Price") shall be fixed
by the Board and stated in each Option  Agreement;  provided that in the case of
an Incentive Stock Option granted hereunder,  the Option Price shall not be less
than one hundred  percent  (100%) of the fair market  value of a share of Common
Stock on the date the Option is granted.  If the Common  Stock is then listed on
any national securities exchange,  the fair market value shall be the average of
the high and low sale prices of the Common  Stock on such  exchange for the date
as of which fair  market  value is being  determined,  as  reported  in The Wall
Street Journal.  If trading in the Common Stock does not occur on the date as of
which fair market value is being determined, the high and low sale prices of the
next  preceding  date on which  the  Common  Stock was  traded  shall be used to
determine the fair market  value.  If the Common Stock is not listed on any such
exchange, the fair market value shall be determined in good faith by the Board. 

11. TERM AND VESTING OF OPTIONS                                       

     (a) Option Period. Subject to the provisions of Section 8(a) and Section 14
hereof,  each Option  granted  under the Plan shall  terminate and all rights to
purchase  shares  thereunder  shall cease upon the  expiration of ten (10) years
from the date such  Option is granted,  or on such date prior  thereto as may be
fixed by the Board and stated in the Option  Agreement  relating to such Option.
Notwithstanding  the  foregoing,  the Board may in its  discretion,  at any time
prior to the  expiration or  termination  of any Option,  extend the term of any
such  Option  for such  additional  period  as the Board in its  discretion  may
determine; provided, however, that in no event shall the aggregate option period
with  respect to any Option,  including  the initial term of such Option and any
extensions thereof, exceed ten (10) years.                                      

     (b)  Vesting.  Options  shall  vest in  accordance  with  the  terms of the
applicable Option Agreement. Notwithstanding the foregoing, the Board may in its
discretion  provide that any vesting or  performance  requirement  or other such
limitation on the exercise of an Option may be rescinded,  modified or waived by
the Board, in its sole  discretion,  at any time and from time to time after the
date of grant of such Option,  so as to accelerate  the time at which the Option
may be exercised.                                                               

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12. MANNER OF EXERCISE AND PAYMENT                                    

     (a) Exercise.  An Option that is exercisable  hereunder may be exercised by
delivery to nStor on any business day, at its principal office, addressed to the
attention of the Secretary,  of written  notice of exercise,  which notice shall
specify  the  number  of  shares  with  respect  to which  the  Option  is being
exercised,  and shall be  accompanied  by payment in full of the Option Price of
the  shares  for which  the  Option  is being  exercised,  by one or more of the
methods  provided  below.  The  minimum  number of shares of Common  Stock  with
respect to which an Option may be  exercised,  in whole or in part,  at any time
shall be the lesser of one hundred (100) shares or the maximum  number of shares
available for purchase under the Option at the time of exercise.                

