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, 2000
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. )
10140 Mesa Rim Road
San Diego, California 92121
(Address of principal executive office)
(858) 453-9191
(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 April 30, 2000: 31,703,024
<PAGE>
nSTOR TECHNOLOGIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31,
2000 (Unaudited) and December 31, 1999 3
Consolidated Statements of Operations
(Unaudited) for the three months ended
March 31, 2000 and 1999 4
Consolidated Statement of Stockholders'
Equity for the three months ended
March 31, 2000 (Unaudited) 5
Consolidated Statements of Cash Flows
(Unaudited) for the three months ended
March 31, 2000 and 1999 6-7
Notes to Consolidated Financial Statements
(Unaudited) 8-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15-20
Item 3. Not applicable
Part II. OTHER INFORMATION 21
SIGNATURE 22
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
nSTOR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
Mar. 31,
2000 Dec. 31,
(unaudited) 1999
ASSETS --------- ---------
Current assets:
Cash and cash equivalents $ 2,612 $ 650
Accounts receivable 7,737 7,326
Inventories 6,561 6,288
Prepaid expenses and other 1,379 1,637
------- -------
Total current assets 18,289 15,901
Property and equipment, net 3,118 3,476
Goodwill and other intangible assets, net 16,300 14,533
Other assets 67 131
------- -------
$37,774 $34,041
======= =======
LIABILITIES
Current liabilities:
Bank line of credit $ 5,200 $ 5,111
Director loan - 1,585
Convertible notes 624 629
Accounts payable and other 12,387 14,114
------- -------
Total current liabilities 18,211 21,439
Long-term debt 6,337 6,329
------- -------
Total liabilities 24,548 27,768
------- -------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par; 1,000,000 shares
authorized, in order of preference:
Convertible Preferred Stock (aggregate liquidation
value $1,000 per share except for Series A which
is $600 per share) issued and outstanding at
March 31, 2000 and December 31, 1999; Series F,
936 and 4,054; Series A, 0 and 1,667; Series C,
3,000; Series D, 2,000 and 2,700; Series E, 3,500 - -
Common stock, $.05 par; shares authorized 75,000,000;
shares issued and outstanding 31,404,228 and
26,517,824 at March 31, 2000 and December 31, 1999,
respectively 1,569 1,331
Additional paid-in capital 67,440 63,164
Deficit (55,783) (58,222)
------- -------
Total stockholders' equity 13,226 6,273
------- -------
$37,774 $34,041
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
nSTOR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Three Months
Ended March 31,
--------------------
2000 1999
(unaudited)
--------- ---------
Sales $12,540 $ 1,411
Cost of sales 8,969 1,323
------- -------
Gross profit 3,571 88
------- -------
Operating expenses:
Selling, general and administrative 4,497 1,435
Research and development 616 519
Depreciation and amortization 1,116 395
------- -------
Total operating expenses 6,229 2,349
------- -------
Loss from operations (2,658) (2,261)
Gain on sale of assets of Borg Adaptive
Technologies (Note 6) 5,575 -
Interest and other income 31 100
Interest expense (298) (310)
------- -------
Net income (loss) 2,650 (2,471)
Preferred stock dividends (211) (132)
Embedded dividend attributable to
beneficial conversion privilege of
Convertible Preferred Stock - (87)
------- -------
Net income (loss) available to common stock $ 2,439 ($ 2,690)
======= =======
Net income (loss) per share:
Basic $ .08 ($ .13)
======= =======
Dilutive $ .07 ($ .13)
======= =======
Shares used in computing net income
(loss) per share:
Basic 29,556,462 21,182,665
========== ==========
Dilutive 40,118,016 21,182,665
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
nSTOR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(dollars in thousands)
Preferred Addi-
Common Stock Stock tional
----------------- ------------- Paid-In
Shares Amount Shares Amount Capital Deficit Total
---------- ------ ------ ------ ------- ------- -------
Balances, December
31, 1999 26,517,824 $1,331 14,921 $ - $63,164 ($58,222) $6,273
Issuance of common
stock in connec-
tion with:
Conversion of
Convertible
Preferred Stock:
Series A 1,666,667 83 (1,667) - (83) -
Series D 700,000 35 (700) - (35) -
Series F 1,039,300 52 (3,118) - (52) -
Acquisition of
OneofUs 776,119 39 2,561 2,600
Exercise of
options and
warrants 580,839 29 1,067 1,096
Commitment to
terminated
executives 123,479 - - -
Compensation
expense resulting
from modifications
to stock options
and warrants in
connection with the
sale of the assets
of Borg Adaptive
Technologies 818 818
Preferred stock
dividends (211) (211)
Net income for the
three months ended
March 31, 2000 2,650 2,650
---------- ------ ------ ------ ------- ------- -------
Balances, March 31,
2000 (unaudited) 31,404,228 $1,569 9,436 $ - $67,440 ($55,783) $13,226
========== ====== ====== ====== ======= ======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
nSTOR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months
Ended March 31,
-------------------
2000 1999
(unaudited)
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,650 ($ 2,471)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Gain on sale of assets of Borg Adaptive
Technologies (5,575) -
Depreciation and amortization 1,116 395
Amortization of deferred financing costs - 99
Amortization of deferred compensation - 28
Provision for losses on accounts receivable 15 30
Provision for inventory obsolescence - 75
Other - 128
Changes in assets and liabilities (net of effects
from acquisition):
(Increase) decrease in accounts receivable (337) 119
Increase in inventories (273) (761)
Decrease (increase) in prepaid expenses and other 205 (281)
Decrease in accounts payable and other (1,978) (361)
-------- --------
Net cash used in operating activities (4,177) (3,000)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of assets of
Borg Adaptive Technologies 7,013 -
Cash paid for acquisition (68) -
Additions to property and equipment (148) (129)
-------- --------
Net cash provided by (used in) investing activities 6,797 (129)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on bank lines of credit 89 (994)
Additions to other borrowings - 3,100
Repayment on other borrowings (1,585) (300)
Proceeds from exercise of stock options and warrants 1,096 1,554
Cash paid for preferred stock dividends (258) (157)
-------- --------
Net cash (used in) provided by financing activities (658) 3,203
-------- --------
Net increase in unrestricted cash and cash
equivalents during the period 1,962 74
Unrestricted cash and cash equivalents at the
beginning of the period 650 147
-------- --------
Unrestricted cash and cash equivalents at the
end of the period $ 2,612 $ 221
======== ========
<PAGE>
nSTOR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(continued)
Three Months
Ended March 31,
-------------------
2000 1999
(unaudited) (unaudited)
-------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 279 $ 206
======= =======
NON-CASH INVESTING ACTIVITIES:
Acquisitions:
Fair value of assets acquired $ 2,944 $ -
Liabilities assumed or incurred (276) -
Common stock issued (2,600) -
------- -------
Cash paid $ 68 $ -
======= =======
NON-CASH FINANCING ACTIVITIES:
Issuance of common stock in satisfaction of
borrowings $ - $ 1,290
======= =======
Embedded dividend attributable to beneficial
conversion privilege of Series A
Convertible Preferred Stock $ - $ 87
======= =======
Deferred financing costs arising from
issuance of warrants under borrowings $ - $ 560
======= =======
Granting of options:
Outside director $ - $ 266
Legal settlement - 52
------- -------
$ - $ 318
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
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.
In the opinion of management, the unaudited consolidated financial statements
furnished herein include all adjustments, consisting only of recurring
adjustments necessary for a fair presentation of the results of operations for
the interim periods presented. These interim results of operations are not
necessarily indicative of results for the entire year. The consolidated
financial statements contained herein should be read in conjunction with the
consolidated financial statements and related notes contained in the Company's
1999 Annual Report on Form 10-K.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required for complete financial statements. Certain items in the
consolidated financial statements as of March 31, 1999 have been reclassified to
conform with the current presentation. These reclassifications had no impact on
operating results previously reported.
Business
The Company is engaged as a manufacturer and supplier of high-availability,
high-performance Internet storage and customized Storage Area Network (SAN)
solutions, including external RAID (Redundant Array of Independent Disks)
solutions, tape backup products and advanced storage management software
solutions for the UNIX, Windows NT and Linux computer operating systems.
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.
Net Income (Loss) Per Common Share ("EPS")
Basic EPS is calculated by dividing the net income (loss) available to common
stock by the weighted average number of shares outstanding during the period.
