SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
__X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________________________
Commission File Number: 0-8354
nSTOR TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 95-2094565
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Century Blvd.
West Palm Beach, FL 33417
(Address of principal executive office)
(561) 640-3103
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes X No _____
Number of shares outstanding of the Registrant's Common Stock,
par value $.05 per share, as of March 31, 1998: 18,670,477
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed financial statements included herein have
been prepared by the registrant, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations; however, the registrant believes that
the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and
the notes thereto included in the registrant's annual report on
Form 10-K for the year ended December 31, 1997.
The condensed financial statements for the interim
periods included herein, which are unaudited, include, in the
opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial
position and results of operations of the registrant for the
periods presented. The results of operations for interim periods
should not be considered indicative of results to be expected for
the full year.
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nSTOR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
Mar. 31, Dec. 31,
ASSETS (Note 3) 1998 1997
---------------- --------- ---------
Current assets:
Cash and cash equivalents:
Unrestricted $ 82 $ 61
Restricted 1,031 1,024
Accounts receivable (Note 2) 3,458 3,863
Inventories (Note 2) 3,166 3,577
Prepaid expenses and other 266 262
------- -------
Total current assets 8,003 8,787
Property and equipment, net (Note 2) 2,154 2,060
Goodwill and other intangible assets,
net (Note 2) 5,830 5,915
------- -------
$15,987 $16,762
======= =======
LIABILITIES
-----------
Current liabilities:
Borrowings (Note 3) $ 3,500 $ 3,445
Accounts payable and other 4,219 6,568
Royalty liability 208 208
------- -------
Total current liabilities 7,927 10,221
Long-term debt (Note 3) 5,563 1,504
------- -------
Total liabilities 13,490 11,725
------- -------
Commitments and contingencies
STOCKHOLDERS' EQUITY
--------------------
Preferred stock, $.01 par; shares
authorized 1,000,000; outstanding none - -
Common stock, $.05 par; shares authorized
24,000,000; outstanding 18,670,477 934 934
Additional paid-in capital 30,499 30,499
Deficit (28,936) (26,396)
------- -------
Total stockholders' equity 2,497 5,037
------- -------
$15,987 $16,762
======= =======
See accompanying notes to consolidated financial statements.
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nSTOR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Three Months
Ended March 31,
--------------------
1998 1997
--------- ---------
Sales $ 3,606 $ 9,003
Cost of sales 2,958 5,892
------- -------
Gross profit 648 3,111
------- -------
Operating expenses:
Selling, general and administrative 2,474 2,158
Research and development 568 662
------- -------
Total operating expenses 3,042 2,820
------- -------
Income (loss) from operations (2,394) 291
Interest income 16 31
Interest expense (162) (18)
------- -------
Net income (loss) ($ 2,540) $ 304
======= =======
Basic and diluted net income (loss)
per common share ($ .14) $ .02
======= =======
Average number of common
shares outstanding:
Basic 18,670,477 18,670,477
========== ==========
Diluted 18,670,477 18,778,204
========== ==========
See accompanying notes to consolidated financial statements.
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nSTOR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
Addi-
Common Stock tional
----------------- Paid-In
Shares Amount Capital Deficit Total
---------- ------ ------- ------- -------
Balances, December
31, 1997 18,670,477 $934 $30,499 ($26,396) $ 5,037
Net loss for the
three months
ended March
31, 1998 - - - (2,540) (2,540)
---------- ---- ------- ------- -------
Balances, March
31, 1998 18,470,477 $934 $30,499 ($28,936) $ 2,497
========== ==== ======= ======= =======
See accompanying notes to consolidated financial statements.
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nSTOR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months
Ended March 31,
-------------------
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 2,540) $ 304
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization 281 180
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 405 (767)
Decrease (increase) in inventories 411 (1,490)
Increase in prepaid expenses and other (11) (47)
Decrease in accounts payable and other (2,340) (470)
-------- --------
Net cash used by operating activities (3,794) (2,290)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (290) (82)
-------- --------
Net cash used by investing activities (290) (82)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 12,563 -
Repayment of borrowings (8,458) -
-------- --------
Net cash provided by financing activities 4,105 -
-------- --------
Net increase (decrease) in unrestricted cash and
cash equivalents during the period 21 (2,372)
Unrestricted cash and cash equivalents at the
beginning of the period 61 4,619
-------- --------
Unrestricted cash and cash equivalents at the
end of the period $ 82 $ 2,247
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 154 $ -
======== ========
See accompanying notes to consolidated financial statements.
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nSTOR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of nStor
Technologies, Inc. and all wholly-owned subsidiaries (collectively,
the "Company"). Significant intercompany balances and transactions
have been eliminated in consolidation.
Business
The Company is engaged as a manufacturer and supplier of
information storage solutions, including external RAID (Redundant
Array of Independent Disks) subsystems and data storage enclosures,
UNIX-based memory products, storage management hardware and
software, digital media products, and enterprise resource planning
manufacturing solutions.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
Sales revenue is recognized upon shipment provided that there are
no significant post-sale obligations and the collectibility is
reasonably assured. During the periods presented in the
accompanying consolidated Statements of Operations, there were no
significant post-sales obligations except for normal warranty
costs.
Warranty Costs
Warranty costs are provided on the basis of estimated net future
costs related to products sold.
Research and Development Costs
Research and development costs are expensed as incurred.
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Reclassifications
Certain prior years' amounts have been reclassified to conform to
the current year's presentations. These reclassifications had no
impact on operating results previously reported.
(2) BALANCE SHEET COMPONENTS (in thousands)
Substantially all assets are pledged as collateral for
indebtedness. See Note 3 to Consolidated Financial Statements.
Mar.31, Dec.31,
1998 1997
------ ------
Accounts Receivable
Trade receivables $3,609 $4,218
Less allowance for
doubtful accounts (291) (500)
------ ------
3,318 3,718
Other receivables 140 145
------ ------
$3,458 $3,863
====== ======
Inventories
Raw materials $2,730 $3,299
Work-in-process 193 -
Finished goods 243 278
------ ------
$3,166 $3,577
====== ======
Inventories are stated at the lower of cost or market, with cost
being determined based on the first-in, first-out (FIFO) method.
Reserves are recorded as necessary to reduce obsolete inventory to
estimated net realizable value.
8
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Mar.31, Dec.31,
1998 1997
------ ------
Property and Equipment
Computer equipment $1,023 $ 809
Computer software 927 907
Furniture, fixtures
and office equipment 286 286
Leasehold improvements 312 283
Other 238 232
------ ------
2,786 2,517
Less accumulated depreciation (632) (457)
------ ------
$2,154 $2,060
====== ======
Property and equipment are stated at cost. Depreciation is
provided under the straight-line method over the estimated useful
lives, principally five years.
Goodwill and Other Intangible Assets
Goodwill $6,038 $6,038
Intellectual assets 347 347
Other 21 -
------ ------
6,406 6,385
Less accumulated amortization (576) (470)
------ ------
$5,830 $5,915
====== ======
In connection with acquisitions completed in 1996, the Company
recorded goodwill representing the excess purchase price over the
fair value of assets acquired. In addition, the Company recorded
intellectual assets consisting of trademarks and proprietary
technology, both of which are carried at cost and are being
amortized on a straight-line basis over fifteen years.
(3) BORROWINGS
The Company's short-term borrowings as of March 31, 1998
principally consisted of an asset based revolving bank credit
facility (the "Revolver") in the amount of $3,050,000. The
Revolver bears interest, payable monthly, based on LIBOR plus 3%
(8.7% at March 31, 1998), is guaranteed by the Company and matures
on June 30, 1998, as extended. The Company pays a commitment fee
on the unused portion of the Revolver at one-eighth of one percent
(1/8 of 1%) per annum. Advances under the Revolver are
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collateralized by substantially all assets of the Company,
including approximately $1 million reflected as Restricted Cash at
March 31, 1998. The loan agreement provides for certain
restrictions on the payment of dividends, the incurrence of
additional indebtedness and capital expenditures, and requires
minimum working capital, tangible net worth and other financial
covenants. The Company has not consistently been in compliance
with certain financial covenants which resulted in amendments to
the Revolver in December 1997 and February 1998. Among other
modifications, the amendments waived compliance with the financial
covenants and reduced the original maximum loan amount from $7
million to $3,250,000 through April 30, 1998 and to $3 million
thereafter until maturity on June 30, 1998.
As of March 31, 1998, long-term debt included borrowings of $5
million under promissory notes and $563,000 under convertible notes
(the "Convertible Notes").
At December 31, 1997, a significant portion of the Company's long
term debt consisted of a Promissory Note with H. Irwin Levy, a
director and principal stockholder of the Company, under which the
Company could borrower up to $1 million (the "Director Loan"). The
outstanding balance on that date was $950,000. Through its March
1998 maturity date, the Director Loan bore interest, payable
monthly, at prime plus one and one-half percent (1.5%) per annum,
was subordinated to the Revolver and was collateralized by
substantially all assets of the Company. In connection with the
Director Loan, as of March 31, 1998, the Company issued warrants to
Mr. Levy to purchase 65,000 shares of common stock of the Company
at a purchase price of $2.35 per share, exercisable on the date of
grant, and expiring on September 16, 2000.
During the first quarter of 1998, Mr. Levy advanced an additional
net amount of $1.3 million (consisting of $1,710,000 advanced, less
$410,000 repaid). On March 5, 1998, an Amended and Restated Loan
Agreement was executed increasing the Director Loan to $2 million.
In March 1998, three private investors each loaned the Company an
additional $1 million (together with the $2 million Director Loan,
hereinafter collectively referred to as the "Subordinated Loans").
The Subordinated Loans bear interest at 10% per annum, payable
monthly, mature on September 5, 1999, are subordinated to the
Revolver and are collateralized by substantially all assets of the
Company. In connection with the Subordinated Loans, warrants were
issued to purchase an aggregate of 1,666,668 shares (including
666,666 to Mr. Levy) of common stock of the Company, exercisable on
the date of grant at $1.50 per share, and expiring on March 5,
2001.
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In connection with the Company's private placement of preferred
stock in April 1998 (see Note 5 to Consolidated Financial
Statements), Mr. Levy sold $1 million of participation interests in
the $2 million Director Loan to private investors, including
$250,000 to members of his family. In addition, proceeds from the
private placement were used to repay $735,000 in advances made by
Mr. Levy during March and April which were in excess of the $2
million Director Loan, $250,000 of which had been advanced as of
March 31, 1998 and is included in current borrowings.
The Convertible Notes have a face amount of $400,000, have been
discounted based on an effective interest rate of 12%, include
accrued interest of $208,000 and $206,000 at March 31, 1998 and
December 31, 1997, respectively, mature in 2000 and are convertible
into 160,000 shares of common stock of the Company (based on one
common share for each $2.50 of face amount).