     (b)  Payment.  Payment of the Option  Price for the shares of Common  Stock
purchased  pursuant to the exercise of an Option shall be made (i) in cash or in
cash  equivalents;  (ii) to the extent permitted by applicable law and agreed to
by the Board in its sole and absolute discretion, through the tender to nStor of
shares  of  Common  Stock,  which  shares  shall  be  valued,  for  purposes  of
determining the extent to which the Option Price has been paid thereby, at their
fair market value  (determined  in the manner  described in Section 10 above) on
the date of exercise; (iii) to the extent permitted by applicable law and agreed
to by the Board in its sole and  absolute  discretion,  by  delivering a written
direction  to nStor  that the  Option  be  exercised  pursuant  to a  "cashless"
exercise/sale  procedure  (pursuant  to which  funds to pay for  exercise of the
Option are  delivered  to nStor by a broker upon  receipt of stock  certificates
from  nStor) or a  "cashless"  exercise/loan  procedure  (pursuant  to which the
Optionees would obtain a margin loan from a broker to fund the exercise) through
a  licensed  broker  acceptable  to  nStor  whereby  the  stock  certificate  or
certificates  for the shares of Common  Stock for which the Option is  exercised
will be delivered to such broker as the agent for the individual  exercising the
Option and the broker will deliver to nStor cash (or cash equivalents acceptable
to nStor)  equal to the Option  Price for the shares of Common  Stock  purchased
pursuant  to the  exercise of the Option plus the amount (if any) of federal and
other taxes that nStor may,  in its  judgment,  be  required  to  withhold  with
respect  to the  exercise  of  the  Option;  (iv)  to the  extent  permitted  by
applicable  law and agreed to by the Board in its sole and absolute  discretion,
by the delivery of a  promissory  note of the Optionee to nStor on such terms as
the  Board  shall  specify  in its sole  and  absolute  discretion;  or (v) by a
combination  of the methods  described  in clauses  (i),  (ii),  (iii) and (iv).
Payment in full of the Option  Price need not  accompany  the written  notice of
exercise if the Option is  exercised  pursuant to the  "cashless"  exercise/sale
procedure  described above. An attempt to exercise any Option granted  hereunder
other than as set forth above shall be invalid and of no force and effect.      

     (c) Issuance of Certificates. Promptly after the exercise of an Option, the
individual  exercising  the  Option  shall  be  entitled  to the  issuance  of a
certificate  or  certificates  evidencing his ownership of such shares of Common
Stock.  An  individual  holding or  exercising  an Option shall have none of the
rights of a  stockholder  until the shares of Common Stock  covered  thereby are
fully paid and issued to him and,  except as  provided  in Section 15 below,  no
adjustment shall be made for dividends or other rights for which the record date
is prior to the date of such issuance.                                          

     (d) Use of Proceeds. The proceeds received by nStor from the sale of Common
Stock pursuant to Options granted under the Plan shall constitute  general funds
of nStor.                                                                       

13. TRANSFERABILITY OF OPTIONS                                        

     (a) Incentive Stock Options.  No Incentive Stock Option shall be assignable
or transferable by the Optionee to whom it is granted, other than by will or the
laws of descent and distribution.                                               

     (b)  Non-qualified  Stock Options.  Unless otherwise  provided in an Option
Agreement,  non-qualified  stock  options  shall be  transferable  to the extent
permitted by the Board and by applicable law.                                   

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14. TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY                    

     (a) General.  Unless otherwise  provided in an Option  Agreement,  upon the
termination  of the employment or other service of an Optionee with the Company,
other than by reason of Cause (as defined in Section 14(b)  below),  retirement,
death or  "permanent  and total  disability"  (within  the  meaning  of  Section
22(e)(3) of the Code) of such Optionee,  the Optionee  shall have the right,  at
anytime  within a period not to exceed  thirty  (30) days after the date of such
termination and prior to the termination of the Option pursuant to Section 11(a)
above,  to exercise,  in whole or in part, any portion of the vested option held
by such  Optionee  at the date of the  termination.  Upon such  termination  any
unvested  Option shall expire and the  Optionee  shall have no further  right to
purchase  shares of Common Stock  pursuant to such  unvested  Option,  except as
otherwise provided by the Board.  Notwithstanding the provisions of this Section
14, the Board may provide, in its discretion,  that following the termination of
employment or service of an Optionee with Company,  for any reason,  an Optionee
may  exercise an Option,  in whole or in part,  at any time  subsequent  to such
termination  of  employment  or service and prior to  termination  of the Option
pursuant to Section  11(a)  above,  either  subject to or without  regard to any
vesting or other limitation on exercise imposed pursuant to Section 11(b) above.
Unless otherwise  determined by the Board,  temporary absence from employment or
service  because of illness,  vacation,  approved  leaves of  absence,  military
service  and  transfer of  employment  shall not  constitute  a  termination  of
employment or service with the Company.                                         