Diluted EPS includes the effect of potentially dilutive securities. During the
three months ended March 31, 1999, the effect of including potentially dilutive
<PAGE>
securities would have been antidilutive. Accordingly, basic and dilutive EPS for
that period is equivalent. The calculation of diluted EPS for the three months
ended March 31, 2000 follows (in thousands except per share data):
Net income available to common stock $ 2,439
Preferred stock dividends 211
-----------
Net income available to common stock
plus assumed conversions, diluted $ 2,650
===========
Weighted average shares 29,556,462
Weighted common stock equivalents 10,561,554
-----------
Total weighted average shares, diluted 40,118,016
===========
Net income per share, diluted $ 0.07
===========
As of March 31, 2000, there were 11,799,580 outstanding potentially dilutive
securities, consisting of:
Convertible preferred stock 6,478,699
Stock options 3,440,748
Warrants 1,720,133
Convertible notes 160,000
----------
11,799,580
==========
(2) ACQUISITION OF ASSETS OF ONEOFUS COMPANY, LTD.
On January 19, 2000, the Company acquired substantially all of the assets of
OneofUs Company Limited (OneofUs) for an aggregate purchase price of $2.9
million, consisting of $.3 million cash and short-term liabilities, and 776,119
shares of the Company's common stock with an aggregate value of $2.6 million
(based on the average market price of the Company's stock during the ten (10)
trading days ended January 19, 2000). The shares were issued to three selling
stockholders pursuant to employment agreements and to a fourth selling
stockholder in connection with a confidentiality, noncompetition and
nonsolicitation agreement. OneofUs was a Taiwan-based, privately-held designer
of high performance Fibre Channel RAID controllers and storage solutions for
open systems and the SAN market.
The acquisition of OneofUs has been accounted for using the purchase method of
accounting with assets acquired and liabilities assumed recorded at their fair
values as of the date of acquisition. Allocation of the purchase price has been
made on a preliminary basis subject to adjustment should new or additional facts
about the business become known. The excess of the purchase price over the fair
value of net assets acquired (goodwill) approximated $2.8 million and is being
amortized over seven years.
<PAGE>
(3) BALANCE SHEET COMPONENTS (in thousands)
Substantially all assets are pledged as collateral for indebtedness. See Note 4
to Consolidated Financial Statements.
Mar.31, Dec.31,
2000 1999
------ ------
Accounts Receivable
Trade receivables $9,173 $8,759
Less allowance for doubtful accounts (1,587) (1,604)
------ ------
7,586 7,155
Other receivables 151 171
------ ------
$7,737 $7,326
====== ======
Inventories
Raw materials $5,407 $4,942
Work-in-process 258 454
Finished goods 896 892
------ ------
$6,561 $6,288
====== ======
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.
Prepaid expenses and Other
Prepaid service costs $1,224 $1,174
Other 155 463
------ ------
$1,379 $1,637
====== ======
Property and Equipment
Computer equipment $4,170 $4,075
Computer software 770 770
Leasehold improvements 791 788
Furniture, fixtures
and office equipment 355 465
Other 314 310
------ ------
6,400 6,408
Less accumulated depreciation (3,282) (2,932)
------ ------
$3,118 $3,476
====== ======
<PAGE>
Property and equipment are stated at cost. Depreciation is provided under the
straight-line method over the estimated useful lives, principally five years.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the useful life of the asset or the lease term. Depreciation and amortization
of property and equipment amounted to $472,000 and $273,000 for the three months
ended March 31, 2000 and 1999, respectively.
Mar.31, Dec.31,
2000 1999
------ ------
Goodwill and Other Intangible Assets
Goodwill $17,818 $15,497
Intellectual assets 347 347
------ -------
18,165 15,844
Less accumulated amortization (1,865) (1,311)
------ -------
$16,300 $14,533
====== =======
Goodwill represents the excess cost of acquired businesses over the fair value
of net assets acquired and is being amortized principally over seven years.
Intellectual assets consist of trademarks and proprietary technology and are
being amortized over 15 years. Amortization of goodwill and other intangible
assets amounted to $643,000 and $122,000 for the three months ended March 31,
2000 and 1999, respectively.
Accounts payable and other
Accounts payable $ 6,584 $ 8,072
Deferred revenue 2,333 2,426
Other 3,470 3,616
------- -------
$12,387 $14,114
======= =======
(4) BORROWINGS
Short-Term Debt
Revolving Credit Facility ("Bank Line of Credit")
The Bank Line of Credit provides for borrowings based on the lesser of $10
million or: (i) 85% of eligible accounts receivable, as defined, plus (ii) the
lesser of $1.75 million or 23% of eligible inventory, as defined. The Bank Line
of Credit currently bears interest at prime plus 1/2 percent (9.0% at March 31,
2000), matures in April 2002 and requires a facility fee of .25% based on the
average unused portion of the maximum borrowings. Advances under the Bank Line
of Credit are collateralized by a significant portion of the Company's assets.
The Bank Line of Credit provides for certain financial covenants, including
minimum working capital and tangible net worth requirements. As of March 31,
2000, the outstanding balance of the Bank Line of Credit was $5.2 million and an
additional approximately $1.1 million was available based on eligible
collateral.
<PAGE>
At February 29, 2000 and March 31 2000, the Company was not in compliance with
the minimum tangible net worth covenant of the Bank Line of Credit. Effective
March 29, 2000, the lender agreed to waive the default for both periods.
Effective April 14, 2000, the Company agreed with the lender to amend certain
terms of the Bank Line of Credit, including an increase in the interest rate to
prime plus 1.5% and new minimum net worth and net income covenants on a
consolidated basis. All other significant provisions of the Bank Line of Credit
remain the same.
Director Loans
At December 31, 1999, current borrowings included $1.6 million due to H. Irwin
Levy, Chairman of the Board of Directors and a principal stockholder of the
Company ("Mr. Levy"), representing the maximum amount available under a
revolving basis with interest at 10% per annum, due 30 days from demand. In
January 2000, the promissory note was paid off and satisfied in full. Effective
April 12, 2000, Mr. Levy agreed to commit to a $2 million revolving line of
credit facility to the Company, which matures on the earlier of April 30, 2001
or when the Company executes the amended Bank Line of Credit. Advances under
this commitment will bear interest at 10% per annum.
Convertible Notes
Convertible Notes with a face amount of $400,000 have been discounted based on
an effective interest rate of 12% and include accrued interest of $224,000 and
$222,000 at March 31, 2000 and December 31, 1999, respectively, mature in May
2000 and are convertible into 160,000 shares of the Company's common stock.
Long-Term Debt
At March 31, 2000 and December 31, 1999, long-term debt consisted of $5.1
million which bears interest at 9.5% per annum and matures in June 2004, and
$1.2 million which bears interest at 10% per annum and which was scheduled to
mature in September 2001. On April 26, 2000, the Company issued 296,296 shares
of its common stock in full satisfaction of $1 million of the $1.2 million of
notes.
(5) CONVERTIBLE PREFERRED STOCK
At December 31, 1999, the Company had five classes of convertible preferred
stock (Series A, C, D, E and F) with an aggregate stated value of $14.9 million.
During the quarter ended March 31, 2000, convertible preferred stock with an
aggregate stated value of $4.8 million was converted into 3,405,967 shares of
the Company's common stock. Series C and D preferred stock, with an aggregate
stated value of $5.0 million at March 31, 2000, accrues dividends at 8% per
annum, payable quarterly, is convertible at any time into an aggregate of
5,000,000 shares of the Company's common stock, and has automatic conversion
features in which each share not converted by July 2000 (as to 3,000,000 shares)
and October 2001 (as to 2,000,000 shares) is automatically converted into common
stock. Series E and F preferred stock, with an aggregate stated value of $4.4
<PAGE>
million at March 31, 2000, accrues dividends at 8% through June 7, 2000, 9%
commencing June 8, 2000 and 10% commencing June 8, 2001, and is convertible at
any time into an aggregate of 1,479,000 shares of the Company's common stock. At
December 31, 1999 and March 31, 2000, Mr. Levy or companies controlled by Mr.
Levy held convertible preferred stock with an aggregate stated value of $4.5
million convertible into 3,500,000 shares of the Company's common stock.
(6) GAIN ON SALE OF ASSETS OF BORG ADAPTIVE TECHNOLOGIES
On January 10, 2000, the Company sold substantially all of the assets of Borg
Adaptive Technologies, Inc., a wholly-owned subsidiary of the Company, to a
wholly-owned subsidiary of QLogic Corporation, for $7 million cash (net of
approximately $.5 million of transaction costs - the "Borg Sale"). The assets
included all of the intellectual property rights relating to the Company's
Adaptive RAID technology, including software, patents and trademarks, and
certain tangible assets, including test and office equipment and tenant
improvements. In connection with the Borg Sale, the Company recorded a gain of
$5.6 million, net of compensation expense of $.8 million resulting from
modifications to certain stock options and warrants.
(7) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS 109, which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under the SFAS 109 asset and liability method,
deferred tax assets and liabilities are determined based upon the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year(s) in which the differences are
expected to reverse.