(4) INCOME TAXES
As of December 31, 1997, there were unused net operating loss
carryforwards (the "NOL's") for regular federal income tax purposes
of approximately $8.4 million principally expiring in 2012, for
which no financial statement benefit had been recognized. In
addition, the Company has research and development tax credit
carryforwards of approximately $637,000 which expire from 2002
through 2012 and in conjunction with the Alternative Minimum Tax
("AMT") rules, the Company has available AMT credit carryforwards
of approximately $238,000, at December 31, 1997, which may be used
indefinitely to reduce regular federal income taxes.
(5) SUBSEQUENT EVENTS
Borg Adaptive Technologies, Inc. ("Borg")
Effective April 23, 1998, the Company acquired all the outstanding
common stock of Borg, a privately owned company headquartered in
Boulder, Colorado, and the developer of Adaptive RAID, a patented
next-generation RAID technology. The purchase price consisted of
approximately $336,000, of which $311,000 was used for the
retirement of debt, and the issuance of warrants to purchase
400,000 shares of common Stock of the Company, exercisable on May
1, 1998 at $1.38 per share and expiring on December 26, 2000.
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Additional Financing/Convertible Preferred Stock
Effective April 14, 1998, the Company received $3.5 million in cash
(including $1 million from Mr. Levy) from a private placement of 8%
convertible preferred stock (the "Convertible Preferred Stock"),
including $1 million deposited in escrow to be released to the
Company upon stockholder approval of an increase in the authorized
shares of the Company's Common Stock at the next Annual Meeting,
expected to be held on June 8, 1998. The Convertible Preferred
Stock is convertible into common stock, on various dates through
April 2000, at a conversion price equal to the lesser of $1.44 per
share or 77% of the market price at the date of conversion. At
closing, the Company issued warrants to purchase 280,000 shares of
the Company's Common Stock (including 80,000 to Mr. Levy),
exercisable at any time through April 2001 at an exercise price of
$1.50 per share. See Note 3 to Consolidated Financial Statements
in connection with Subordinated Loans.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
With the exception of discussion regarding historical information,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward looking statements. Such
statements are based on current expectations subject to
uncertainties and other factors which may involve known and unknown
risks that could cause actual results of operations to differ
materially from those projected or implied. Further, certain
forward looking statements are based upon assumptions about future
events which may not prove to be accurate.
Risks and uncertainties inherent in forward looking statements
include, but are not limited to, the Company's future cash flows
and ability to obtain sufficient financing, timing and volume of
sales orders, level of gross margins and operating expenses, lack
of market acceptance of the Company's new product lines, price
competition, conditions in the technology industry and the economy
in general, as well as legal proceedings. The economic risk
associated with materials cost fluctuations and inventory
obsolescence is significant to the Company. The Company's ability
to manage its inventories through procurement and utilization of
component materials could have a significant impact on future
results of operations or financial condition. Historical results
are not necessarily indicative of the operating results for any
future period.
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Subsequent written and oral forward looking statements attributable
to the Company or persons acting on its behalf are expressly
qualified in their entirety by cautionary statements in this Form
10-Q and in other reports filed by the Company with the Securities
and Exchange Commission. The following discussion should be read
in conjunction with the Consolidated Financial Statements and the
Notes thereto included elsewhere in this filing.
As a result of two acquisitions completed during 1996, (see Note 2
to Consolidated Financial Statements) the Company is engaged as a
manufacturer and supplier of information storage solutions,
including external RAID subsystems and data storage enclosures,
UNIX-based memory products, storage management hardware and
software, digital media products, and enterprise resource planning
manufacturing solutions.
Results of Operations
For the three months ended March 31, 1998 the Company incurred a
net loss of $2.5 million as compared to net income of $.3 million
for the quarter ended March 31, 1997.
Sales
Net sales for the three months ended March 31, 1998 decreased to
$3.6 million from $9 million during the three months ended March
31, 1997, principally attributable to the following: (i) entering
1997 with a significantly higher backlog of sales orders than were
in place entering 1998; (ii) delay of customer deliveries and in
some cases, missed sales orders caused by the Company's inability
to meet customer production schedules brought about by the
Company's cash flow difficulties; and (iii) lost sales
opportunities while reorganizing and training the Company's sales
force under its new Vice President of Sales.
During the three months ended March 31, 1998, the Company completed
several new distributor and OEM agreements, negotiated the
acquisition of new Adaptive RAID software (see Note 5 to
Consolidated Financial Statements) and finalized the reorganization
of the sales force, all of which are projected to positively affect
future sales of the Company.
Cost of Sales/Gross Margins
Gross margins for the three months ended March 31, 1998 decreased
to 18% from 35% for the comparable three months ended March 31,
1997. The Company's gross margins are dependent, in part, on
product mix which fluctuates from time to time. The decline in
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gross margins is primarily attributable to an increased sales
level of products with overall lower margins and cash flow
difficulties which limited the Company's ability to purchase
products in the most cost efficient manner.
Management expects an improvement in gross margins for the
remainder of fiscal 1998 resulting from concentrating sales efforts
on higher margin enhanced products, improved purchasing power
through the infusion of additional working capital and a reduction
in manufacturing overhead through strategic staffing.
Operating Expenses
Operating expenses which include both research and development and
selling, general and administrative expenses, increased to
approximately $3 million for the quarter ended March 31, 1998 from
$2.8 million for the quarter ended March 31, 1997, representing an
overall 8% increase. Operating expenses for the 1998 quarter
represented 84% of net sales while like expenses during the 1997
quarter were only 34% of net sales. This increase is primarily the
result of the decline in sales for the comparable periods rather
than an increase in the overall level of operating expenses.
Selling, general and administrative costs for the quarter ended
March 31, 1998 represented 69% of net sales and reflected a 15%
increase over the 1997 expenses. Selling and marketing costs
primarily consist of salaries, commissions and related benefits,
expenses in connection with tradeshows, conferences and seminars,
facilities expenses and other miscellaneous costs allocated to
those personnel. General and administrative costs primarily
consist of general corporate expenses, executive officers, finance
and accounting salaries and related benefits, professional fees
such as legal and accounting, facilities costs allocated to those
personnel, and amortization and depreciation of certain property,
equipment and intangibles, principally goodwill. The Company does
not expect selling, general and administrative expenses to
significantly increase in the near future, except to the extent
that sales commissions and other marketing costs may increase due
to increases in sales revenue.
Research and development costs which are expensed as incurred,
represented 16% of net sales for the quarter ended March 31, 1998
and reflected a 14% decrease over the comparable 1997 expenses.
Research and development expenses for the quarter ended March 31,
1997 included significant costs associated with the redesign,
standardization and receipt of agency certification for new product
development following the acquisition of Parity Systems, Inc. in
December 31, 1996.
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Research and development costs may fluctuate considerably from time
to time depending on a variety of factors. These costs are
substantially incurred in advance of related revenues, or in
certain situations, may not ultimately result in generating
revenues. Management anticipates an increase in these expenses for
the remainder of fiscal 1998 primarily brought about by the recent
acquisition (see Note 5 to Consolidated Financial Statements) of
Adaptive RAID technology which will require certain additional
development and integration into the Company's existing product
line.
Interest Expense
Interest expense incurred by the Company for the three months ended
March 31, 1998 was $162,000, representing a significant increase
over the 1997 period as the Company was principally debt free
during the comparable period in 1997. Management expects interest
expense to continue to increase over the remainder of fiscal 1998
due to additional borrowings incurred during the quarter ended
March 31, 1998 (see Note 3 to Consolidated Financial Statements)
and those expected to be incurred in the future. See "Liquidity
and Capital Resources".
Convertible Preferred Stock
As a result of the Company's private placement of convertible
preferred stock (see Note 5 to Consolidated Financial Statements)
future earnings available to common stockholders will be reduced by
the amount of preferred stock dividends.
Liquidity and Capital Resources
Net cash used by operating activities amounted to $3.8 million and
$2.3 million for the three months ended March 31, 1998 and 1997,
respectively. The most significant uses of cash for the 1998
period was the $2.5 million loss from operations and the reduction
of accounts payable and other liabilities of $2.3 million,
partially offset by cash provided by a reduction in accounts
receivable and inventories of approximately $.8 million. The most
significant use of cash for the 1997 comparable period was an
increase in accounts receivable and inventories of $2.3 million.
Net cash used by investing activities was approximately $300,000
and $80,000 for the three months ended March 31, 1998 and 1997,
respectively, both resulting from investments in property and
equipment.
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Net cash provided by financing activities for the three months
ended March 31, 1998 was $4.1 million and consisted of net
borrowings of $4.3 million under promissory notes with private
investors, including $1.3 million with H. Irwin Levy, a director
and principal stockholder of the Company, offset by a net reduction
of $195,000 under an asset based revolving bank credit facility.
(See the following discussion and Note 3 to Consolidated Financial
Statements).
In May 1997, the Company obtained an asset based revolving bank
credit facility (the "Revolver") under which the Company could
borrow up to $7 million. (See Note 3 to Consolidated Financial
Statements). In the months that followed, the Company was not in
compliance with certain financial covenants of the Revolver
resulting in amendments to the Revolver in December 1997 and
February 1998, in which the bank waived compliance with those
covenants and the maximum borrowings were reduced to $3,250,000
through April 30, 1998 and $3 million thereafter, through the
revised maturity date of June 30, 1998. The Revolver bears
interest, payable monthly, at LIBOR plus 3%, is guaranteed by the
Company and is collateralized by substantially all assets of the
Company, including approximately $1 million reflected as Restricted
Cash at March 31, 1998. The outstanding balance under the Revolver
at March 31, 1998 was $3,050,000 and there was no additional
availability at that time.
In September 1997, H. Irwin Levy, agreed to loan up to $1 million
to the Company (the "Director Loan"). The Director Loan was
subordinated to the Revolver and was collateralized by
substantially all assets of the Company. See Note 3 to
Consolidated Financial Statements for additional terms of the
Director Loan.
In the first quarter of 1998, Mr. Levy advanced an additional net
amount of $1,300,000 (consisting of $1,710,000 advanced, less
$410,000 repaid). An Amended and Restated Loan Agreement,
dated March 5, 1998, was executed between the Company and Mr.
Levy bringing the total Director Loan to $2 million. In March
1998, three private investors each loaned the Company an additional
$1 million (together with the $2 million Director Loan, hereinafter
collectively referred to as the "Subordinated Loans"). The
Subordinated Loans are subordinated to the Revolver and
collateralized by substantially all assets of the Company and
mature September 5, 1999. See Note 3 to Consolidated Financial
Statements for additional terms of the Subordinated Loans. In
April 1998, Mr. Levy advanced an additional $485,000 which together
with $250,000 advanced as of March 31, 1998, was repaid from
proceeds of a private placement of preferred stock (see below).