     (b) Cause.  Upon a  termination  of the  employment  or other service of an
Optionee  with the Company for Cause (as  defined  below) any Option  granted to
such  Optionee  shall  expire and the  Optionee  shall have no further  right to
purchase  shares of Common Stock  pursuant to such Option.  For purposes of this
Plan, "Cause" means (i) failure or refusal of the Optionee to perform the duties
and  responsibilities  that the Company  requires to be performed  by him,  (ii)
gross negligence or willful misconduct by the Optionee in the performance of his
duties,  (iii) commission by the Optionee of an act of dishonesty  affecting the
Company,  or the commission of an act constituting common law fraud or a felony,
or (iv) the Optionee's  commission of an act (other than the good faith exercise
of his business judgment in the exercise of his  responsibilities)  resulting in
material damages to the Company.  Notwithstanding  the above, if an Optionee and
the Company have entered into an employment  agreement or other  agreement  with
the Company  which  defines the term  "Cause"  for  purposes of such  agreement,
"Cause" for purposes of this Plan shall be defined pursuant to the definition in
such  agreement  rather than the  definition  set forth  above.  The Board shall
determine whether Cause exists for purposes of this Plan and such  determination
shall be final, conclusive and binding on the Optionees.                        

     (c) Retirement.  If an Optionee  terminates  employment or service with the
Company by reason of retirement,  the Optionee has the right, at any time within
a period not to exceed one (1) year after the date of Optionee's  retirement and
prior to the  termination  of the Option  pursuant to Section  11(a)  above,  to
exercise,  in whole or in part,  any  portion of the vested  Option held by such
Optionee at the date of such Optionee's retirement;  provided,  however, that in
the case of an Incentive Stock Option, if an Optionee  terminates  employment or
service with the Company by reason of retirement, and the Optionee exercises the
Option more than three (3) months after the date of Optionee's  retirement,  the
Option shall  automatically  be  re-designated  as a non-qualified  stock option
without any action by the Board.  Upon such termination the Optionee's  unvested
Options  shall expire and the Optionee  shall have no further  right to purchase
shares of Common  Stock  pursuant to such  unvested  Option  except as otherwise
provided  by the  Board.  For  purposes  of this Plan  retirement  shall  mean a
termination  of employment or service with the Company at or after the age of 65
by any reason other than Cause, death or permanent and total disability.        

     (d) Death or Disability.  If an Optionee  terminates  employment or service
with the Company by reason of death or "permanent and total disability"  (within
the meaning of Section  22(e)(3) of the Code),  the  Optionee or the  Optionee's
estate or the devisee named in the  Optionee's  valid last will and testament or
the Optionee's heir at law who inherits the Option (whichever is applicable) has
the right, at any time within a period not to exceed one (1) year after the date
of such  Optionee's  death or  "permanent  and  total  disability"  and prior to
termination of the Option pursuant to Section 11(a) above, to exercise, in whole
or in part,  any portion of the vested  Option held by such Optionee at the date
of such  Optionee's  death  or  "permanent  and  total  disability."  Upon  such
termination the Optionee's  unvested Options shall expire and the Optionee,  the
Optionee's  estate,  devisee  or heir at law  shall  have no  further  right  to
purchase  shares of Common  Stock  pursuant to such  unvested  Option  except as
otherwise provided by the Board.                                                

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     15.  RECAPITALIZATION,   REORGANIZATIONS,   CHANGE  IN  CONTROL  AND  OTHER
CORPORATE EVENTS                                                                

     (a)  Recapitalization.  If the  outstanding  shares  of  Common  Stock  are
increased or decreased  or changed into or exchanged  for a different  number or
kind of shares or other  securities of nStor by reason of any  recapitalization,
reclassification,  reorganization  (other  than as  described  in Section  15(b)
below), stock split, reverse split,  combination of shares,  exchange of shares,
stock dividend or other distribution  payable in capital stock of nStor or other
increase or decrease in such shares effected without receipt of consideration by
nStor  occurring  after the Effective  Date, an  appropriate  and  proportionate
adjustment  shall be made by the Board (i) in the  aggregate  number and kind of
shares of Common Stock  available under the Plan, (ii) in the number and kind of
shares of Common Stock  issuable upon exercise of  outstanding  Options  granted
under the Plan, and (iii) in the Option Price per share of  outstanding  Options
granted under the Plan.                                                         