As of December 31, 1999, there were unused net operating loss carryforwards (the
"NOL's") for regular federal income tax purposes of approximately $36 million
and California tax purposes of approximately $4.7 million expiring from 2012
through 2019 and 2001 through 2004, respectively. In addition, the Company has
research and development tax credit carryforwards of approximately $1.4 million
which expire from 2002 through 2019 and in conjunction with the Alternative
Minimum Tax ("AMT") rules, the Company has available AMT credit carryforwards of
approximately $.8 million, at December 31, 1999, which may be used indefinitely
to reduce regular federal income taxes.
The usage of approximately $8 million of the federal NOL carryforwards and
approximately $2 million of the California NOL carryforwards is limited annually
to approximately $.4 million due to an acquisition which caused a change in
ownership for income tax purposes.
At March 31, 2000 and December 31, 1999, a 100% valuation allowance has been
provided on the Company's deferred tax assets because it is more likely than not
that loss carryforwards will not be realized based on recent operating results.
Accordingly, no income tax provision was required on the Company's pre-tax
income for the three months ended March 31, 2000.
<PAGE>
(8) SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS
The Company operates predominantly in one business segment, information storage
solutions, including external RAID subsystems. During the three months ended
March 31, 2000, one customer accounted for 11.4% of the Company's sales. During
the three months ended March 31, 1999, no customer accounted for more than 10%
of the Company's sales.
(9) SUBSEQUENT EVENTS
On May 9, 2000, the Company entered into an agreement with a private investment
group granting the Company a one-year $15 million equity line or equity draw
down facility. The agreement does not obligate the Company to draw any of the
funds. Once per draw down period, the Company may request a draw of up to $5
million, subject to a formula based on average stock price and average trading
volume, setting the maximum amount of any request for any given draw. The amount
of money that the investment group will provide to the Company and the number of
shares the Company will issue to the investment group in return for that money
is settled on a weekly basis during a 22 day trading period following the draw
request based on a formula as defined in the stock purchase agreement. The
investment group receives a 7% discount to the market price for the 22 day
period and the Company receives the settled amount of the draw down less a 4%
fee payable to the placement agent.
In connection with this agreement, the Company granted the investment group and
the placement agent three year warrants to purchase an aggregate of 220,000
shares of the Company's common stock at an exercise price of $3.60 per share,
representing the average of the closing prices of the Company's common stock for
the five trading days before May 9, 2000.
The Company intends to register for resale the securities to be sold pursuant to
the draw downs and warrants.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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, our 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 or demand for our 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
material cost fluctuations and inventory obsolescence is significant to us. The
ability to manage our 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.
Subsequent written and oral forward looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by
cautionary statements in this Form 10-Q and in other reports we have filed 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.
Overview
We are a manufacturer and supplier of high-availability, high-performance
Internet storage and customized SAN solutions, including external RAID
solutions, tape backup products and advanced storage management software
solutions for a variety of operating systems, including UNIX, Windows NT and
Linux.
Our activities in the information storage industry have evolved through several
acquisitions, the first of which occurred in June 1996 when we acquired certain
assets associated with the RAID business in Lake Mary, Florida, from Seagate
Peripherals, Inc. In December 1996, we acquired substantially all the net assets
of Parity Systems, Inc. In June and July 1999, we acquired approximately 76% of
the outstanding common stock of Andataco, Inc. and in November 1999, we acquired
the remaining 24% of Andataco. As a result of the acquisition of Andataco, we
believe that period to period comparisons for the quarter ended March 31, 2000
may not be meaningful.
In January 2000, we completed the Borg Sale, consisting of the sale of certain
patented technology referred to as Adaptive RAID for $7 million cash (net of
approximately $.5 million of transaction costs). We do not anticipate that
future revenues will be materially affected as a result of this transaction.
<PAGE>
On January 19, 2000, we acquired substantially all of the assets of OneofUs for
an aggregate purchase price of $2.9 million, consisting of $.3 million cash and
short-tem liabilities and 776,000 shares of our common stock with an aggregate
value of $2.6 million (based on the average market price of our common stock
during the ten (10) trading days ended January 19, 2000). OneofUs was a
Taiwan-based, privately-held designer of high performance Fibre Channel RAID
controllers and storage solutions for open systems and the SAN market.
Three Months Ended March 31, 2000 vs. March 31, 1999
We reported net income of $2.7 million for the three months ended March 31, 2000
as compared to a net loss of $2.5 million for the corresponding quarter in 1999.
The 2000 quarter included a $5.6 million gain on the Borg Sale.
Sales
Net sales for the three months ended March 31, 2000 were $12.5 million as
compared to $1.4 million for the three months ended March 31, 1999, an increase
of $11.1 million. The increase was principally attributable to the acquisition
of Andataco in June 1999 and delays during 1999 in the market introduction of
certain products.
Cost of Sales/Gross Margins
Gross margins increased to 28.5% for the three months ended March 31, 2000 as
compared to 6.2% for the quarter ended March 31, 1999. The increase in gross
margin percentage was primarily due to the utilization of Andataco's sales
channels to market our products, in addition to economies of scale attributable
to the level of fixed costs inherent in our operations coupled with
significantly higher sales revenues. Our gross margins are dependent, in part,
on product mix which fluctuates from time to time.
Operating Expenses
Selling, General and Administrative
Selling, general and administrative expenses were $4.5 million and $1.4 million
for the three months ended March 31, 2000 and 1999, respectively, an increase of
$3.1 million. The increase is primarily the result of the acquisition of
Andataco. The most significant increase resulted from compensation and related
benefits of additional employees associated with Andataco.
Research and Development
Research and development expenses were $.6 million for the three months ended
March 31, 2000 and $.5 million for the three months ended March 31, 1999. We
believe that considerable investments in research and development will be
required to remain competitive and expect that these expenses will increase in
future periods. This increase will be partially offset by reduced expenditures
as a result of the Borg Sale.
<PAGE>
Research and development costs are expensed as incurred and 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 result in generating revenues.
Depreciation and Amortization
Depreciation and amortization was $1.1 million and $.4 million for the three
months ended March 31, 2000 and 1999, respectively. The increase was primarily
due to the acquisition of Andataco which added $.3 million of depreciation and
$.5 million of amortization of goodwill for the three months ended March 31,
2000. In addition, amortization of goodwill increased by $.1 million due to the
acquisition of OneofUs, which was offset by reduced amortization resulting from
the fourth quarter 1999 write-down of $4.6 million of goodwill related to our
1996 acquisition of Parity Systems, Inc. The Parity goodwill was determined to
have been impaired because of our inability to generate future operating income
from the assets acquired in the Parity acquisition.
Interest Expense
Interest expense for the three months ended March 31, 2000 decreased $12,000 as
a result of a $188,000 decrease in interest expense and related amortization of
financing costs arising from $5.6 million of indebtedness that was satisfied in
1999 by the issuance of common stock, which was more than offset by a net
increase in average borrowings principally attributable to the acquisition of
Andataco.
Preferred Stock Dividends
During the three months ended March 31, 2000 and 1999, all classes of our
convertible preferred stock required cumulative dividends of 8% per annum which
aggregated $.2 million and $.1 million, respectively. The increase was
attributable to the issuance of convertible preferred stock with an aggregate
stated value of $8.2 million in June 1999, partially offset by the conversion of
preferred stock with an aggregate stated value of $5.4 million into common
stock, principally during the first quarter of 2000.
EITF 98-5 addresses accounting for preferred stock which is convertible into
common stock at a discount from the market rate at the date of issuance. In
accordance with this EITF, a preferred stock dividend, attributable to such a
beneficial conversion privilege should be recorded for the difference between
the conversion price and the quoted market price of common stock at the date of
issuance. Accordingly, during the three months ended March 31, 1999, we recorded
$87,000 as an additional embedded dividend attributable to the beneficial
conversion privilege on our convertible preferred stock.
<PAGE>
Liquidity and Capital Resources
Consolidated Statements of Cash Flows
Operating Activities
Net cash used by operating activities amounted to $4.2 million and $3 million
for the three months ended March 31, 2000 and 1999, respectively. These amounts
included losses from operations (before changes in assets and liabilities) of
$1.8 million and $1.7 million, respectively. In addition, during the 2000
quarter, we used $2 million in cash, principally from the Borg Sale, to reduce
accounts payable and other liabilities.
Investing Activities
Net cash provided by investing activities was $6.8 million during the three
months ended March 31, 2000, principally resulting from the Borg Sale. During
the prior year's first quarter, we used $.1 million of net cash in investing
activities.
Financing Activities
Net cash used in financing activities for the three months ended March 31, 2000
was $.7 million and primarily consisted of repayment in full of $1.6 million of
borrowings to Mr. Levy, partially offset by $1.1 million in proceeds from the
exercise of stock options and warrants. Net cash provided by financing
activities for the three months ended March 31, 1999 amounted to $3.2 million
and included net borrowings of $2.8 million from private investors, including
$.8 million from Mr. Levy, and $1.6 million in proceeds from the exercise of
stock options and warrants, partially offset by net repayments of $1 million on
our bank line of credit.