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In April 1998, the Company received $3.5 million in cash (including
$1 million from Mr. Levy) from a private placement of 8%
convertible preferred stock (see Note 5 to Consolidated Financial
Statements). In addition, the Company is currently negotiating
with several potential lenders to obtain an asset based revolving
credit facility ("Potential Financing"). Management believes that
proceeds already received from the Subordinated Loans and private
placement, together with the Potential Financing, if consummated,
will be sufficient to satisfy the Company's working capital needs
during 1998, as presently contemplated, including repayment of the
Revolver. There can be no assurance, however, that the Company
may not require additional capital beyond its current forecasted
needs nor that any such additional required funds would be
available on terms acceptable to the Company, if at all, at such
time or times required by the Company.
Effect of Inflation
Inflation has not had an impact on the Company's operations and the
Company does not expect that it will have a material impact in
1998.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
In June 1996, a Complaint was filed in the Supreme Court of the
State of New York, County of Nassau, against the Company and its
Chairman. The plaintiffs claim to have contractual and proprietary
interests in the prospect of a transaction to purchase certain net
assets acquired by the Company and seek compensatory damages plus
punitive damages.
In August 1996, a Complaint was filed in the same Court making
similar allegations against a subsidiary, its president R. Daniel
Smith, and Intelligent Manufacturing Systems, Inc. ("IMS"), a
company for which Mr. Smith was the Chief Executive Officer and
sole shareholder. In this action, the plaintiffs seek compensatory
damages plus punitive damages for alleged breach of contract.
Both cases are currently in discovery. Counsel for the Company
believes that the Company has good defenses to both claims and that
it will not incur any material liability. The Company is unaware
of any facts that would support any of the plaintiffs' claims and,
accordingly, the Company believes that the claims are without
merit.
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From time to time, the Company is subject to legal proceedings and
other claims arising in the ordinary course of business. In the
opinion of management, the Company is not a party to any litigation
the outcome of which would have a material adverse effect on its
business or operations.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
10.1 Stock Purchase Agreement dated February 2, 1998
between nStor Corporation, Inc. and David Stallmo,
Randy K. Hall and Gerald Hohoenstein
10.2 Form of amendment to Stock Purchase Agreement at
10.1. (four amendments, all of which extended the
closing date of the proposed transaction).
(b) Reports on Form 8-K:
The Company was not required to file Form 8-K during the
quarter for which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
nSTOR TECHNOLOGIES, INC.
(Registrant)
/s/ Larry J. Calise
May 14, 1998 _______________________________
Larry J. Calise,
Principal Financial and
Accounting Officer
18
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EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is executed this 3rd day of February, 1998 (the
"Effective Date"), by and between nSTOR CORPORATION, INC., a
Delaware corporation (the "Buyer") and DAVID STALLMO, RANDY K.
HALL, GERALD HOHENSTEIN (collectively, the "Shareholders").
RECITALS:
A. The Shareholders and Ambex Venture Group, LLC ("AVG") own
all of the outstanding shares of BORG ADAPTIVE TECHNOLOGIES,
INC., a Colorado corporation (the "Company"). The number and
kind of shares are set forth on Exhibit 1 attached hereto and
incorporated herein (hereinafter, such shares are referred to
collectively as the "Shares").
B. The Buyer and Shareholders mutually desire to purchase and
sell the Shares upon the terms and conditions hereinafter set
forth.
NOW THEREFORE, for and in consideration of the mutual promises
herein made, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, IT IS
HEREBY AGREED AS FOLLOWS:
ARTICLE I -- PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale. At Closing, the Shareholders and AVG
shall sell and deliver to the Buyer, and the Buyer shall purchase
and accept from the Shareholders and AVG, the Shares.
1.2 Closing. The Closing (the "Closing") of the purchase of
Shares shall take place at 2:00 p.m., local time, on February 27,
1998, at the offices of Hensley & Kennedy, P.C., 1877 Broadway,
Suite 702, Boulder, CO 80302, or at such other time and place as
may be mutually agreed to by the Buyer and the Shareholders (the
"Closing Date").
1.3 Exclusions from Sale. The Shareholders and AVG represent,
and the Buyer acknowledges, that the following items shall not be
transferred to the Buyer at Closing, but shall be distributed or
otherwise transferred by the Company to the Shareholders and AVG
prior to Closing: (i) all liabilities not specifically provided
for in this Agreement; (ii) the Company's deferred compensation,
pension, profit sharing and similar retirement plans, if any; and
(iii) any liabilities of Ambex Technologies, Inc., Borg
Technologies, Inc., or Borg Development Partners, LLC, with the
sole exception of the License and Development Agreement between
Borg Technologies, Inc., and Borg Development Partners, LLC, and
Seek Systems, Inc., dated May 16, 1995, as amended by Letter
Agreement dated May 16, 1995, and as further amended by
<PAGE>
the agreement signed by Seek Systems, Inc. dated October 23,
1996, which agreement is being assumed by Buyer pursuant to the
terms of this Agreement.
ARTICLE II -- CONSIDERATION FOR TRANSFER
2.1 Purchase Price of Shares. The total consideration to
be paid by the Buyer to the Shareholders and AVG for the Shares
shall be approximately $325,000.00 (which amount may vary based
on the actual payoff of the promissory note described in Section
2.2(a) below) plus the warrants listed in Section 2.3 and the
royalty payments due per Section 2.4 below.
2.2 Payment of the Purchase Price. The Purchase Price
shall be paid as follows:
(a) At Closing, the Buyer shall pay to Ambex Technologies,
Inc., an amount equal to $300,000.00 plus accrued interest at the
rate of 6.5% per annum to satisfy that certain Promissory Note
from the Company dated October 7, 1997 (the "Note").
(b) The balance of the Purchase Price
($25,000.00) shall be paid to the Shareholders and AVG in
proportion to their ownership of the shares as set forth on
Exhibit 1.
2.3 Warrants. Buyer shall deliver the warrants in the form
attached as Exhibits 2.3(a)-(d).
2.4 Royalty Payments on Sale of NT Product. Buyer will pay
to Shareholders and AVG a royalty payment of five percent of the
gross sales (defined as sales minus returns) of the NT software
product ( defined as: the company's existing RAID disk array
device driver operating under the NT operating system, and only
the NT operating system) for as long as the product is sold. The
royalty payment will be paid quarterly or as otherwise agreed by
the parties in writing and will be divided among the Shareholders
and AVG as follows:
(a) 20% to Ambex Venture Group, LLC;
(b) 32% to David Stallmo;
(c) 24% to Randy K. Hall; and
(d) 24% to Gerald Hohenstein.
Notwithstanding the foregoing, Buyer shall have no obligation to
continue development or sale of the NT product if sales of the
product are not sufficiently profitable, as determined by Buyer
in its sole discretion. The parties agree to enter into a
separate royalty agreement at closing containing the terms set
forth above and such additional terms as may be mutually
agreeable to the parties.
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ARTICLE III -- LIABILITIES
3.1 Non-Assumption of Liabilities. Except for the
contracts and other current liabilities, if any, specifically
described in Exhibit 3.1, and the expenses described in Section
12.4 of this Agreement, the Buyer shall not assume, pay, perform,
discharge, or accept any other liabilities, debts or obligations
of the Company of any kind whatsoever, whether actual,
contingent, accrued, known or unknown, including, without
limitation, any liabilities relating to taxes, employee
compensation, loans to shareholders, pension, profit-sharing,
health insurance, disability insurance or other employee benefit
programs, worker's compensation, breach or negligent performance
of any contract, or breach of warranty relating thereto,
liabilities resulting from breach of contract, torts, illegal
activity, unlawful employment or business practice or any other
liability or obligation whatsoever. All such non-assumed
liabilities, debts and obligations shall remain the
responsibility of the Shareholders which shall pay and discharge
the same when and as due.
ARTICLE IV -- OWNERSHIP AND AUTHORITY
In order to induce the Buyer to enter into this Agreement,
the Shareholders make the following representations and
warranties regarding ownership of Shares and authority to
consummate this transaction to the Buyer, each of which shall be
deemed to be independently material and relied upon by the Buyer,
regardless of any investigation made by, or information known to,
the Buyer:
4.1 Ownership of Shares. The Shareholders and AVG are the
sole record and beneficial owners of the kind and number of
Shares as set forth on Exhibit 1. The Shareholders and AVG own
such Shares free and clear of all liens, encumbrances, pledges,
claims and other security interests and all such shares are
validly issued, fully paid and nonassessable. With the sole
exception of the restrictions contained in Sections 4 and 5 of
the Common Stock Purchase Agreement between the parties dated
October 7, 1997, none of the Shares owned by the Shareholders and
AVG are subject to any agreement, judgment, order, voting trust
or proxy or other agreement that either limits or restricts the
Shareholders' and AVG's absolute authority to transfer their
Shares as herein provided or requires the holder thereof to vote
such Shares in any particular manner. By paying the Purchase
Price, the Buyer will acquire title to the Shares, free and clear
of all liens, encumbrances, restrictions, pledges, claims, other
security interests, voting trusts, proxies or such other
agreements.
4.2 Enforceability; Conflicting Obligations. The
Shareholders and AVG have all necessary power and authority to
enter into and consummate the transactions contemplated by this
<PAGE>
Agreement in accordance with its terms and to sell to the Buyer
the kind and number of Shares as set forth on Exhibit 1. This
Agreement is the Shareholders' and AVG's valid and binding
obligation, enforceable against such parties in accordance with
its terms. The execution and delivery of this Agreement do not,
and the consummation of the sale of Shares contemplated hereby
will not, conflict with or violate the provisions of any order,
writ, decree, agreement, contract, restriction (or, in the case
of any shareholder that is a partnership or corporation,
organizational documents) to which the Shareholders and AVG are a
party, or to which the Shareholders and AVG are bound.
ARTICLE V --
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
In order to induce the Buyer to enter into this Agreement,
the Shareholders make the following representations and
warranties, each of which shall be deemed to be independently
material and relied upon by the Buyer, regardless of any
investigation made by, or information known to, the Buyer.
5.1 Subsidiaries. The Company owns no stock or other
securities, nor has any investment in any corporation, joint
venture, partnership or other business enterprise (collectively,
the "Subsidiaries"; individually, a "Subsidiary").
5.2 Organization and Qualification. The Company is a
corporation duly organized, validly existing, and in good
standing under the laws of the State of Colorado. The Company
has filed with the Colorado Secretary of State the most recent
annual report required to be filed by it, has not filed Articles
of Dissolution and has a perpetual period of existence. The
Company is not required to be qualified to transact business in
any other jurisdiction.