     (b)  Reorganization or Change in Control.  Unless otherwise  provided in an
Option Agreement,  in the event of a Reorganization  (as defined below) of nStor
or a Change in Control  (as defined  below) of nStor,  the Board may in its sole
and  absolute  discretion,  provide on a case by case basis that (i) some or all
outstanding Options may become immediately exercisable or vested, without regard
to any limitation  imposed  pursuant to this Plan and/or (ii) that Options shall
terminate,  provided  however,  that Optionee shall have the right,  immediately
prior to the occurrence of such  Reorganization  or Change in Control and during
such reasonable  period as the Board in its sole discretion  shall determine and
designate,  to exercise any vested Option in whole or in part. In the event that
the Board does not terminate an Option upon a Reorganization  of nStor then each
outstanding Option shall upon exercise  thereafter entitle the holder thereof to
such number of shares of Common Stock or other securities or property to which a
holder  of  shares  of  Common  Stock  would  have  been  entitled  to upon such
Reorganization.  For purposes of this Plan a "Reorganization" of an entity shall
be  deemed  to  occur if such  entity  is a party  to a  merger,  consolidation,
reorganization, or other business combination with one or more entities in which
said  entity  is  not  the  surviving   entity,   if  such  entity  disposes  of
substantially  all of its  assets,  or if such  entity is a party to a spin-off,
split-off,  split-up  or  similar  transaction;   provided,  however,  that  the
transaction shall not be a Reorganization if nStor, any Parent or any Subsidiary
is the surviving  entity.  For purposes of the Plan, a "Change in Control" shall
be deemed to occur if any person or group of  persons  shall  acquire  direct or
indirect beneficial ownership (whether as a result of stock ownership, revocable
or irrevocable proxies or otherwise) of securities of an entity, pursuant to one
or more  transactions,  such  that  after  consummation  and as a result of such
transaction,  such person has direct or indirect beneficial  ownership of 50% or
more of the total combined voting power of the Common Stock. For purposes of the
Plan, a "person" shall mean any person, corporation,  partnership, joint venture
or other  entity or any group (as such term is defined  for  purposes of Section
13(d) of the Exchange Act),  other than a Parent or Subsidiary,  and "beneficial
ownership"  shall be determined in accordance with Rule 13d-3 under the Exchange
Act.                                                                            

     (c) Change in Status of Parent or Subsidiary.  Unless otherwise provided in
an Option Agreement,  in the event of a Change in Control or Reorganization of a
Parent or Subsidiary, or in the event that a Parent or Subsidiary ceases to be a
Parent or Subsidiary,  the Board may, in its sole and absolute  discretion,  (i)
provide on a case by case basis that some or all outstanding  Options held by an
Optionee  employed by or performing  service for such Parent or  Subsidiary  may
become  immediately  exercisable  or vested,  without  regard to any  limitation
imposed pursuant to this Plan and/or (ii) treat the employment or other services
of an Optionee  employed  by such Parent or  Subsidiary  as  terminated  if such
Optionee  or  Recipient  is not  employed  by nStor or any Parent or  Subsidiary
immediately after such event.                                                   

     (d)  Dissolution  or  Liquidation.  Upon the  dissolution or liquidation of
nStor, the Plan shall  terminate,  and all Options  outstanding  hereunder shall
terminate. In the event of any termination of the Plan under this Section 15(d),
each individual holding an Option shall have the right, immediately prior to the
occurrence of such termination and during such reasonable period as the Board in
its sole discretion  shall  determine and designate,  to exercise such Option in
whole or in part,  whether or not such Option was otherwise  exercisable  at the
time  such  termination  occurs  and  without  regard  to any  vesting  or other
limitation on exercise imposed pursuant to Section 11(b) above.                 