Borrowings
In connection with the acquisition of Andataco, we issued $5.1 million in
promissory notes due in July 2004. In addition, our asset based revolving Bank
Line of Credit (see Note 4 to Consolidated Financial Statements) provides for
borrowings based on the lesser of $10 million or (i) 85% of eligible accounts
receivable, as defined, plus (ii) the lesser of $1.75 million or 23% of eligible
inventory, as defined. This facility provides for certain financial covenants,
including minimum working capital and tangible net worth requirements.
At February 29, 2000 and March 31 2000, we were not in compliance with the
minimum tangible net worth covenant of the Bank Line of Credit. Effective March
29, 2000, the lender agreed to waive the default for both periods. Effective
April 14, 2000, we agreed with the lender to amend certain terms of the Bank
Line of Credit including an increase in the interest rate to prime plus 1.5% and
new minimum net worth and net income covenants on a consolidated basis. All
other significant provisions of the Bank Line of Credit remain the same.
<PAGE>
Financing Activities With Private Investors
From late 1997 through March 31, 2000, we obtained net cash proceeds of $26.3
million from private investors, consisting of sales of convertible preferred
stock and common stock, net borrowings and the exercise of stock options and
warrants to purchase shares of our common stock. Of these amounts, Mr. Levy or
companies controlled by Mr. Levy advanced or invested a net amount of $6.8
million.
On January 10, 2000, we completed the Borg Sale and received net cash proceeds
of approximately $7 million, net of approximately $.5 million of transaction
costs, of which $1.6 million was used to repay short-term notes payable to Mr.
Levy. We do not anticipate that future revenues will be materially affected as a
result of this transaction.
Effective April 12, 2000, Mr. Levy agreed to commit to us a $2 million revolving
line of credit facility which matures on the earlier of April 30, 2001 or when
we execute our amended Bank Line of Credit. Advances under this facility will
bear interest at 10% per annum.
On May 9, 2000, we entered into an agreement with a private investment group
granting us a one-year $15 million equity line or equity draw down facility. The
agreement does not obligate us to draw any of the funds. Once per draw down
period, we may request a draw of up to $5 million, subject to a formula based on
average stock price and average trading volume, setting the maximum amount of
any request for any given draw. The amount of money that the investment group
will provide to us and the number of shares we will issue to the investment
group in return for that money is settled on a weekly basis during a 22 day
trading period following the draw request based on a formula as defined in the
stock purchase agreement. The investment group receives a 7% discount to the
market price for the 22 day period and we will receive the settled amount of the
draw down less a 4% fee payable to the placement agent.
We believe that amounts expected to be available under the Bank Line of Credit,
our equity line and our available cash balances will be sufficient to satisfy
our working capital needs during 2000, as presently contemplated. There can be
no assurance that we may not require additional capital beyond our current
forecasted needs nor that any such additional required funds would be available
on terms acceptable to us, if at all, at such time or times as required by us.
Effect of Inflation
Inflation has not had an impact on our operations and we do not expect that it
will have a material impact in 2000.
Year 2000 Issue
As many computer systems, software programs and other equipment with embedded
chips or processors (collectively referred to as Information Systems) use only
two digits rather than four to define the applicable year, they may be unable to
process accurately certain data, during or after the year 2000. As a result,
business and governmental entities are at risk for possible miscalculations or
systems failures causing disruptions in their business operations. This is
commonly known as the Year 2000 (Y2K) issue. The Y2K issue concerns not only
Information Systems used solely within a company but also concerns third
parties, such as customers, vendors and creditors, using Information Systems
that may interact with or affect a company's operations.
<PAGE>
We have not experienced any material disruption in our business or operations as
a result of Y2K issues. However, there is no assurance that we will not
experience interruptions in the future.
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Recent Sales of Unregistered Securities and Use of Proceeds
Effective January 19, 2000, we issued 776,119 shares of our common stock in
connection with the acquisition of substantially all of the assets of OneofUs
Company Limited.
Pursuant to a letter agreement dated January 20, 2000, between us and Harris
Ravine, the former Chief Executive Officer of Andataco, we issued 80,000 shares
of our common stock to Mr. Ravine.
In connection with a termination agreement dated January 26, 2000 between us and
our former President, Lawrence F. Steffann, we issued 43,479 shares of our
common stock.
All of the foregoing issuances were exempt from registration under section 4(2)
of the Act
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
2.1 Asset Purchase Agreement, dated as of November 30, 1999, by and among the
Registrant, nStor Taiwan, Inc., OneofUs Company Limited and certain
shareholders of OneofUs.
10.1 Form of Employment Agreement between Registrant and Johan Olstenius, Stuart
Campbell and Fahim Ahmed in connection with the acquisition of the assets
of OneofUs Company Limited.
10.2 Employment Agreement between Registrant and Larry Hemmerich.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K dated and filed January 14, 2000, reporting
under Item 2 - Acquisition or Disposition of Assets, in which we
announced the disposition of substantially all of the assets of
Borg Adaptive Technologies, Inc.
<PAGE>
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/ Jack Jaiven
May 12, 2000 ---------------------------
Jack Jaiven
Principal Financial and
Accounting Officer
<PAGE>
Exhibit 2.1
EXECUTION COPY
ASSET PURCHASE AGREEMENT
AMONG
nSTOR TECHNOLOGIES, INC.,
nSTOR TAIWAN, INC.
ONEOFUS COMPANY LIMITED
AND
THE SHAREHOLDERS LISTED ON THE SIGNATURE PAGE HEREOF
November 30, 1999
<PAGE>
TABLE OF CONTENTS
1 Definitions........................................................... 1
2 Purchase and Sale Transaction ........................................ 5
(a) Assets to be Purchased ............................................ 5
(b) Liabilities ....................................................... 5
(c) Non-Transferable and Non-Assignable Assets ........................ 5
(d) Deposit ........................................................... 7
(e) Consideration at Closing 7
(f) The Closing ....................................................... 7
(g) Allocation of Purchase Price ...................................... 7
(h) Post Closing Adjustment ........................................... 8
3 Representations and Warranties Concerning the Transaction ............ 8
(a) Representations and Warranties of the Shareholders and the Company 8
(i) Authorization of Transaction ...................................... 8
(ii) Noncontravention .................................................. 8
(iii)Brokers' Fees ..................................................... 9
(iv) Company Stock ..................................................... 9
(v) Disclosure ........................................................ 9
(b) Representations and Warranties of NTI and Newco ................... 9
(i) Organization ...................................................... 9
(ii) Authorization of Transaction ...................................... 9
(iii)Noncontravention .................................................. 9
(iv) Brokers' Fees ..................................................... 10
4 Representations and Warranties Concerning the Company ................ 10
(a) Organization, Qualification, and Corporate Power .................. 10
(b) Capitalization .................................................... 10
(c) Noncontravention .................................................. 11
(d) Brokers' Fees ..................................................... 11
(e) Subsidiaries ...................................................... 11
(f) Financial Statements .............................................. 11
(g) Events Subsequent to Most Recent Fiscal Year End .................. 11
(h) Legal Compliance; Immigration ..................................... 14
(i) Tax Matters ....................................................... 14
(j) Real Property ..................................................... 15
(k) Intellectual Property ............................................. 16
(l) Title to and Condition of Personal Property ....................... 18
(m) Contracts ......................................................... 19
(n) Powers of Attorney ................................................ 19
(o) Insurance ......................................................... 19
<PAGE>
(p) Litigation ........................................................ 19
(q) Governmental Authorizations ....................................... 20
(r) Commitments and Warranties ........................................ 20
(s) Liability for Services Performed .................................. 20
(t) Personnel ......................................................... 20
(u) Employees ......................................................... 21
(v) Employee Benefits ................................................. 21
(w) Guaranties ........................................................ 22
(x) Environmental, Health, and Safety Matters ......................... 22
(y) Certain Business Relationships with the Company ................... 22
(z) Absence of Certain Business Practices ............................. 23
(aa) Customers and Suppliers ........................................... 23
5 Pre-Closing Covenants ............................................... 23
(a) Conditions Precedent .............................................. 23
(b) Operation of Business ............................................. 24
(c) Purchase of Inventory ............................................. 24
(d) Preservation of Business .......................................... 24
(e) Full Access ....................................................... 24
(f) Preserve Accuracy of Representations and Warranties; Notice of
Developments .................................................... 24
(g) Exclusivity ....................................................... 24
(h) No Termination of Shareholders' Obligation by Subsequent Incapacity 25
6 Other Agreements ..................................................... 25
(a) General ........................................................... 25
(b) Due Diligence Review .............................................. 25
(c) Schedules ......................................................... 26