5.3 Conflicting Obligations; Consents and Approvals. The
execution and delivery of this Agreement does not, and the
consummation of the sale of the Shares contemplated hereby will
not: (a) conflict with or violate any provisions of the Articles
or Certificates of Incorporation or Bylaws of the Company; (b)
conflict with or violate any provisions of, or result in the
maturation or acceleration of, any obligations under any
contract, agreement, instrument, document, lease, license,
permit, indenture, or obligation, or any law, statute,
ordinance, rule, regulation, code, guideline, order, arbitration
award, judgment or decree, to which the Company is a party; or
(c) violate any restriction or limitation, or result in the
termination or loss of any right (or give any third party
the right to cause such termination or loss), of any kind to
which the Company is bound. Excluding only the approval of Seek
Systems, Inc., to the assignment of its contract to Buyer, no
third-party consents, approvals or authorizations are
necessary for the execution and consummation of the transactions
<PAGE>
contemplated hereby, nor are any such consents, approvals or
authorizations required in order to enable the Buyer to continue
to enjoy the benefits of any contracts, agreements, instruments,
documents, leases, licenses, permits, indentures or rights of the
Company in accordance with their existing terms.
5.4 Capitalization. The entire authorized capital stock of
the Company consists of 5,000,000 shares of Common Stock, no par
value, of which 1,000,000 shares are issued and outstanding.
There are no outstanding subscriptions, options, warrants,
convertible securities or other rights to subscribe for or
acquire any capital stock or securities convertible into capital
stock of the Company.
5.5 Organizational Documents. True, correct and complete
copies of the Articles or Certificates of Incorporation, Bylaws
and other organizational documents of the Company are attached
hereto as Exhibit 5.5.
5.6 Financial Statements. Attached hereto as Exhibit 5.6
are complete copies of the financial statements (including
balance sheets and statements of earnings, stockholders' equity
and cash flow) of the Company for its most recent fiscal year
(collectively, the "Financial Statements") and updated through
December 31, 1997. The balance sheets of the Companies for the
most recent fiscal period hereinafter are referred to as the
"Latest Balance Sheets." The Company's books and records of
accounts accurately reflect all of the assets, liabilities,
transactions and results of operations of the Company, and the
Financial Statements have been prepared based upon and in
conformity therewith. The Financial Statements accurately
present the financial condition and results of operation of the
Company on a cash basis at the dates and for the relevant periods
indicated.
5.7 Real Property; Leases. The Company does not own, lease
or otherwise have any interest in any real estate.
5.8 Personal Property; Good Title; Condition. Except for
such personal property as has been disposed of in the ordinary
course of the Company's business since the date of the Latest
Balance Sheets, the Company owns good and marketable title to all
property which they purport to own (including but not limited to
that reflected on the Latest Balance Sheets), as well as all
property acquired by the Company since the date of the Latest
Balance Sheets. All tangible personal property of the Company is
located at 59 Beaver Way, Boulder, CO 80304. All of such
personal property reflected on the Latest Balance Sheets is
actually on hand, increased and decreased, respectively, by
acquisitions and dispositions of such property in the ordinary
course of business since the date of the Latest Balance Sheets.
All such property is in reasonably good condition and repair
(normal wear and tear excepted), and is owned by the
Company free and clear of all security interests, including any
<PAGE>
conditional sale or other title retention agreements, liens,
claims, charges, pledges, exceptions, and defects of title and
other encumbrances of any kind. Exhibit 5.8 delineates
all equipment and other personal property referred to in this
Section 5.8.
5.9 Inventory. The Company has no inventory.
5.10 Intellectual Property. Exhibit 5.10 lists (or, in the
case of trade secrets and secret processes, generally describes)
all of the (a) patents and patent applications, (b) trademarks,
trade names and applications therefor and service marks, (c)
copyrights and copyright registrations, and (d) trade secrets and
secret processes used, employed or intended to be used or
employed by the Company (hereinafter referred to as the
"Intellectual Property"). The Company owns (or has valid and
enforceable rights to use) all of the Intellectual Property
listed in Exhibit 5.10, and such listed Intellectual Property is
all that which is necessary to conduct the Company's business as
presently conducted. Exhibit 5.10 lists for each item of
Intellectual Property owned by the Company and which is
registered with any foreign, federal or state agency or office,
the registration number thereof, the date of registration and the
agency or office where so registered. The Company is the sole
owner of all right, title and interest in Intellectual
Property which they purport to own and, with respect to
Intellectual Property licensed by the Company, the Company has
valid, binding and enforceable rights to use such Intellectual
Property. There are no interference, opposition or
cancellation proceedings pending or, to the knowledge of the
Shareholders, threatened against the Company or the Intellectual
Property. The use of the Intellectual Property does not infringe
upon the rights of any third party. No claim, suit or action is
pending or, to the Shareholder's knowledge, threatened
alleging that the Company is infringing upon the intellectual
property rights of others. No employee, former employee,
officer, director or shareholder of the Company holds any right,
title or interest in the Intellectual Property and each
Shareholder, by executing this Agreement, waives any right or
interest it may have in and to the Intellectual Property.
5.11 Insurance. The Company is not required by law to have
any insurance and it does not have any insurance covering its
business or its property or equipment. The Company has never
been refused any insurance with respect to any material assets or
operations, nor has coverage been limited in any respect
material to its operations, by any insurance carrier to which the
Company has applied.
5.12 Governmental Authorizations. The Company possesses all
governmental, regulatory and administrative licenses, permits,
approvals and other authorizations (including, without
limitation, occupancy permits for real estate) as are necessary
for the consummation of the transactions contemplated herein or
<PAGE>
the conduct of the Company's business or operations in any state
or jurisdiction. Exhibit 5.12 sets forth a list of all such
licenses, permits, approvals and authorizations and true and
complete copies of each written document evidencing or affecting
such licenses, permits, approvals and authorizations have
been previously delivered to Buyer. The Company is in compliance
with the terms and conditions of all such licenses, permits,
approvals and authorizations. Neither the execution of this
Agreement nor the consummation of the transactions
contemplated herein will result in the revocation, or an adverse
change in the terms or conditions, of any such license, permit,
approval or authorization, and, to the knowledge of the
Shareholders, the same shall continue in full force and
effect in accordance with their present terms unaffected by the
consummation of the transactions contemplated herein.
5.13 Material Contracts and Other Descriptions and Lists.
(a) Leases. There are no leases of real or personal
property to which the Company is a party.
(b) Employment Contracts; Benefits. There are no written
or oral employment, bonus, or incentive compensation arrangements
in effect, or under which any amounts remain unpaid, on the date
of this Agreement or to become payable or effective after the
date of this Agreement.
(c) Terminated Employees. There are no employees earning
base salary at an annual rate of Ten Thousand Dollars ($10,000)
or more who have terminated employment with the Company or who
have announced their intention to terminate employment.
(d) Loans and Borrowing Agreements. With the sole
exception of the Note which will be satisfied at closing, there
are no written or oral (i) loan, credit or borrowing arrangements
or agreements; or (ii) agreements by which the Company has
guaranteed or otherwise became liable or contingently liable for
the debt of another.
(e) Bank Accounts. Exhibit 5.13(e) lists the name of each
bank or savings and loan association, or commodities or
securities firm, in which the Company has an account or safe
deposit box, the numbers of each such account or box, and the
names of all persons having power to borrow, discount debt
obligations, cash or draw checks, enter boxes, sell or buy
securities, or otherwise act on behalf of the Company in any
dealing with such banks or savings and loan associations,
commodities or securities firms.
(f) Capital Expenditures. There are no outstanding
written or oral commitments by the Company to make a capital
expenditure, capital addition or capital improvement.
(g) Non-Compete Covenants. There are no written or oral
<PAGE>
covenants not to compete, nonsolicitation covenants and
nondisclosure covenants in favor of the Company, or binding upon
or against the Company or the Shareholders, except for the terms
of the Release and Covenants Not to Sue executed by the
individual Shareholders and Ambex Technologies, Inc., dated
October 7, 1997, and the terms of Section 5.1 of the Asset
Purchase Agreement between Ambex Technologies, Inc., the Company
and the individual Shareholders, dated October 1, 1997 (the
"Asset Purchase Agreement"). The transactions contemplated by
this Agreement will not violate any of the terms and provisions
of said Releases or the Asset Purchase Agreement.
(h) Powers of Attorney. There is/are no person(s)
holding powers of attorney from the Company.
(i) Discounts. There are no agreements, arrangements or
programs pursuant to which the Company has offered, promised or
made available to its customers any volume discount, rebate,
credit or allowance.
(j) Non-Ordinary Course Agreements. There are no
contracts, agreements or arrangements binding upon the Company
made or entered into other than in the ordinary course of the
Company's business with the exception of the Asset Purchase
Agreement.
Accurate and complete copies of each agreement or document
described in this Section heretofore have been furnished to the
Buyer.
5.14 Litigation. There is no litigation, claim, proceeding
or investigation pending, or, to the Shareholders' knowledge,
threatened against or relating to (i) the Company, its properties
or business, (ii) the transactions contemplated herein or (iii)
the employees, Shareholders, officers, directors or
independent contractors of the Company. Additionally, the
Shareholders know of no state of facts or circumstances that
reasonably could be expected to ripen into litigation, proceeding
or investigation or adversely affect the properties,
business or prospects of the Company. Furthermore, there are no
outstanding orders, decrees or stipulations issued by any
federal, state or local authority to w hich the Company is a
party or subject and which adversely affects or may
adversely affect its properties, business or prospects.
5.15 Compliance with Law.
(a) No Violations. To the Shareholders'
knowledge, the conduct of the business of the Company, including
the conduct or actions of employees, Shareholders, officers,
directors or independent contractors, while in the employ
of the Company does not violate, nor is the Company in default
under, any law, statute, ordinance, rule, regulation, code,
license, permit, guideline, order, arbitration award, judgment or
<PAGE>
decree, including, without limitation, civil rights
legislation, equal employment opportunity legislation,
occupational safety and health legislation, and Buyer will not
after the Closing incur any liability or obligation as a result
of any such violation or default existing at the Closing or
arising or accruing thereafter but based upon conditions extant
at the Closing. Additionally, no expenditures are anticipated
which are necessary or appropriate for the continuation of the
Company's business in compliance with any such law,
statute, rule, regulation, code, license, permit, guidelines,
order, arbitration award, judgment or decree.
(b) Stock Sale. All legal action necessary for the
Shareholders' execution and performance of this Agreement and
consummation of the transactions contemplated hereby have been
duly and validly taken.