     (e)  Adjustments.  Adjustments  under  this  Section 15 related to stock or
securities  of nStor  shall be made by the Board,  whose  determination  in that
respect shall be final, binding, and conclusive.  No fractional shares of Common
Stock or  units  of  other  securities  shall  be  issued  pursuant  to any such
adjustment,  and any  fractions  resulting  from  any such  adjustment  shall be
eliminated in each case by rounding downward to the nearest whole share or unit.

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     (f) No  Limitations.  The grant of an Option pursuant to the Plan shall not
affect  or  limit in any way the  right  or power of nStor to make  adjustments,
reclassifications,  reorganizations  or  changes  of  its  capital  or  business
structure  or to  merge,  consolidate,  dissolve  or  liquidate,  or to  sell or
transfer all or any part of its business or assets.                             

16. NON-EMPLOYEE DIRECTOR GRANTS                                      

     (a) Initial  Grants.  Each  category of  Non-Employee  Director (as defined
below) of the Company  described below shall be automatically  granted an Option
to purchase shares of Common Stock of the Company in the amounts,  and effective
as of the dates, set forth below:                                               

     (i)  for any  Non-Employee  Director  elected  by the  shareholders  of the
          Company  subsequent  to the Effective  Date,  such number of shares of
          Common  Stock as the Board may  determine,  to be  effective as of the
   date of such Non-Employee Director's election to the Board; and

     (ii) for any Non-Employee Director appointed by the Board subsequent to the
          Effective Date, such number of shares of common Stock as the Board may
          determine,  to be effective at the time such  Non-Employee  Director's
appointment to the Board becomes effective.                 

     For  purposes of this Plan,  Non-Employee  Director  shall have the meaning
ascribed to such term in Rule 16b-3 promulgated under the Exchange Act.         

     (b) Annual  Grants.  Each  Non-Employee  Director  shall  automatically  be
granted,  effective each  anniversary of his appointment to the Board, an Option
to purchase 20,000 shares of Common Stock.                                      

     (c)  Option  Price.  The option  price of each  Share  subject to an Option
granted to an Non-Employee Director shall be the Fair Market Value of the Common
Stock on the date the Option is granted.                                        

     (d) Exercise of Options.  All Options  granted to a  Non-Employee  Director
shall become exercisable on the first anniversary of the Date of Grant provided,
however,  that such Non-Employee  Director continues to serve as a member of the
Company's  Board as of such date.  Options may be exercised by the  Non-Employee
Director  for a period of ten years  from the date of grant  provided,  however,
that in the event of the death of a Non-Employee  Director,  the Option shall be
exercisable only within the twelve months next succeeding the date of death, and
then only (i) by the executor or administrator  of the  Non-Employee  Director's
estate or by the person or persons to whom the  Non-Employee  Director's  rights
under the Option shall pass by the  Non-Employee  Director's will or the laws of
descent and  distribution,  and (ii) if and to the extent that the  Non-Employee
Director  was  entitled to exercise  the Option at the date of the  Non-Employee
Director's death, provided that in no event shall the Option be exercisable more
than ten years after the Date of Grant.                                         

17. REQUIREMENTS OF LAW                                               

     (a)  Violations  of Law. The Company shall not be required to sell or issue
any  shares of Common  Stock  under any Option if the sale or  issuance  of such
shares would  constitute a violation by the individual  exercising the Option or
the  Company of any  provisions  of any law or  regulation  of any  governmental
authority,  including without limitation any federal or state securities laws or
regulations.  Any  determination in this connection by the Board shall be final,
binding,  and  conclusive.  The  Company  shall  not be  obligated  to take  any
affirmative  action in order to cause the  exercise  of an Option to comply with
any law or regulation of any governmental authority.                            