(d) Name Change ....................................................... 26
(e) Consents .......................................................... 26
(f) Employee Matters .................................................. 26
(g) Litigation Support ................................................ 27
(h) Transition ........................................................ 27
(i) Independent Accountants ........................................... 27
(j) Tax Matters ....................................................... 28
(k) Audited Financial Statements ...................................... 28
(l) Satisfaction of Obligations ....................................... 28
(m) Investigations; Notices ........................................... 28
(n) Restrictive Covenants ............................................. 28
(o) Product Specifications ............................................ 30
7 Conditions Precedent to Closing ...................................... 31
(a) Conditions Precedent to the Obligations of NTI and Newco .......... 31
(b) Conditions Precedent to the Obligations of the Company and the
Shareholders .................................................... 32
<PAGE>
8 Closing .............................................................. 34
9 Remedies for Breaches of this Agreement .............................. 34
(a) Survival of Representations and Warranties ........................ 34
(b) Indemnification by the Company and the Shareholders ............... 34
(c) Indemnification by Newco .......................................... 35
(d) Matters Involving Third Parties ................................... 35
(e) Determination of Adverse Consequences ............................. 37
(f) Other Indemnification Provisions .................................. 37
10 Termination ......................................................... 37
(a) Termination of Agreement .......................................... 37
(b) Effect of Termination ............................................. 38
11 Miscellaneous ....................................................... 38
(a) Telecopied Signatures ............................................. 38
(b) No Third-Party Beneficiaries ...................................... 38
(c) Entire Agreement .................................................. 38
(d) Succession and Assignment ......................................... 38
(e) Counterparts ...................................................... 38
(f) Headings .......................................................... 38
(g) Notices ........................................................... 38
(h) Governing Law ..................................................... 39
(i) Amendments and Waivers ............................................ 39
(j) Severability ...................................................... 40
(k) Expenses .......................................................... 40
(l) Construction ...................................................... 40
(m) Incorporation of Exhibits, Annexes, and Schedules ................. 40
(n) Specific Performance .............................................. 40
(o) Submission to Jurisdiction ........................................ 40
(p) Prevailing Party .................................................. 41
(q) Public Announcements .............................................. 41
(r) WAIVER OF JURY TRIAL .............................................. 41
<PAGE>
EXHIBITS
(LIST OF OMITTED EXHIBITS)
Exhibit A-1 Employment Agreement - Johan Olstenius
Exhibit A-2 Employment Agreement - Stuart Campbell
Exhibit A-3 Employment Agreement - Fahim Ahmed
Exhibit B Escrow Agreement
Exhibit C Confidentiality, Noncompetition and Nonsolicitation Agreement
Exhibit D Stock Escrow Agreement
Exhibit E Nonqualified Stock Option Agreement
Exhibit F Subscription Agreement
Exhibit G Financial Statements
Exhibit H Product Specifications
THE REGISTRANT WILL PROVIDE COPIES OF ANY OMITTED EXHIBITS TO THE COMMISSION
UPON REQUEST FROM THE COMMISION FOR SAID EXHIBITS.
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered into as of November 30, 1999, by and
among nSTOR TECHNOLOGIES, INC., a Delaware corporation ("NTI"), nSTOR TAIWAN,
INC., a Florida corporation and a wholly owned subsidiary of NTI ("Newco"),
ONEOFUS COMPANY LIMITED, a limited company organized under the laws of Taiwan
(the "Company"), JOHAN OLSTENIUS and LI-CHEN LIU (referred to collectively as
the "Indemnifying Shareholders"), and CHING-LONG WU, KUO-CHUNG LIU and WU-SHI
LIU (together with the Indemnifying Shareholders, the "Shareholders"). NTI,
Newco, the Company and the Shareholders are referred to collectively herein as
the "Parties."
The Company is engaged in the business of designing high end RAID storage
products.
The Shareholders own all of the issued and outstanding capital stock of the
Company.
Newco desires to acquire from the Company, and the Company desires to sell to
Newco, on a going concern basis, substantially all of its assets, properties and
business, all on the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants
herein contained, the Parties agree as follows.
1. Definitions.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses, and any
other cost of enforcing a party's rights under this Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act.
"Agreement" means this Asset Purchase Agreement together with all exhibits and
schedules referred to herein.
"Allocation Schedule" has the meaning specified in Section 2(g) below.
"Applicable Rate" means the corporate base rate of interest publicly announced
from time to time by Citibank, N.A.
"Assumed Liabilities" has the meaning set forth in Section 2(b) below.
<PAGE>
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Business Employee" has the meaning set forth in Section 6(f) below.
"Closing" has the meaning set forth in Section 2(f) below.
"Closing Date" has the meaning set forth in Section 2(f) below.
"Code" has the meaning set forth in Section 2(g) below.
"Company Stock" means the stock of the Company.
"Consideration" has the meaning set forth in Section 2(e) below.
"Deposit" has the meaning set forth in Section 2(d) below.
"Due Diligence Period" has the meaning set forth in Section 6(b) below.
"Due Diligence Review" has the meaning set forth in Section 6(b) below.
"Employee Benefit Plan" means any (a) defined benefit retirement plan or
deferred compensation plan or (b) bonus, incentive, stock purchase, stock
ownership, stock option, stock appreciation right, severance, salary
continuation, termination, change of control or other fringe benefit or welfare
plan or program offered by the Company to its employees.
"Employment Agreements" means those certain Employment Agreements substantially
in the form of Exhibit A-1, Exhibit A-2 and Exhibit A-3.
"Environmental, Health, and Safety Requirements" shall mean all federal, state,
local and foreign statutes, regulations, ordinances and other provisions having
the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment.
"Escrow Agreement" means that certain Escrow Agreement substantially in the form
of Exhibit B.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended.
"Financial Statements" has the meaning set forth in Section 4(f) below.
<PAGE>
"GAAP" means the generally accepted accounting principles as in effect from time
to time in the Republic of China ("ROC").
"Governmental Authorizations" has the meaning set forth in Section 4(q) below.
"Indemnified Party" has the meaning set forth in Section 9(d)(i) below.
"Indemnifying Party" has the meaning set forth in Section 9(d)(i) below.
"Intellectual Property" means all of the following used in, related to,
developed in connection with, purchased in connection with or related to the
Company's business or owned by the Company: (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, and trade names, together
with all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
prototypes, technical data, designs, drawings, diskettes, stored data, suite,
application, operating system, specifications, lists of and data relating to
current, prior and prospective customers and suppliers, pricing and cost
information, and business and marketing plans and proposals), (f) all computer
software (including data and related documentation), (g) all other proprietary
rights, (h) all copies and tangible embodiments thereof (in whatever form or
medium) and (i) derivative works made or developed in connection with the
foregoing.
"Knowledge" means that which is known by a Person and that of which a Person has
constructive knowledge based upon information readily available to that person
in the performance of such Person's duties. In the case of the Company, NTI or
Newco, "Knowledge" includes, without limitation, the "Knowledge" of its
respective employees, independent contractors, directors and executive officers.
"Liability" means any liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Liquidated Assets" has the meaning set forth in Section 2(h) below.
"Liquidated Liabilities" has the meaning set forth in Section 2(h) below.
"Liquidation Certificate" has the meaning set forth in Section 2(h) below.
<PAGE>
"Material Adverse Effect" means, individually or together with other adverse
effects, any material adverse effect on the assets, liabilities, results of
operations, business condition (financial or otherwise) or prospects of the
Company or on the Company's ability to consummate the transactions contemplated
hereby or the ability of Newco to operate the business of the Company
immediately after the Closing in substantially the same manner as such business
is conducted by the Company prior to Closing.
"Most Recent Balance Sheet" means the balance sheet contained within the Most
Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section 4(f)
below.
"Most Recent Fiscal Period End" has the meaning set forth in Section 4(f) below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4(f) below.
"Noncompetition Agreement" means that certain Confidentiality, Noncompetition
and Nonsolicitation Agreement substantially in the form of Exhibit C.
"Ordinary Course of Business" means the ordinary course of business consistent
with past custom and practice (including with respect to quantity and
frequency).
"Person" means an individual, a partnership, a corporation, a limited liability
company, a limited company, an association, a joint stock company, a trust, a
joint venture, an entity, an unincorporated organization, or a governmental
entity (or any department, agency, or political subdivision thereof).
"Purchased Assets" has the meaning specified in Section 2(a) below.
"Related Party" has the meaning specified in Section 4(y) below.
"Rights" has the meaning specified in Section 2(c) below.
"Securities Act" means the United States Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, lien, charge, security interest
or encumbrance of any nature whatsoever.
"Stock Escrow Agreement" means that certain Stock Escrow Agreement substantially
in the form of Exhibit D.
"Stock Option Agreement" means that certain Nonqualified Stock Option Agreement
substantially in the form of Exhibit E.