5.16 Environmental Concerns.
(a) Definition. The term "Environmental Laws" shall
mean all federal, state, and local laws including statutes,
regulations, ordinances, codes, rules, orders, directives and
other governmental restrictions and requirements
(including, but not limited to, those contained in or evidenced
by permits, temporary permits or exemption letters) relating to
the discharge of air pollutants, water pollutants, solid wastes
or process waste water or otherwise relating to the
environment, hazardous wastes, materials or substances, toxic
substances, asbestos or any process of the Company that have an
impact on the environment, including, but not limited to, the
Federal Solid Waste Disposal Act, the Federal Clean Air Act, the
Federal Clean Water Act, the Federal Resource Conservation
and Recovery Act of 1976, the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Toxic
Substances Control Act, the Federal Water Pollution Control Act,
the National Environmental Policy Act, the Federal Occupational
Safety and Health Act, regulations of the Environmental
Protection Agency, regulations of the Nuclear Regulatory Agency,
or any applicable federal or state regulatory or administrative
agency with authority over natural resources or environmental
protection now in effect or presently scheduled to come into
effect, all as presently amended.
(b) Pending Litigation. The Company is not a party
to or the subject of any litigation or administrative proceeding
nor, to the knowledge of the Shareholders, is any litigation or
administrative proceeding threatened against the Company, which in
either case asserts or alleges that the Company: (i) has violated or
is violating any Environmental Laws, (ii) is required to clean up, remove,
or take remedial or other response action due to the disposal,
depositing, discharge, leaking, leaching or other release or
migration of any pollutants, contaminants, hazardous wastes,
materials or substances or other materials (collectively,
"Hazardous Substances"), (iii) is required to pay all or a
<PAGE>
portion of the cost of any past, present or future cleanup,
removal or remedial or other response action which arises out of
or is related to the disposal, depositing, discharge, leaking,
leaching or other release of any Hazardous Substances.
(c) Storage, Deposit or Treatment of Hazardous
Substances. The Company has not, nor has any other person or
entity, caused or permitted Hazardous Substances to be stored,
discharged or released, deposited, treated, recycled, leaked,
spilled or disposed of on, under or at any real estate occupied
by the Company, which storage, discharge or release, deposit,
treatment, recycling, leakage, spillage or disposition violates
any Environmental Laws.
(d) No Violation. The real estate occupied by the
Company has been and is currently being operated in a manner that
does not violate Environmental Laws. Furthermore, the real
estate used in the operation of the Company's business and
manufacturing facilities, operations and practices, and
its disposal practices are in material compliance with all terms
and conditions of all required permits and further are in
material compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in all applicable
Environmental Laws. Neither the Company nor the Shareholders
have received notice of any past, present or future event,
condition, circumstance, activity, practice, incident,
action or plan which may interfere with or prevent continued
compliance with all applicable Environmental Laws, or which may
give rise to any common law or legal liability, or otherwise form
the basis of any claim, action, suit, proceeding, hearing or
investigation under any applicable Environmental Law, based on or
related to the real estate used in the operation of the Company's
business, operations or practices, or any of the Company's
disposal practices. The Company and the Shareholders have not
received any notice of any investigation, and, to the knowledge
of any of them, none are under investigation, by any federal,
state or local authority for the failure to comply with
Environmental Laws. Neither the Company nor the Shareholders
have made any statements, warranties or representations in any
documents submitted to any federal, state or local regulatory
authority or other governmental body containing untrue
statements of material fact or omitting statements of material
fact rendering the statements made misleading in connection with
any Environmental Law.
(e) Disposal Practices. Neither the Company nor the
Shareholders have any notice or knowledge that any hazardous
waste transporter or disposal facility that has transported,
hauled or otherwise removed or disposed of Hazardous Substances
from the real estate used in the operation of the Company's
business or operations was not properly licensed pursuant to all
applicable Environmental Laws or that such Hazardous Substances
<PAGE>
were not property transported or disposed of at a facility
authorized to receive such Hazardous Substances pursuant to all
applicable Environmental Laws.
(f) Tanks and Vessels. There are no process,
petroleum or Hazardous Substance storage tanks, or vessels or
other facilities on, under or at any real estate occupied by the
Company which contain or previously contained materials which, if
known to be present in soils or ground water, would require
cleanup, removal or other remedial action under Environmental
Law.
(g) Asbestos. To the Shareholders' knowledge the
real estate occupied by the Companies contains no
urea-formaldehyde, asbestos or asbestos by-products.
5.17 Contingent and Undisclosed Liabilities. The Company
has no debts, obligations or liabilities, nor is it subject to
the imposition of any valid governmental or third-party claim
arising from the conduct of the Company's business or the
ownership or use of its properties on or prior to the date
hereof, whether such obligation, liabilities or claims are now
known or unknown, fixed or contingent, of any nature whatsoever,
except: (i) those fully reflected or reserved against on the
Latest Balance Sheet or otherwise specifically described
in this Agreement; or (ii) those contractual and tax liabilities
which have arisen in the ordinary course of the Company's
business and consistent with past practice from the date of the
Latest Balance Sheets through the date hereof and which are not,
singly or in the aggregate, materially adverse to the Company.
5.18 Taxes.
(a) Returns; Taxes Paid. The Company has filed all
tax returns and reports required to be filed by it, including
without limitation returns for all applicable federal, state, and
local income, franchise, sales, use, property, employment excise
and other taxes, and such returns are accurate, complete and
correct. Additionally, the Company has paid all taxes, interest
and penalties required to be paid pursuant to said returns or
otherwise required to be paid by it, and there are no other
taxes, interest or penalties payable on account of its
operations except: (i) as are reflected or reserved against on
the Latest Balance Sheets; or (ii) for taxes arising from the
conduct of the Company's business and ownership of its properties
for and during periods subsequent to the date of the Latest
Balance Sheets and which are not yet due. There are no tax audits
or examinations now pending or, to the Shareholders' knowledge,
threatened with respect to the Company. No correspondence has
been received by the Company from any state taxing authority
requesting information concerning the extent of the Company's
nexus with such state or asserting that the Company has such
nexus so as to impose such state's taxing jurisdiction upon it.
All taxes and assessments which the Company was or is required by
<PAGE>
law to withhold or collect has been and are being withheld or
collected by it and have been and are being paid over to the
proper governmental authorities or are being held by the
Company for such payment. The Company has not waived or extended
any applicable statute of limitations relating to the assessment
of any tax.
(b) Other. The Company: (i) has not filed any
consent or agreement under section 341(f) of the Internal Revenue Code
of 1986, as amended (the "Code"); (ii) has not applied for a tax
ruling; (iii) has not entered into a closing agreement with any
taxing authority; (iv) has not made any payments, is not
obligated to make any payments, or is not a party to any
agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Code section 280G;
(vi) is not a party to any tax allocation or sharing agreement;
or (vii) has not been (or have any liability for unpaid taxes
because it once was) a member of an affiliated group during any
part of any consolidated return year within any part of which
consolidated return year any corporation was also a member of
such group.
5.19 Labor Contracts. The Company is not a party to any
collective bargaining agreement or bound to any other agreement
with a labor union and no proceedings are pending to establish
such an agreement. There are no investigations pending, nor are
there any uncorrected or unresolved citations, complaints or
charges issued by any agency responsible for administering or
enforcing laws relating to labor relations, employee safety or
health, fair labor standards and equal employment opportunity
nor, to the best knowledge of the Shareholders' are any such
investigations, citations, complaints or charges threatened.
5.20 Performance of Contracts, Etc. The Company is not in
default under, nor have they breached any provision of, any
contract, agreement, document, lease, license, permit,
instrument, indenture, insurance policy, or other obligation of
the Company, and there are no oral modifications or past
practices inconsistent with the written terms of any of the
foregoing. All of such contracts, agreements, instruments,
documents, leases, licenses, permits, indentures,
policies and other obligations are currently in full force and
effect. The other parties to such contracts, agreements,
instruments, documents, leases, licenses, permits, indentures,
policies and other obligations have complied with their
obligations thereunder and are not in breach thereof. The
Company has fully performed each such term, condition and
covenant of each such contract, agreement, instrument, document,
lease, license, permit, indenture, policy or other obligation
required to be performed on or prior to the date hereof. The
Shareholders know of no state of facts which, with the giving of
notice or the passing of time, or both, would give rise to any
default.
<PAGE>
5.21 Changes in Financial Position. Since the date of the
Latest Balance Sheets, the business of the Company has been
conducted in the ordinary course thereof and consistent with past
practice, there have not been:
(a) Financial Conditions. Any material and adverse
change in the business, assets, condition (financial or
otherwise) or prospects of the Company;
(b) Business or Property Damages. Any material
damage, destruction or loss (whether or not covered by insurance)
adversely affecting the business, properties or prospects of the
Company; or
(c) Extraordinary Events. Any transaction outside
the ordinary course of business of the Company.
5.22 Employee Benefit Plans.
(a) General. The Company is not a party to any
"employee pension benefit plan" (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA) or other employee benefit plans
(including without limitation, those providing any stock option,
stock purchase, stock appreciation right, bonus, deferred
compensation, excess benefits, profit sharing, pension, thrift,
savings, stock bonus, employee stock ownership, salary
continuation, severance, retirement, supplemental retirement,
short- or long-term disability, dental, vision care,
hospitalization, major medical, life insurance, accident
insurance, vacation, holiday and/or sick leave pay, tuition
reimbursement, executive perquisite or other employee benefit(s)
maintained, or contributed to, or required to be contributed to,
by the Company for the benefit of any officers or employees,
current or former, active or inactive, of the Company, whether on
an active or frozen basis (all of the foregoing being herein
called "Benefit Plans"). The Company does not have any formal
plan or commitment, whether legally binding or not, to create any
such plan.
(b) Foreign Employees. There are no officers or
employees, current or former, active or inactive, of the
Companies working outside the United States.
(c) COBRA. Each "group health plan" (within the
meaning of section 162(i)(2) of the Code), if any, maintained by the
Company as of the first day of each group health plan's first
plan year beginning on or after July 1, 1986, has been
administered in compliance with the continuation coverage
requirements contained in the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and as provided under
section 162(k) and section 4980B(f) of the Code and any regulations
promulgated or proposed thereunder.