     (b)  Registration.  At the time of any exercise of any Option,  the Company
may, if it shall determine it necessary or desirable for any reason, require the
Optionee (or Optionee's heirs, legatees or legal representative, as the case may
be), as a condition  to the grant  thereof,  to deliver to the Company a written
representation  of present intention to hold the shares for their own account as
an  investment  and not with a view  to,  or for sale in  connection  with,  the
distribution of such shares,  except in compliance  with applicable  federal and
state securities laws with respect thereto.  In the event such representation is
required  to be  delivered,  an  appropriate  legend  may be  placed  upon  each
certificate  delivered to the Optionee (or Optionee's  heirs,  legatees or legal
representative,  as the case may be) upon his or her  exercise of part or all of
the Option and a stop transfer order may be placed with the transfer agent. Each
Option shall also be subject to the requirement that, if at any time the Company
determines, in its discretion,  that the listing,  registration or qualification
of the shares  subject to the Option upon any  securities  exchange or under any
state or federal law, or the consent or approval of any governmental  regulatory
body is necessary or desirable  as a condition  of or in  connection  with,  the
issuance or purchase of the shares  thereunder,  the Option may not be exercised
in whole or in part unless such listing, registration, qualification, consent or
approval  shall  have been  effected  or  obtained  free of any  conditions  not
acceptable to Company in its sole discretion. The Company shall not be obligated
to take any affirmative  action in order to cause the  exercisability or vesting
of an Option,  or to cause the  exercise of an Option or the  issuance of shares
pursuant  thereto,  to comply  with any law or  regulation  of any  governmental
authority.                                                                      
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     (c) Withholding.  The Board may make such provisions and take such steps as
it may deem necessary or appropriate  for the  withholding of any taxes that the
Company is  required by any law or  regulation  of any  governmental  authority,
whether federal,  state or local, domestic or foreign, to withhold in connection
with  the  exercise  of any  Option,  including,  but not  limited  to:  (i) the
withholding  of delivery of shares of Common  Stock until the holder  reimburses
the Company for the amount the Company is required to withhold  with  respect to
such taxes,  (ii) the canceling of any number of shares of Common Stock issuable
in an amount  sufficient  to reimburse the Company for the amount it is required
to so withhold, (iii) withholding the amount due from any such person's wages or
compensation  due to such  person,  or (iv)  requiring  the  Optionee to pay the
Company  cash in the amount the Company is required to withhold  with respect to
such taxes.                                                                     

     (d)  Governing  Law.  This Plan shall be  governed  by, and  construed  and
enforced in accordance with, the laws of the State of Florida.                  

18. AMENDMENT AND TERMINATION OF THE PLAN                             

     The  Board  may,  at any time and from  time to  time,  amend,  suspend  or
terminate the Plan as to any shares of Common Stock as to which Options have not
been granted;  provided,  however,  that the approval by a majority of the votes
present and entitled to vote at a duly held meeting of the stockholders of nStor
at which a quorum  representing a majority of all  outstanding  voting stock is,
either in person or by proxy, present and voting on the amendment, or by written
consent  in  accordance  with  applicable  state  law  and  the  Certificate  of
Incorporation  and By-Laws of nStor shall be required for any amendment (i) that
changes the requirements as to Eligible Individuals to receive Options under the
Plan,  (ii) that  increases the maximum  number of shares of Common Stock in the
aggregate that may be subject to Options that are granted under the Plan (except
as permitted under Section 15 hereof), or (iii) if approval of such amendment is
necessary  to comply with  federal or state law  (including  without  limitation
Section  162(m) of the Code and Rule 16b-3 under the  Exchange  Act) or with the
rules of any stock  exchange or automated  quotation  system on which the Common
Stock may be listed or traded.  Except as permitted under Section 15 hereof,  no
amendment,  suspension or termination of the Plan shall,  without the consent of
the holder of an Option,  alter or impair rights or obligations under any Option
theretofore granted under the Plan.                                             