<PAGE>
"Subscription Agreement" means that certain Subscription Agreement substantially
in the form of Exhibit F.
"Subsidiary" means any corporation or entity with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock (or equity
securities) or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors (or similar Persons).
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other Tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not, and any obligations under any agreements or arrangements with
respect to any of the foregoing.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third-Party Claim" has the meaning set forth in Section 9 below.
"Transferred Employee" has the meaning set forth in Section 6(f) below.
"Unassigned Contracts" has the meaning set forth in Section 2(c) below.
2. Purchase and Sale Transaction.
(a) Assets to be Purchased. On the terms and subject to the conditions set
forth herein, at the Closing, the Company shall sell, transfer, assign,
convey and deliver to Newco, on a going concern basis, all of the Company's
right, title and interest in and to all of the tangible and intangible
assets and properties of the Company listed on Section 2(a) of the
Disclosure Schedule (the "Purchased Assets"). Notwithstanding anything to
the contrary set forth herein, the Purchased Assets shall not include cash,
certificates of deposit or bank accounts held by the Company.
(b) Liabilities. Notwithstanding anything to the contrary set forth herein,
Newco shall not assume or be obligated to pay, perform or otherwise
discharge any Liability or obligation of the Company, direct or indirect,
known or unknown, absolute or contingent, whether or not relating to or
arising from the Purchased Assets or any rights transferred by the Company
to Newco pursuant to the terms and provisions hereof other than any
Liability listed on Section 2(b) of the Disclosure Schedule (the "Assumed
Liabilities").
(c) Non-Transferable and Non-Assignable Assets. To the extent that any of the
Purchased Assets, or any claim, right or benefit arising under or resulting
<PAGE>
from such Purchased Assets (collectively, the "Rights") is not capable of
being transferred without the approval, consent or waiver of, or filing or
application with, or notice to, a third party, or if the transfer of a
Right would constitute a breach of any obligation under, or violation of,
any applicable law unless, the approval, consent or waiver of, or filing or
application with, or notice to, such third party is obtained or made, then,
without limiting the rights and remedies of NTI and Newco contained
elsewhere in this Agreement, this Agreement shall not constitute an
agreement to transfer such Right unless and until such approval, consent,
waiver, filing, application or notice has been obtained or made (which
approval, consent, waiver, application, notice or filing shall be made or
obtained at the Company's cost). After the Closing Date and until all such
Rights are transferred to Newco, the Company and the Shareholders shall use
their best efforts to:
(i) maintain the Company's existence and hold the Rights in trust for
Newco;
(ii) comply with and perform in accordance with the terms and
provisions of the Rights (and all contracts and Governmental Authorizations
relating thereto) as agent for Newco and for the benefit of Newco;
(iii) cooperate with Newco in any reasonable and lawful arrangements
designed to provide the benefits of such Rights solely and exclusively to
Newco, all as directed by Newco;
(iv) enforce, at the request of Newco and for the account of Newco,
any rights of the Company arising from such Rights against any third
person, including the right to elect to terminate any such rights in
accordance with the terms of such rights upon the written direction of
Newco; and
(v) not knowingly waive, alter or amend any obligations of third
parties, whether expressly or impliedly without the written consent of
Newco.
In order that the full value of the Rights may be realized for the benefit of
Newco, the Company and the Indemnifying Shareholders shall, at the Company's
expense, at the request and under the direction of Newco, in the name of the
Company or otherwise as Newco may specify, take all such action and do or cause
to be done all such things as are reasonable, necessary, proper and prudent in
order that the obligations of the Company under such Rights may be performed in
such manner that the value of such Rights is preserved and inures to the benefit
of Newco, and that any moneys and things due and payable and to become due and
payable to Newco in and under the Rights are received by Newco.
With respect to the contracts and other items referenced on Section 4(m) of the
Disclosure Schedule which have not been assigned to Newco as of the Closing Date
(the "Unassigned Contracts") and which by their terms require the Company to
perform services thereunder, to the extent permitted by law and the terms of the
Unassigned Contracts, the Company hereby hires and authorizes Newco to perform
<PAGE>
the services specified in such Unassigned Contracts, on the Company's behalf,
pursuant to the terms of such Unassigned Contracts. In addition, the Company
hereby authorizes and directs Newco to collect payment for services rendered
pursuant to the Unassigned Contracts for the account of Newco. Newco shall have
the right to terminate its obligations under this paragraph to perform services
under the Unassigned Contracts in the event that payment for such services has
been remitted to the Company by the other party to the contract and Newco has
not received from the Company the amounts due to it for such services for a
period in excess of ten (10) days following the Company's receipt of the payment
or in the event the other party is in default thereof.
The Company and the Indemnifying Shareholders shall use their best efforts to
obtain all consents with respect to Rights and Unassigned Contracts necessary to
assign such Rights and Unassigned Contracts to Newco.
(d) Deposit. On the date hereof, NTI shall deposit US$25,000 (the "Deposit")
with Akerman, Senterfitt & Eidson, P.A., counsel to NTI, to be held in
escrow pursuant to the Escrow Agreement and distributed to the Company on
the Closing Date in partial payment of the Consideration due to the Company
from Newco on such Closing Date as described in Section 2(e) below. If NTI
and Newco fail to close the transactions contemplated hereby in accordance
with Section 2(f), after the satisfaction or waiver of the conditions
precedent to Closing set forth in Section 7, the Company shall be entitled
to the Deposit together with all interest thereon, and the payment of the
Deposit to the Company shall constitute the Company's sole and exclusive
remedy, at law or in equity, provided, however, if NTI and Newco determine
not to close the transactions contemplated hereby pursuant to Section 6(b)
or 6(c) hereof, the Deposit shall be returned to Newco and this Agreement
shall be terminated without liability on the part of any of the Parties. If
the Company or the Shareholders fail to close the transactions contemplated
hereby in accordance with Section 2(f), after the satisfaction or waiver of
the conditions precedent to Closing set forth in Section 7, Newco shall be
entitled to the Deposit, together with all interest thereon and the payment
of the Deposit to Newco will not impair or prejudice any other legal or
equitable remedy that NTI or Newco may have for a breach of this Agreement.
(e) Consideration at Closing. At the Closing, Newco shall deliver to the
Company cash in the amount of US$250,000, including the Deposit (the
"Consideration") payable by wire transfer or other immediately available
funds.
(f) The Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Akerman, Senterfitt &
Eidson, P.A., Miami, Florida, on February 13, 2000, or at any other place,
time or date (not later than March 13, 2000) as the Parties designate in
writing, and shall be effective as of 12:01 A.M., on the date of this
Closing (the "Closing Date").
(g) Allocation of Purchase Price. Set forth on Section 2(g) of the Disclosure
Schedule is a schedule (the "Allocation Schedule") allocating the purchase
price (including, for the purpose of such Schedule, any other consideration
paid to the Company, including Assumed Liabilities), among the Purchased
Assets. The Allocation Schedule shall be reasonable and shall be prepared
in accordance with Section 1060 of the United States Internal Revenue Code
(the "Code") and the regulations thereunder. The Company agrees to provide
Newco and NTI with any information required by NTI or Newco in order to
complete and file Internal Revenue Form 8594. Any such allocation shall in
<PAGE>
no event limit the liability of the Company and the Indemnifying
Shareholders to NTI or Newco with respect to damages, liabilities or
expenses incurred by NTI or Newco with respect to any breach of any
representations, warranties, covenants or agreements made by the Company or
the Indemnifying Shareholders hereunder.
(h) Post Closing Adjustment. Upon liquidation of the inventory and the accounts
receivable listed on Section 2(a) of the Disclosure Schedule and the
Assumed Liabilities listed on Section 2(b) of the Disclosure Schedule, but
in no event more than sixty (60) days following the Closing, NTI and Newco
shall deliver to the Company a certificate signed by the President of NTI
or Newco (the "Liquidation Certificate") setting forth the liquidation
value of (i) the inventory (the value of which shall be agreed to by the
Parties during the Due Diligence Period) and the accounts receivable (based
on amounts collected) (collectively, the "Liquidated Assets") and (ii) the
Assumed Liabilities (based on amounts paid) (the "Liquidated Liabilities").
If the value of the Liquidated Assets is less than the value of the
Liquidated Liabilities, the Company shall pay to NTI the amount of the
deficiency within thirty (30) days following delivery of the Liquidation
Certificate. If the value of the Liquidated Assets is equal to the value of
the Liquidated Liabilities or the value of the Liquidated Assets does not
exceed the value of the Liquidated Liabilities by more than US$25,000,
there will be no adjustment to the purchase price and the Parties will have
no further liability with regards to this Section 2(h). If the value of the
Liquidated Assets exceeds the value of the Liquidated Liabilities by more
than US$25,000, NTI shall pay to the Company the amount in excess of
US$25,000 within thirty (30) days following delivery of the Liquidation
Certificate.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Shareholders and the Company. The
Shareholders and the Company, jointly and severally, represent and warrant
to NTI and Newco that the statements contained in this Section 3(a) are
correct and complete as of the date of this Agreement.