<PAGE>
5.23 Events Subsequent to Latest Balance Sheets. The
Company has not since the date of the Latest Balance Sheets:
(a) Incurred Liabilities. Incurred any obligation or
liability (absolute, contingent, accrued or otherwise), or
guaranteed or become a surety of any debt, except in connection
with the performance of this Agreement or in the ordinary course
of business;
(b) Discharged Debt. Discharged or satisfied any
lien or encumbrance, or paid or satisfied any obligation or
liability (absolute, contingent, accrued or otherwise) other than
(i) liabilities shown or reflected on the Latest Balance Sheets
or (ii) liabilities incurred since the date thereof in the
ordinary course of business;
(c) Encumbrances. Mortgaged, pledged or subjected to
any lien, charge, security interest or other encumbrance any of
the Company's assets, tangible or intangible;
(d) Disposition of Assets. Sold or transferred any
of its assets, or canceled any debts or claims or waived any
rights;
(e) Dividends. Made any declaration, setting aside
or payment to the Shareholders of any dividend or redemption or
other distribution with respect to the Company's capital stock,
or agreed to take any such action;
(f) Stock Issuance. Issued any stock, bonds,
debentures, options, warrants or other corporate securities;
(g) Sale of Business. Entered into any negotiations
or contracts for the sale of the Company's business, or any part
thereof or for the purchase of another business, whether by
merger, consolidation, exchange of capital stock or otherwise
(other than negotiations with respect to this Agreement);
(h) Increase Compensation. Increased or promised to
increase the compensation or fringe benefits of any Shareholder,
officer or director, or instituted any general wage increase
applicable to employees, or any specified subgroup of employees;
(i) Accounting Procedure. Changed or modified its
accounting methods or practices;
(j) Capital Expenditure. Purchased or made a
commitment for the purchase of capital assets without the written
consent of the Buyer; or
(k) Settle Litigation. Settled, or agreed to settle,
any litigation, arbitration or other proceeding, pending or
threatened.
<PAGE>
5.24 Brokerage. Neither the Shareholders nor the Company
have incurred, or made commitments for, any brokerage, finders'
or similar fee in connection with the transaction contemplated by
this Agreement.
5.25 Books and Records. The Books of Account of the Company
are complete and correct in all material respects and reflect, in
accordance with a cash basis method of accounting, all of the
transactions entered into by the Company.
5.26 Related Party Transactions. With the sole exception of
the Asset Purchase Agreement, the Company: (a) has not had any
financial transactions or arrangements (other than payment of
regular salary to Related Parties who are employees) with any
Related Party, and (b) does not have and will not have any
present or future obligation to enter into any transaction or
arrangement with any Related Party. For purposes hereof, the
term "Related Party" shall mean: (i) any Shareholder or any
partner, shareholder, officer, director or affiliate of such
Shareholder, (ii) any officer or director of the Company, (iii)
any spouse, in-law or lineal descendant of any Related Party, and
(iv) any person who, directly or indirectly, controls or is
controlled by or is under common control with the Company. For
purposes of this definition, "person" shall mean an individual,
partnership, corporation, trust, unincorporated organization or
other entity; and "control," as used with respect to any person,
shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and
policies of such person, whether through the ownership of voting
securities, by contract or otherwise. To the knowledge of the
Shareholders, no Related Party owns, directly or indirectly, or
is a director, member, officer or employee of, or consultant to,
any business organization which is a competitor, supplier, or
customer having business dealings with the Company, nor does any
Related Party own any assets or properties which are used in the
Company's business.
5.27 Representations and Warranties True and Correct. The
representations and warranties contained herein, and all other
documents, certifications, materials and written statements or
written information given to the Buyer by or on behalf of the
Company or Shareholders or disclosed in this agreement, do not
include any untrue statement of a material fact or omit to state
a material fact required to be stated herein or therein in order
to make the statements herein or therein, in light of the
circumstances under which they are made, not misleading.
ARTICLE VI
REPRESENTATIONS OF THE BUYER
In order to induce the Shareholders to enter into this
Agreement, the Buyer makes the following representations and
warranties, each of which shall be deemed to be independently
<PAGE>
material and relied upon by the Shareholders, regardless of any
investigation made by, or information known to, the Shareholders:
6.1 Organization. The Buyer is a corporation duly
organized and validly existing and in good standing under the
laws of the State of Delaware, has filed with the Delaware
Secretary of State the most recent annual report required
to be filed by it, has not filed Articles of Dissolution and has
a perpetual period of existence.
6.2 Authorization. The Buyer has full corporate power and
authority to enter into this Agreement and to perform its
obligations hereunder. Subject only to the approval by the
Buyer's Board of Directors, the Buyer's officers have taken all
action required by law, the Buyer's articles of incorporation,
by-laws or otherwise to authorize the execution and performance
of this Agreement and the consummation of the transactions
contemplated hereby.
6.3 Enforceability; Conflicting Obligations. This
Agreement is the Buyer's valid and binding obligation,
enforceable against it in accordance with its terms. The
execution and delivery of this Agreement do not, and the
consummation of the purchase of the Shares will not, conflict
with or violate any provision of the articles of incorporation or
by-laws of the Buyer, nor any provisions of, or result in the
acceleration of, any obligation of it.
6.4 Brokerage. The Buyer has not incurred, nor made
commitment for, any brokerage, finders' or similar fee in
connection with the transaction contemplated by this Agreement.
6.5 Litigation. There is no litigation, proceeding or
governmental investigation pending, or to the best of the Buyer's
knowledge and belief, threatened against or relating to the
transactions contemplated herein.
ARTICLE VII -- SHAREHOLDERS' COVENANTS
7.1 Access. From the date hereof until the Closing
Date, the Shareholders shall provide the Buyer and its authorized
officers, agents and representatives access to all properties,
books, records, contracts, tax returns and documents of the
Company and the transactions contemplated hereby. The
Shareholders shall respond promptly to, and cause the Company's
officers and employees promptly to respond to, all questions
posed by the Buyer concerning the Company, its business,
properties, condition (financial or otherwise) or prospects. If
the transactions provided for in this Agreement are not
consummated, the Buyer and its respective officers,
agents and representatives will hold in confidence all
information obtained from the Company, any of its officers,
agents or representatives, or the Shareholders, excepting
<PAGE>
however, any such information which (i) was or is in the public
domain, (ii) was in fact known to the Buyer prior to disclosure
to the Buyer by the Company or the Shareholders, or (iii) is
disclosed to the Buyer by a third party other than any employee
or former employee of the Company subsequent to disclosure by the
Company or Shareholders.
7.2 Operation of Business. From the date hereof and until
the Closing Date, without the express prior written consent of
the Buyer, the Shareholders shall not cause the Company to:
(a) Increase Compensation. Grant or promise any
increase in compensation to any Shareholder, officer or director,
or any general increase in the rate of compensation of its
non-Shareholder employees, or any subgroup of employees, nor, by
means of any bonus, profit-sharing, incentive compensation
payment, pension, retirement, medical hospitalization, life
insurance or other insurance plan or plans, or otherwise,
increase in any amount the benefits or compensation of any such
employees, directors or officers;
(b) Employment and Labor Contracts. Enter into,
amend, renew or extend any employment contract or collective
bargaining agreement;
(c) Disposition of Assets. Sell or dispose of any
asset, or encumber, mortgage or pledge any of its assets
whatsoever;
(d) Capital Expenditures. Make any capital
expenditures, or enter into any lease of capital equipment or
real estate without the written consent of the Buyer;
(e) Contracts. Enter into any contract with any
other person which is not incurred in the ordinary course of
business;
(f) Create or Incur Indebtedness. Enter into any
transaction, or create, assume, incur or guarantee any
indebtedness;
(g) Issue Stock; Distributions on Stock. Authorize
or issue any shares or capital stock or other securities
convertible into capital stock, or declare or pay any dividend or
make any sale of, or distribution with respect to, capital
stock or directly or indirectly redeem, purchase or otherwise
acquire any capital stock;
(h) Accounting Procedures. Change any accounting
procedures or practices or its financial structure;
(i) Charter Amendments. Make any amendments to or
changes in its Articles or Certificate of Incorporation or
Bylaws;
<PAGE>
(j) Breach of Contract. Perform any act, or
attempt to do any act, or permit any act or omission to act,
which will cause a breach of any contract, agreement, instrument,
document, lease, license, permit, indenture or other obligation
to which the Company is a party or to which it is bound; or
(k) Related Party Transaction. Engage in any
transaction of the types described in Section 5.26 with a Related
Party.
7.3 Preservation of Business. From the date hereof and
until the Closing Date, the Shareholders shall cause the Company
to carry on its business only in the ordinary course consistent
with past practice and shall use their best efforts to keep the
Company business organization intact, including its present
relationships with employees, customers and others having
business relations with them. The Company at all times shall
maintain in inventory quantities of merchandise and other
supplies and materials sufficient to allow it to continue to
operate it business, after the Closing Date, free from any
shortage of items.
7.4 Maintenance of Property. From the date hereof and
until the Closing Date, the Company shall operate, maintain and
repair all of its property in a manner consistent with past
practice.
7.5 Compliance with Laws. From the date hereof and until
the Closing Date, the Company shall comply with all applicable
laws, statutes, ordinances, rules, regulations, guidelines,
orders, arbitration awards, judgments and decrees
applicable to, or binding upon, the Company or its business or
properties.
7.6 Update Exhibits. On the Closing Date, the Shareholders
shall deliver to the Buyer updated exhibits setting forth all
information, events or actions which, if this Agreement were
signed on the Closing Date, would be required to be disclosed in
order to make the Shareholders' representations and warranties
contained herein true and not misleading. The Shareholders'
delivery of such updated disclosures shall not absolve the
Shareholders from liability for breach of any representation or
warranty which was untrue or false when made.
7.7 Necessary Amendments. Prior to the Closing, the
Shareholders shall cause the Company's Board of Directors to
adopt such amendments to the Articles of Incorporation of the
Company, in form and substance as may be reasonably required by
the Buyer to effectuate the transactions herein contemplated.
7.8 Other Deliveries. On the Closing Date, the
Shareholders shall duly execute and deliver to the Buyer the
following:
<PAGE>
(a) The stock certificates for the Shares, or, if
there are no certificates representing the Shares, such other
documents as may be necessary to transfer the Shares to the
Buyer;
(b) The original, complete pertinent files and other
related documents pertaining to the Intellectual Property
described in Exhibit 5.10; and (c) All other documents
reasonably requested by counsel for the Buyer to consummate the
transactions herein contemplated.
7.9 Fulfill Conditions. The Company and the Shareholders
shall use their best efforts to cause to be fulfilled on or prior
to the Closing each of the conditions set forth in Article IX
hereof.
7.10 Employment Agreements. On the Closing Date, David
Stallmo, Randy K. Hall and Gerald Hohenstein shall execute and
deliver to the Buyer employment agreements in form and substance
satisfactory to the Buyer in its sole discretion (the "Employment
Agreements").
7.11 Tax Returns. Shareholders will assist Buyer in
filing federal and state tax returns for the year ended December
31, 1997 and be responsible for all tax liabilities, including
both income tax and payroll taxes.
ARTICLE VIII -- BUYER'S COVENANTS
8.1 Deliveries. On the Closing Date, the Buyer shall duly
execute and deliver the following:
(a) A check payable to Ambex Technologies, Inc. in an
amount sufficient to satisfy the Note pursuant to the terms of
Section 2.2(a) above;
(b) Four checks, each payable to each of the
Shareholders and AVG, in the total amount of $25,000.00;
(c) the Stock Option Agreements;
(d) the royalty agreement described in Section 2.4
above; and
(e) all other documents reasonably requested by
counsel for the Company to consummate the transactions herein
contemplated.