19. DISCLAIMER OF RIGHTS                                              

     No  provision  in the Plan,  any Option  granted  or any  Option  Agreement
entered  into  pursuant  to the  Plan  shall be  construed  to  confer  upon any
individual  the right to remain in the employ of or service  with the Company or
to  interfere in any way with the right and  authority of the Company  either to
increase or decrease the  compensation of any  individual,  including any Option
holder,  at any time,  or to  terminate  any  employment  or other  relationship
between  any  individual  and the  Company.  A holder of an Option  shall not be
deemed for any purpose to be a stockholder  of nStor with respect to such Option
except to the extent that such Option  shall have been  exercised  with  respect
thereto and, in addition, a stock certificate shall have been issued theretofore
and delivered to the holder. No adjustment shall be made for dividends (ordinary
or   extraordinary,   whether  in  cash,   securities  or  other   property)  or
distributions  or other  rights for which the  record  date is prior to the date
such stock  certificate  is issued,  except as expressly  provided in Section 15
hereof.                                                                         

20. NONEXCLUSIVITY OF THE PLAN                                        

     The adoption of the Plan shall not be construed as creating any limitations
upon  the  right  and  authority  of the  Board to adopt  such  other  incentive
compensation arrangements (which arrangements may be applicable either generally
to a class or classes of individuals or specifically to a particular  individual
or individuals) as the Board in its discretion determines desirable,  including,
without  limitation,  the granting of stock options or stock appreciation rights
other than under the Plan.                                                      

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21. SEVERABILITY                                                      

     If any provision of the Plan or any Option Agreement shall be determined to
be  illegal  or  unenforceable  by any  court  of law in any  jurisdiction,  the
remaining  provisions  hereof and thereof shall be severable and  enforceable in
accordance with their terms, and all provisions shall remain  enforceable in any
other jurisdiction.                                                             

22. NOTICES                                                           

     Any  communication  or notice  required or  permitted to be given under the
Plan  shall be in  writing,  and  mailed  by  registered  or  certified  mail or
delivered by hand, if to nStor, to its principal  place of business,  attention:
Stock Option Administrator, and if to the holder of an Option, to the address as
appearing on the records of the Company.                                        

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PROXY CARD

nSTOR TECHNOLOGIES, INC.                                                        
10140 Mesa Rim Road                                                             
San Diego, CA  92121                                                            

THIS PROXY IS SOLICITED ON BEHALF OF THE
COMPANY'S BOARD OF DIRECTORS

        The undersigned holder of capital stock of nStor  Technologies,  Inc., a
Delaware  corporation (the "Company"),  hereby appoints Jack Jaiven and H. Irwin
Levy and each of them, as proxies for the  undersigned,  each with full power of
substitution,  for and in the name of the undersigned to act for the undersigned
and to vote,  as  designated  below,  all of the  shares of common  stock of the
Company that the  undersigned is entitled to vote at the 2001 Special Meeting of
Stockholders  of the Company,  to be held at 10:00 a.m.,  local time, on January
10, 2001, at The Hilton Palm Beach  Airport,  150 Australian  Avenue,  West Palm
Beach, and at any adjournment(s) or postponement(s) thereof.                    

    (1)      Approval of the issuance of (a) 39,000,000 shares, or approximately
             34%,  of our  common  stock to Halco  Investments  L.C.,  an entity
             controlled  by  Maurice  Halperin,  the  chairman  of our  board of
             directors,  upon  conversion of our Series K Convertible  Preferred
             Stock; (b)  approximately  16,257,000 shares of our common stock to
             all of our preferred stockholders to induce such holders to convert
             their shares of preferred stock and any accrued  dividends  thereon
             into common stock; and (c) 750,000 shares of our common stock to H.
             Irwin  Levy,  the  vice-chairman  of our  board  of  directors,  in
exchange for $300,000 owed to Mr. Levy by our company.