(i) Authorization of Transaction. The Shareholders have full power and
authority to execute and deliver this Agreement and to perform their
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Shareholders, enforceable in accordance with its
terms and conditions. The Shareholders need not give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency or any other Person in order to
consummate the transactions contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, Governmental
Authorization, injunction, judgment, order, decree, ruling, charge, or
other restriction of any government, governmental agency, or court to which
the Company is subject or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which they are bound or
to which any of its assets are subject.
<PAGE>
(iii) Brokers' Fees. The Shareholders have not incurred any obligation
for any finder's or broker's fees or commissions with respect to the
transactions contemplated by this Agreement.
(iv) Company Stock. The Shareholders hold of record and own
beneficially the number of shares of Company Stock set forth in Section
4(b) of the Disclosure Schedule, free and clear of any restrictions on
transfer, Taxes, Security Interests, options, warrants, purchase rights,
contracts, commitments, equities, claims and/or demands. The Shareholders
are not a party to any option, warrant, purchase right, or other contract
or commitment that could require the Shareholders to sell, transfer or
otherwise dispose of any capital stock of the Company. The Shareholders are
not a party to any voting trust, proxy, shareholders agreement, or other
agreement or understanding with respect to any capital stock of the
Company.
(v) Disclosure. Neither this Agreement nor any of the exhibits,
attachments, written statements, documents, certificates or other items
prepared for or supplied to NTI or Newco by the Shareholders or the Company
with respect to the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state any material fact necessary
in order to make each statement contained herein or therein not misleading.
There is no fact which the Shareholders or the Company has not disclosed to
NTI or Newco herein and of which the Shareholders or the Company is aware
which could be anticipated to have a Material Adverse Effect.
(b) Representations and Warranties of NTI and Newco. NTI and Newco represent
and warrant to the Shareholders and the Company that the statements
contained in this Section 3(b) are correct and complete as of the date of
this Agreement.
(i) Organization. NTI is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida.
(ii) Authorization of Transaction. Each of NTI and Newco has full
power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of each of NTI and Newco, enforceable against them in accordance
with its terms and conditions. Neither NTI or Newco need give any notice
to, make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency or any other Person in order to
consummate the transactions contemplated by this Agreement.
<PAGE>
(iii) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which either NTI or Newco is
subject or any provision of their respective charter or bylaws or (B)
conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which either
of NTI or Newco is a party or by which either of NTI or Newco is bound or
to which any of their respective assets are subject.
(iv) Brokers' Fees. Neither NTI nor Newco have incurred any obligation
for finder's or broker's fees or commissions with respect to the
transactions contemplated by this Agreement.
4. Representations and Warranties Concerning the Company. The Company and the
Indemnifying Shareholders, jointly and severally, represent and warrant to NTI
and Newco that the statements contained in this Section 4 are correct and
complete as of the date of this Agreement except as set forth in the Disclosure
Schedule. The Disclosure Schedule shall be effective to modify only those
representations and warranties to which the Disclosure Schedule makes explicit
reference.
(a) Organization, Qualification, and Corporate Power. The Company is a limited
company duly organized, validly existing, and in good standing under the
laws of Taiwan. The Company is duly authorized to conduct business and is
in good standing under the laws of each jurisdiction where such
qualification is required. The Company has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry
on the businesses in which it is engaged and in which it presently proposes
to engage and to own and use the properties owned and used by it. Section
4(a) of the Disclosure Schedule lists the directors and officers of the
Company. Correct and complete copies of the articles of incorporation and
bylaws of the Company (as amended to date) are included as part of Section
4(a) of the Disclosure Schedule. The minute books (containing the records
of meetings of the stockholders, the board of directors, and any committees
of the board of directors), the stock certificate books, and the stock
record books of the Company are correct and complete and a true and correct
copy thereof has been provided to NTI and Newco. The Company is not in
default under or in violation of any provision of its articles of
incorporation or bylaws.
(b) Capitalization. The entire authorized capital of the Company is
NT$5,000,000 and has been duly authorized, fully paid, and nonassessable,
and is held of record and owned beneficially by the Shareholders in the
amount set forth in Section 4(b) of the Disclosure Schedule. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, preemptive rights or other
contracts or commitments that could require the Company to issue, sell, or
otherwise cause to become outstanding any of its capital stock or
securities convertible or exchangeable for, or any options, warrants, or
rights to purchase, any of such capital stock. There are no outstanding
obligations of the Company to repurchase, redeem or otherwise acquire any
capital stock or any securities convertible into or exchangeable for such
capital stock or any options, warrants or rights to purchase such capital
stock or securities. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to the Company. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting, transfer, dividend
or other rights of the capital stock of the Company.
<PAGE>
(c) Noncontravention. Neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any
provision of the articles of incorporation or bylaws of the Company or (ii)
conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which the
Company is a party or by which they are bound or to which any of its assets
are subject (or result in the imposition of any Security Interest upon any
of its assets). The Company need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Person,
government or governmental agency in order for the Parties to consummate
the transactions contemplated by this Agreement, except as set forth in
Section 4(c) of the Disclosure Statement.
(d) Brokers' Fees. The Company has not incurred any obligation for any finder's
or broker's fees or commissions with respect to the transactions
contemplated by this Agreement.
(e) Subsidiaries. The Company does not currently have, and has never had, any
Subsidiaries and does not own any securities of any other Person.
(f) Financial Statements. Attached hereto as Exhibit G are the following
financial statements (collectively the "Financial Statements"): (i) audited
balance sheet and statements of income, and retained earnings and cash
flow, including the independent accountant's review report thereon, as of
and for the fiscal year ended December 31, 1998 (the "Most Recent Fiscal
Year End") for the Company; (ii) audited balance sheet and statements of
income, and retained earnings and cash flow, including the independent
accountant's review report thereon as of and for the fiscal year ended
December 31, 1997; and (iii) unaudited balance sheet and statements of
income, and retained earnings and cash flow (the "Most Recent Financial
Statements") as of August 31, 1999 and for the period from January 1, 1999,
through August 31, 1999 (the "Most Recent Fiscal Period End") for the
Company. The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby, present fairly the financial condition of the
Company as of such dates and the results of operations of the Company for
such periods, and are correct and complete, and are consistent with the
books and records of the Company (which books and records are correct and
complete).
(g) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent
Fiscal Year End and except as disclosed in the Disclosure Schedule, there
has not occurred any Material Adverse Effect and the Company has been
operated in the Ordinary Course of Business. Without limiting the
generality of the foregoing, since that date:
<PAGE>
(i) The Company has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible, other than for fair consideration in
the Ordinary Course of Business to Persons who are not Affiliates of the
Company or the Shareholders;
(ii) The Company has not entered into any agreements, contracts,
leases, or licenses either (A) involving more than US$25,000 in the
aggregate, (B) having a term greater than 12 months or (C) outside the
Ordinary Course of Business;
(iii) No party (including the Company) has accelerated, terminated,
modified, or canceled any agreements, contracts, leases, or licenses
involving more than US$5,000 in the aggregate to which the Company is a
party or by which it is bound, or threatened to do any of the foregoing;
(iv) The Company has not imposed or allowed to be imposed any Security
Interest upon any of its assets, tangible or intangible;
(v) The Company has not made any capital expenditures involving more
than US$5,000 in the aggregate or outside the Ordinary Course of Business;
(vi) The Company has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person;
(vii) Except as set forth in Section 4(g)(vii) of the Disclosure
Schedule, the Company has not issued any note, bond, or other debt security
or created, incurred, assumed, or guaranteed any indebtedness for borrowed
money or capitalized lease obligation involving more than US$5,000 in the
aggregate;
(viii) The Company has not delayed or postponed the payment of
accounts payable and/or other Liabilities outside the Ordinary Course of
Business, or accelerated the receipt of any amount owed to it outside the
Ordinary Course of Business;
(ix) The Company has not accelerated or delayed collection of notes or
accounts receivable in advance of or beyond their regular dates or the
dates when the same could have been collected in the Ordinary Course of
Business;
(x) The Company has not canceled, compromised, waived, or released any
right or claim either involving more than US$5,000 in the aggregate;
(xi) The Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property or disclosed any
proprietary or confidential information to any third party, other than
those relating to products sold by the Company in the Ordinary Course of
Business;
(xii) There has been no change made or authorized in the articles of
incorporation or bylaws of the Company;
<PAGE>
(xiii) The Company has not issued, sold, or otherwise disposed of any
of its capital stock or securities convertible into or exchangeable for
such stock, or granted any options, warrants, or other rights to purchase
or obtain any of such capital stock or securities;
(xiv) The Company has not declared, set aside, or paid any dividend or
made any distribution with respect to its capital stock (whether in cash or
in kind) or redeemed, purchased, or otherwise acquired any of its capital
stock or other securities;
(xv) The Company has not experienced any damage, destruction, or loss
(whether or not covered by insurance) to its property involving more than
US$5,000 in the aggregate;
(xvi) The Company has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and/or employees or any
of their Affiliates or "Associates" (as defined in Rule 12b-2 under the
Exchange Act);
(xvii) The Company has not applied any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any amount
payable directly or indirectly to or for the benefit of the Shareholders or
Affiliate thereof or to the prepayment of any such amounts;
(xviii) The Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any such existing contract or agreement;
(xix) The Company has not granted any increase in any compensation of
any of its directors, officers, agents, representatives, independent
contractors or employees;
(xx) The Company has not adopted, amended, modified, or terminated any
bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees
or taken any such action with respect to any other Employee Benefit Plan;
(xxi) The Company has not made any other change in employment or
engagement terms for any of its directors, officers, agents,
representatives, independent contractors or employees;
(xxii) The Company has not made or pledged to make any charitable or
other capital contribution;
(xxiii) There has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company;
<PAGE>
(xxiv) The Company has not increased, or experienced any change in
assumptions underlying or method of calculating, any bad debt, contingency,
Tax or other reserves or changed its accounting practices, methods or
assumptions (including changes in estimates or valuation methods); or
written down the value of any assets; and
(xxv) The Company has not taken any action in furtherance of or
committed to any of the foregoing.