8.2 Employment Agreements. On the Closing Date, Buyer will
execute and deliver the Employment Agreements.
8.3 Fulfill Conditions. The Buyer shall use its best
efforts to cause to be fulfilled on or prior to the Closing each
of the conditions set forth in Article X hereof.
<PAGE>
ARTICLE IX --
CONDITIONS OF BUYER'S OBLIGATION TO CLOSE
The obligation of the Buyer to consummate the transactions
contemplated by this Agreement shall, unless the same are waived
in writing by the Buyer, be subject to the satisfaction and
fulfillment, prior to and on the Closing Date, of the
following express conditions precedent:
9.1 Representation and Warranties. The representations and
warranties made by the Shareholders shall be true and correct in
all respects as of and at the Closing Date with the same force
and effect as though said representations and warranties had been
again made on the Closing Date.
9.2 Performance of Covenants and Obligations. The
Shareholders shall have performed and complied with all of their
covenants and obligations under this Agreement which are to be
performed or complied with by them prior to or on the Closing
Date.
9.3 Proceedings and Instruments Satisfactory. All
proceedings, corporate or otherwise, to be taken by the
Shareholders in connection with the transactions contemplated by
this Agreement, and all documents incident thereto, shall be
satisfactory in form and substance to the Buyer.
9.4 Adverse Change. From and after the date of this
Agreement and until the Closing Date, there shall have been no
material adverse change in the Company's business, properties,
condition (financial or otherwise) or prospects, other than
changes in the ordinary course of its business and
consistent with past practice, nor shall there have been any
casualty to the Company's property, as a result of any loss,
taking, destruction or physical damage.
9.5 No Litigation. No investigation, suit, action or other
proceeding shall be threatened or pending before any court or
governmental agency in which it is sought to restrain, prohibit
or obtain damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated
thereby.
9.6 Consents, Approvals Certifications, Licenses and
Permits. All necessary consents, approvals, certifications,
licenses and permits with respect to the transactions
contemplated hereby, the absence of which would have an
adverse effect on the Buyer's rights under this Agreement, or
which would constitute a breach pursuant to any provision of, or
which would result in the termination or loss of any right under,
any contract, agreement, instrument, document, lease, license,
<PAGE>
certification, permit, indenture or other obligation, or
without which the Buyer is precluded or impeded from conducting
the Company's business after the Closing, shall have been
received by the Buyer on or before the Closing Date.
9.7 Stock Certificates. The Shareholders shall have
delivered to the Buyer stock certificate(s) representing the
Shares, duly endorsed for transfer to the Buyer or in blank or
accompanied by assignments separate from such certificates.
9.8 Due Diligence. The Buyer shall have conducted a due
diligence investigation and review of the Company, its business
and all matters pertaining thereto that the Buyer deems relevant,
and the results of such investigation and review shall be
satisfactory to the Buyer in its sole discretion.
9.9 Employment Agreements. David Stallmo, Randy K. Hall,
Gerald Hohenstein shall have entered into the Employment
Agreements.
9.10 Seek Systems, Inc. Approval. Seek Systems, Inc., shall
have approved the assignment of its agreement with the Company to
Buyer upon such terms and conditions as are acceptable to Buyer
in its sole discretion.
9.11 Further Assurances. The Shareholders shall have
delivered to the Buyer such other written documents, instruments,
releases or otherwise, as the Buyer reasonably may require to
effectuate the provisions of this Agreement.
9.12 Termination of License Agreement. The License
Agreement between the Company and Ambex Technologies, Inc., dated
October 7, 1997, shall have been terminated by the parties.
9.13 Satisfaction of Note. Ambex Technologies, Inc. shall
have marked the Note "Paid in Full" and delivered the original of
same to Buyer together with a release of all rights it may have
in any assets of the Company by virtue of that certain Security
Agreement dated October 7, 1997.
9.14 Waiver of Rights. Ambex Technologies, Inc., shall have
waived all rights it may have to demand financial information of
the Company pursuant to Section 9.3 of the Asset Purchase
Agreement.
9.15 Resignation of Board of Directors. At Closing, David
Stallmo, Randy K. Hall, Gerald Hohenstein, constituting all of
the Directors of the Company, shall tender their resignations as
members of the Board of Directors.
9.16 Opinion Letter. Shareholder's counsel shall have
delivered to Buyer's counsel an opinion letter in form and
substance reasonably satisfactory to Buyer's counsel.
<PAGE>
9.17 NT Royalty Agreement. The parties shall have entered
into the royalty agreement described in Section 2.4 above.
9.18 Intellectual Property. All of the Intellectual
Property described in Section 5.10 above shall be properly
assigned and transferred to the Company and
the validity and enforceability of the Intellectual Property
shall be established to the reasonable satisfaction of Buyer.
9.19 Authority of Ambex. Ambex Venture Group LLC shall
deliver such resolutions and other proof of its authority to
execute this Agreement and consummate the transactions
contemplated hereby all in form and substance as may be
reasonably required by counsel for Buyer.
ARTICLE X --
CONDITIONS TO SHAREHOLDERS' OBLIGATION TO CLOSE
The obligation of the Shareholders to consummate the
transactions contemplated by this Agreement shall, unless the
same are waived in writing by the Shareholders, be subject to the
satisfaction and fulfillment, prior to and on the Closing Date,
of the following express conditions precedent:
10.1 Representations and Warranties. The representations
and warranties in this Agreement made by the Buyer shall be true
and correct in all respects as of and at the Closing Date with
the same force and effect as though said representations and
warranties had been again made on the Closing Date.
10.2 Performance of Covenants and Obligations. The Buyer
shall have performed and complied with all of its material
covenants and obligations under this Agreement which are to be
performed or complied with by it prior to or on the Closing Date.
ARTICLE XI -- INDEMNIFICATION
11.1 Indemnification. Notwithstanding the Closing, and
regardless of any investigation made by, or on behalf of, the
Buyer or any information known to the Buyer, the Shareholders
(the "Indemnitors"), jointly and severally, shall indemnify and
save the Buyer, its shareholders, officers, directors or
employees (collectively, the "Buyer" as used in this Article XI)
harmless from and against any and all losses, claims, damages,
liabilities, costs, expenses or deficiencies including, but not
limited to, reasonable attorneys' fees and other costs and
expenses incident to proceedings or investigations or the defense
or settlement of any claim or claims, incurred by or asserted
against the Buyer or the Company due to or resulting from any of
the following:
(a) Representations or Warranties. The inaccuracy or
breach of any representation or warranty of the Shareholders
given in or pursuant to this Agreement;
<PAGE>
(b) Covenants. Any breach or default in the
performance by the Shareholders of any of their covenants,
obligations or agreements in or pursuant to this Agreement;
(c) Other Obligations. Any liability or obligation
of the Company not expressly assumed by the Buyer pursuant to
this Agreement;
(d) Pre-Closing Operations. The ownership, conduct
or operation of the Business of the Company at any time prior to
the Closing, or any incident, occurrence, condition or claim
existing, arising or accruing prior to the Closing
and relating to the operation or conduct of the Company or
ownership or use of its assets; and
(e) Tax Liability. Tax liabilities pertaining to
operations prior to closing.
11.2 Limitations on Indemnifiable Damages.
(a) Minimum Amount. The Buyer shall not be entitled
to recover Indemnifiable Damages for any matter described in
Section 11.1 hereof unless and until the aggregate of all claims
listed in Sections 11.1(a) through (d) above exceeds $50,000.00.
Notwithstanding the foregoing, the Shareholders shall be
responsible for all tax claims described in Section 11.1(e)
above, regardless of amount.
11.3 Procedures for Making Claims. If and when the Buyer
desires to assert a claim for Indemnifiable Damages against the
Indemnitors pursuant to the provisions of this Article XI, the
Buyer shall simultaneously deliver to the Indemnitors, reasonably
promptly after the Buyer's receipt of a claim or specific
and affirmative awareness of a potential claim, a certificate
signed by its president (the "Notice of Claim"): (i) stating
that the Buyer or the Company has paid or accrued (or intends to
pay or accrue) Indemnifiable Damages to which it is entitled to
indemnification pursuant to this Article XI and the amount
thereof (to the extent then known); and, (ii) specifying to the
extent possible (A) the individual items of loss, damage,
liability, cost, expense or deficiency included in the amount so
stated, (B) the date each such item was or will be paid or
accrued and (C) the basis upon which Indemnifiable Damages are
claimed. If the Indemnitors shall object to such Notice of
Claim, the Indemnitors shall simultaneously deliver written
notice of objection (the "Notice of Objection") to Buyer within
15 days after the Buyer's delivery of the Notice of Claim. The
Notice of Objection shall set forth the grounds upon which the
objection is based and state whether the Indemnitors object to
all or only a portion of the matter described in the Notice of
Claim. The Notice of Objection shall set forth the grounds upon
which the objection is based and state whether the Indemnitors
object to all or only a portion of the matter described in the
Notice of Claim. If the Notice of Objection shall not have been
<PAGE>
so delivered within such 15-day period, the Indemnitors shall be
conclusively deemed to have acknowledged the correctness of the
claim or claims specified in the Notice of Claim for the full
amount thereof, and the Indemnifiable Damages set forth in the
Notice of Claim shall be promptly paid to Buyer, without the
necessity of further action.
11.4 Participation in Defense of Third Party Claims. If any
third party shall assert any claim against the Buyer or Company
which, if successful, might result in an obligation of the
Indemnitors to pay Indemnifiable Damages and which can be
remedied to the sole satisfaction of the Buyer by the payment of
money damages without further adverse consequence to the Buyer or
the Companies, the Indemnitors, at the sole expense of the
Indemnitors, may assume the primary defense thereof with counsel
reasonably acceptable to the Buyer, but only if and so long as:
(i) the Indemnitors diligently pursue the defense of such
claim; and (ii) the Indemnitors acknowledge to the Buyer in
writing that the claim, if resolved or settled adversely to the
Buyer or the Company, is one for which the Indemnitors are
obligated to indemnify the Buyer hereunder; and (iii)
the Indemnitors provide the Buyer with such access as is
reasonably necessary to monitor all proceedings related to such
claim. If the Indemnitors fail or are unable to so elect to
assume the primary defense of any such claim, the Buyer
may (but need not) do so; in which event the Buyer may defend,
settle or compromise the claim, at the expense and cost of the
Indemnitors, in any such manner as the Buyer reasonably deems
appropriate.
11.5 Survival of Representations and Indemnification. The
Indemnitors', obligation to pay Indemnifiable Damages arising out
of claims described in Section 11.1 shall survive the Closing of
this transaction indefinitely.