 [ ] FOR [ ] AGAINST [ ] ABSTAIN

             The disinterested  members of our board of directors recommend that
you vote "FOR" the approval of proposal 1.            

    (2)      Approval  of an  amendment  to  our  certificate  of  incorporation
             increasing  the number of  authorized  shares of common  stock from
75,000,000 to 200,000,000.                            

 [ ] FOR [ ] AGAINST [ ] ABSTAIN

             The disinterested  members of our board of directors recommend that
you vote "FOR" the approval of proposal 2.            

    (3)      Approval  of an   amendment  to our  certificate  of  incorporation
eliminating the Series J Convertible Preferred Stock. 

 [ ] FOR [ ] AGAINST [ ] ABSTAIN

             The members of our board of directors recommend that you vote "FOR"
the approval of proposal 3.                           

(4)      Approval and adoption of our 2001 Stock Option Plan.           

 [ ] FOR [ ] AGAINST [ ] ABSTAIN

             The board of directors  recommends that you vote "FOR" the approval
of proposal 4.                                                                  

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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 FOR PROPOSALS 1 THROUGH 4.                                                

The  undersigned hereby  acknowledges receipt of the  Notice of Special Meeting,
and the proxy statement.                                                        

Dated_________________________, 2001    

------------------------------------    
(Signature)       

------------------------------------    
(Signature if held jointly)     

IMPORTANT:  Please sign exactly as your name appears hereon and mail it promptly
even  though you now plan to attend the  meeting.  When shares are held by joint
tenants,  both should sign. When signing as attorney,  executor,  administrator,
trustee or guardian,  please give full title as such. If a  corporation,  please
sign in full  corporate  name by president  or other  authorized  officer.  If a
partnership, please sign in partnership name by authorized person.              

PLEASE  MARK,  SIGN AND DATE  THIS  PROXY  CARD AND  PROMPTLY  RETURN  IT IN THE
ENVELOPE PROVIDED. NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘PRES14A’ Filing	Date	First	Last	Other Filings

	10/29/11	15
	11/20/06	8
	1/16/03	21
	3/12/02	22
	1/17/02	21
	1/16/02	21
For Period End:	1/10/02	2	4	DEFS14A
	12/31/01	21		10-K, 10-K/A, DEF 14A, NT 10-K, PRE 14A
	12/27/01	22
	12/14/01	4
	12/7/01	2	5
Filed on:	11/29/01			SC 13D/A
	11/20/01	8		8-K
	11/19/01	8	10
	11/15/01	6	13
	10/29/01	13	25
	7/17/01	21
	6/30/01	18	21	10-Q, NT 10-Q
	6/28/01	20
	6/26/01	8	22	SC 13D
	6/22/01	18	21
	6/1/01	22
	5/29/01	19
	4/12/01	18	21
	1/27/01	20
	1/17/01	18	21
	1/10/01	34
	1/1/01	19	20
	12/31/00	9	20	10-K, 10-K/A, NT 10-K
	12/29/00	20
	10/18/00	21
	4/10/00	19		4
	3/20/00	19
	3/13/00	19
	2/24/00	20		SC 13D, SC 13D/A
	2/4/00	20
	1/27/00	21
	1/26/00	7	22
	1/17/00	18
	1/10/00	20		S-8
	1/1/00	18
	12/31/99	18		10-K, DEF 14A, NT 10-K
	12/29/99	19
	1/1/99	22
	12/31/98	18		10-K, 10-K/A, NT 10-K
	6/1/98	19	22
				List all Filings

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Filing Submission 0000075448-01-500028 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Nstor Technologies Inc – ‘PRES14A’ for 1/10/02

On: Thursday, 11/29/01 · For: 1/10/02 · Accession #: 75448-1-500028 · File #: 1-12895

Preliminary Proxy Solicitation Material — Special Meeting — Schedule 14AFiling Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Preliminary Proxy Solicitation Material — Special Meeting — Schedule 14A
Filing Table of Contents