11.6 Specific Performance. Notwithstanding the
foregoing, nothing herein shall preclude either party from
pursuing the remedy of specific performance, if available under
the law.
ARTICLE XII -- MISCELLANEOUS
12.1 Further Assurances. Each party hereto from time to
time hereafter, and upon request, shall execute, acknowledge and
deliver such other instruments as reasonably may be required to
more effectively transfer and vest in the Buyer the Shares or to
otherwise carry out the terms and conditions of this Agreement.
<PAGE>
12.2 Benefit and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto,
their heirs, successors, assignees, and beneficiaries in
interest; provided, however, that this Agreement may not be
assigned by the Shareholders.
12.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida
(regardless of such State's conflict of laws principles), and
without reference to any rules of construction regarding the
party responsible for the drafting hereof. The exclusive
jurisdiction and venue for any action brought to enforce this
Agreement shall lie in the state and federal courts sitting in
Seminole County, Florida.
12.4 Expenses. Except for Ambex's attorneys' fees and costs
and as otherwise herein provided, all expenses incurred in
connection with this Agreement or the transactions herein
provided shall be paid by the Buyer.
12.5 Notices. All notices, demands, and communications
provided for herein or made hereunder shall be delivered by
telecopier or mailed first class with postage prepaid, or by
overnight delivery addressed in each case as follows,
until some other address shall have been designated in a written
notice given in like manner, and shall be deemed to have been
given or made when so delivered:
If to the Buyer: nStor Corporation, Inc.
450 Technology Park Drive
Lake Mary, Florida 32746
Attn: R. Daniel Smith, President and CEO
With a copy to:
Thomas R. Harbert, Esq.
Mateer & Harbert, P.A.
Post Office Box 2854
Orlando, Florida 32802
If to the Shareholders: David Stallmo
59 Beaver Way
Boulder, Colorado 80304
Randy K. Hall
400 Oneida Street
Boulder, Colorado 80303
Gerald Hohenstein
5656 College Place
Boulder, Colorado 80303
<PAGE>
With a copy to:
Walter J. Kennedy, Esq.
Hensley & Kennedy, P.C.
1877 Broadway, Suite 702
Boulder, Colorado 80302
12.6 Transfer and Income Taxes. Buyer will pay all sales
and other transfer taxes, and income or franchise taxes,
resulting from the transactions contemplated by this Agreement.
12.7 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
12.8 Publicity. No publicity or other announcements
concerning the transactions contemplated hereby shall be made
without the mutual consent of the Buyer and the Shareholders.
12.9 Headings. All Section headings herein are inserted for
convenience only and shall not modify or affect the construction
or interpretation of any provision of this Agreement.
12.10 Amendment, Modification and Waiver. This
Agreement may not be modified, amended or supplemented except by
mutual written agreement of all the parties hereto. Any
amendment, modification, supplement or waiver shall be
in writing signed by the party or the parties to be charged.
12.11 Entire Agreement. This Agreement and the Exhibits
attached hereto and other documents delivered herewith represent
the entire agreement of the parties with respect to the subject
matter hereof and no provision or document of any kind shall be
included in or form a part of such agreement unless signed
and delivered to the other party by the party to be charged.
12.12 Third Party Beneficiaries. Except as specifically
set forth or referred to herein, nothing herein expressed or
implied is intended or shall be construed to confer upon or give
to any person or corporation, other than the parties hereto and
their successors and assigns, any rights or remedies under or
by reason of this Agreement.
12.13 Severability. The invalidity of any provision, or
portion of a provision, of this Agreement shall not affect the
validity of any other provision of this Agreement or the
remaining portion of the applicable provision.
12.14 Attorneys' Fees. The prevailing party in any
litigation brought to interpret or enforce the terms and
provisions of this Agreement shall be entitled to recovery from
the non-prevailing party its costs of litigation; including
without limitation, reasonable attorneys' fees.
<PAGE>
12.15 "Knowledge." As used herein, any reference to the
"knowledge" of the Shareholders, or the like, shall include the
knowledge of the Shareholders after making due inquiry and, if
the Shareholders fail to make such inquiry, shall include
constructive knowledge of such facts as would have been
learned had such due inquiry been made.
ARTICLE XIII -- JOINDER OF AMBEX VENTURE GROUP LLC AND
CONVEYANCE OF ITS SHARES
This agreement and the obligations of the Buyer and the
Shareholders to consummate the transactions contemplated herein,
is expressly made contingent upon AVG signing a Joinder and
Consent to this Agreement containing such terms and conditions as
are acceptable to Buyer in its sole discretion; and receipt
by Buyer of the original certificate(s) evidencing the Shares
owned by AVG, duly endorsed for transfer to Buyer or in blank, or
accompanied by assignments separate from such certificates,free
and clear of all liens, charges, encumbrances, restrictions,
reservations, pledges, proxies, voting trusts, security interests
or other agreements. If Buyer has not received the duly executed
Joinder & Consent and the original endorsed stock certificate(s)
by the Closing Date, this Agreement shall terminate according to
its terms and neither party shall have any further right, duty or
obligation to the other as a result hereof.
(The remainder of this page intentionally left blank)
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date and year first above
written.
SELLERS:
Shareholders of
BORG ADAPTIVE TECHNOLOGIES, INC.
/s/ David Stallmo
_______________________________
David Stallmo
/s/ Randy K. Hall
_______________________________
Randy K. Hall
/s/ Gerald Hohenstein
_______________________________
Gerald Hohenstein
<PAGE>
BUYER:
nSTOR CORPORATION, INC.
/s/ R. Daniel Smith
By:____________________________
R. Daniel Smith
President & Chief Executive Officer
(CORPORATE SEAL)
<PAGE>
Exhibit 1
SHARES
Name Outstanding Shares
David Stallmo 320,000
Randy K. Hall 240,000
Gerald Hohenstein 240,000
Ambex Venture Group, LLC 200,000
<PAGE>
EXHIBIT 3.1
ASSUMED LIABILITIES
License and Development Agreement between Borg Technologies,
Inc., and Borg Development Partners, LLC, and Seek Systems, Inc.,
dated May 16, 1995, as amended by Letter Agreement dated May 16,
1995 and as further amended by the agreement signed by Seek
Systems, Inc. dated October 23, 1996.
<PAGE>
Exhibit 5.10
INTELLECTUAL PROPERTY
LICENSED PATENT RIGHTS
Method and Apparatus for Improving Performance in a Redundant
Array of Independent Disks with patent application BTI-102 with
application Serial Number 08/516,293 and has been recorded in the
records of the US Patent and Trademark Office on microfilm reel
7659, frame 0533. The recording date is 10/02/95. This patent
has also been filed with the European Patent office (includes
Austria, Belgium, Switzerland, Liechtenstein, Germany, Denmark,
Spain, France, United Kingdom, Greece, Ireland, Italy,
Luxembourg, Monaco, Netherlands, Portugal, Sweden and any other
Sate which is a Contracting State of the European Patent
Convention and of the PCT) as well as the Canadian Patent
Office with the designation BTI-102-PCT on 9/15/96.
Method and Apparatus for Organizing Data in a Redundant Array
of Independent Disks with patent application BTI-101 with
application Serial Number 08/16,232 and has been recorded in the
records of the US Patents and Trademark Office on microfilm reel
7659, frame 0260. The recording date is 10/02/95. This patent
has also been filed with the European Patent office (includes
Austria, Belgium, Switzerland, Liechtenstein, Germany, Denmark,
Spain, France, United Kingdom, Greece, Ireland, Ital, Luxembourg,
Monaco, Netherlands, Portugal, Sweden and any other State which
is a Contracting State of the European Patent Convention and of
the PCT) as well as the Canadian Patent Office with the
designation BTI-101-PCT on 9/15/96.
<PAGE>
EXHIBIT 10.2
FOURTH AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FOURTH AMENDMENT TO STOCK PURCHASE AGREEMENT is
executed this _____ day of April, 1998, by and between nSTOR
CORPORATION, INC., a Delaware corporation ("Buyer"), and DAVID
STALLMO, RANDY K. HALL and GERALD HOHENSTEIN (collectively, the
"Shareholders").
W I T N E S S E T H:
WHEREAS, Buyer and the Shareholders entered into that
certain Stock Purchase Agreement dated February 3, 1998, for the
purchase and sale of all of the outstanding shares of Borg
Adaptive Technologies, Inc., a Colorado corporation; and
WHEREAS, the parties have previously amended the Stock
Purchase Agreement on February 27, 1998; on March 19, 1998; and
on April 3, 1998; and
WHEREAS, the parties desire to amend the Stock Purchase
Agreement for the fourth time to extend the closing date set
forth in Section 1.2 of said Agreement through and including
Monday, April 20, 1998.
NOW, THEREFORE, for and in consideration of the sum of
$10.00 and the mutual promises contained herein, and other good
and valuable consideration, the receipt, adequacy and sufficiency
of which is hereby acknowledged, Buyer and Shareholders hereby
agree as follows:
1. The recitals set forth above are incorporated into this Fourth
Amendment as if fully set forth herein.
2. Section 1.2 of the Agreement is hereby amended to provide that
the Closing Date is hereby extended through and including Monday,
April 20, 1998.
3. The remaining terms and provisions of the Stock Purchase
Agreement are hereby ratified and reaffirmed as if the same were
fully set forth herein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be executed as of the day and year first
above-written.
Witnesses: nSTOR CORPORATION, INC., a
Delaware corporation
_________________
By: /s/ R. Daniel Smith
_________________ Print Name: R. Daniel Smith,
President
Witnessed on _______________, 1998:
Print Name: David Stallmo
Print Name: Randy K. Hall
Print Name: Gerald Hohenstein
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000075448
<NAME> NSTOR TECHNOLOGIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,113<F1>
<SECURITIES> 0
<RECEIVABLES> 3,749
<ALLOWANCES> 291
<INVENTORY> 3,166
<CURRENT-ASSETS> 8,003
<PP&E> 9,192<F2>
<DEPRECIATION> 1,208<F3>
<TOTAL-ASSETS> 15,987
<CURRENT-LIABILITIES> 7,927
<BONDS> 0
0
0
<COMMON> 934
<OTHER-SE> 1,563
<TOTAL-LIABILITY-AND-EQUITY> 15,987
<SALES> 3,606
<TOTAL-REVENUES> 3,622
<CGS> 2,958
<TOTAL-COSTS> 3,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162
<INCOME-PRETAX> (2,540)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,540)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,540)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
<FN>
<F1>Cash balance includes $1,031 of restricted cash (see note 3 to consolidated
financial statements).
<F2>PP&E balance includes $6,406 of intangible assets.
<F3>Accumulated depreciation balance includes $576 of accumulated amortization.
</FN>
</TABLE>