(h) Legal Compliance; Immigration. The Company and its predecessors and
Affiliates have complied, with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against any of them alleging any failure so to
comply. The Company's employees, consultants and independent contractors
are residing and working in Taiwan (i) free of any restrictions or
limitations on their ability to work in Taiwan and (ii) in compliance with
all applicable laws, rules and regulations relating to immigration and
naturalization; and to the Knowledge of the Company and the Indemnifying
Shareholders, (i) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced
against any of such employees, independent contractors or consultants
alleging any failure so to comply or seeking deportation or other
restrictions or limitations on their ability to reside and work in Taiwan
and (ii) there is no reasonable Basis for any of the foregoing. There is no
reasonable Basis to believe that all such employees, consultants and
independent contractors will not be able to continue to so reside and work
in Taiwan in accordance with all such laws, rules and regulations.
(i) Tax Matters.
(i) The Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have
been paid or are fully and adequately accrued and adequately disclosed on
the Most Recent Balance Sheet. The Company is not currently the beneficiary
of any extension of time within which to file any Tax Return. No claim has
ever been made by an authority in a jurisdiction where the Company does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets of the
Company that arose in connection with any failure (or alleged failure) to
pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(iii) Neither the Indemnifying Shareholders nor the Company has
Knowledge that any authority expects to assess any additional Taxes for any
period for which Tax Returns have been filed, and there is no reasonable
Basis for any such assessment. There is no action, suit or proceeding,
<PAGE>
investigation, dispute or claim now pending or threatened concerning any
Tax Liability of the Company or proposed adjustment to the taxable income
of the Company either (A) claimed or raised by any authority or (B) as to
which the Indemnifying Shareholders or the Company have Knowledge. Section
4(i) of the Disclosure Schedule contains a summary of all Tax Returns filed
with respect to the Company for the last three completed Tax years,
indicates those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Indemnifying
Shareholders have made available to NTI and Newco correct and complete
copies of all Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company since January 1,
1996.
(iv) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The unpaid Taxes of the Company (A) did not, as of the Most Recent
Fiscal Period End, exceed the reserve for Tax Liability set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto)
and (B) do not exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of
the Company in filing its Tax Returns.
(j) Real Property. The Company does not own any real property. Section 4(j) of
the Disclosure Schedule lists and describes briefly all real property
leased or subleased to the Company. The Company has delivered to NTI and
Newco correct and complete copies of the leases and subleases listed in
Section 4(j) of the Disclosure Schedule (as amended to date). With respect
to each lease and sublease listed in Section 4(j) of the Disclosure
Schedule:
(i) The lease or sublease is legal, valid, binding, enforceable, and
in full force and effect;
(ii) The lease or sublease will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby;
(iii) No party to the lease or sublease is in breach or default, and
no event has occurred which, with notice or lapse of time, would constitute
a breach or default or permit termination, modification, or acceleration
thereunder;
(iv) No party to the lease or sublease has repudiated any provision
thereof;
(v) There are no disputes, oral agreements, or forbearance in effect
as to the lease or sublease;
(vi) The Company has not received a notice from the lessor indicating
that the lease will not be renewed at the end of its current term for any
additional terms provided for in the lease;
<PAGE>
(vii) The term of the lease will continue for a minimum of six months
past the Closing Date;
(viii) With respect to each sublease, if any, the representations and
warranties set forth in subsections (i) through (vii) above are true and
correct with respect to the underlying lease;
(ix) The Company has not assigned, transferred, conveyed, mortgaged,
deeded in trust, granted any Security Interest or encumbered any interest
in the leasehold or subleasehold;
(x) All facilities leased or subleased thereunder have received all
approvals of governmental authorities (including licenses and permits)
required in connection with the operation thereof and have been operated
and maintained in accordance with applicable laws, rules, and regulations;
(xi) All facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said
facilities; and
(xii) The Indemnifying Shareholders are not aware of any pending or
threatened foreclosure or other enforcement proceedings relating to the
real property underlying the leases or subleases set forth in Section 4(j)
of the Disclosure Schedule that could result in the Company's loss of
possession of such real property.
(k) Intellectual Property.
(i) Except as disclosed on Section 4(k)(i) of the Disclosure Schedule,
(A) the Company owns (or has the right to use pursuant to license,
sublicense, agreement or permission in writing and set forth in Section
4(k)(iv) of the Disclosure Schedule) all Intellectual Property necessary
for the operation of the businesses of the Company as presently conducted
and as presently proposed to be conducted; (B) each item of Intellectual
Property owned or used by the Company is assignable to Newco without
alteration or impairment; and (C) to the Knowledge of the Company and the
Indemnifying Shareholders, no former employee or consultant of the Company
has possession of any Intellectual Property (including software in source
code or object code form).
(ii) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and neither the Indemnifying
Shareholders, nor any of the Company's officers, directors, employees,
agents or independent contractors of the Company has ever received any
charge, complaint, claim, demand, nor notice alleging any such
interference, infringement, misappropriation, or violation (including any
claim that the Company must license or refrain from using any Intellectual
Property rights of any third party). To the Knowledge of the Indemnifying
Shareholders and the Company, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
<PAGE>
(iii) The Company does not own any patents or patent registrations
with respect to any of its Intellectual Property.
(iv) Section 4(k)(iv) of the Disclosure Schedule identifies each item
of Intellectual Property that any third party owns and that the Company
uses pursuant to license, sublicense, agreement, permission or otherwise.
The Indemnifying Shareholders have delivered to NTI and Newco correct and
complete copies of all such licenses, sublicenses, agreements, and
permissions (as amended to date). With respect to each item of Intellectual
Property required to be identified in Section 4(k)(iv) of the Disclosure
Schedule:
(A) The license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect;
(B) The license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) No party to the license, sublicense, agreement, or permission
is in breach or default, and no event has occurred which with notice
or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) No party to the license, sublicense, agreement, or permission
has repudiated any provision thereof;
(E) The Company has no Liabilities to any third party for any
royalty or compensation for the use of the license, sublicense
agreement or permission;
(F) With respect to each sublicense, the representations and
warranties set forth in subsections (A) through (E) above are true and
correct with respect to the underlying license;
(G) The underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(H) No action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, or enforceability of the underlying
item of Intellectual Property; and
<PAGE>
(I) The Company has never granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(v) To the Knowledge of the Indemnifying Shareholders and the Company,
the Company will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its businesses as
presently conducted and as presently proposed to be conducted.
(vi) Neither the Indemnifying Shareholders nor the Company have any
Knowledge of any new products, inventions, procedures or methods of
manufacturing or processing that any competitors or other third parties
have developed which reasonably could be expected to supersede or make
obsolete any product or process of the Company. For purposes of this
Section 4(k)(vi) the term "Knowledge" shall mean actual knowledge.
(vii) Except as disclosed on Section 4(k)(vii) of the Disclosure
Schedule, none of the computer software, computer hardware (whether general
or special purpose), other similar or related items of automated,
computerized, and/or software systems that are owned or licensed by the
Company or that are designed, developed, implemented or managed by the
Company in the conduct of its businesses will malfunction, will cease to
function, will generate incorrect data or will produce incorrect results in
any material respects when processing, providing, and/or receiving (A)
date-related data from, into and between the twentieth and twenty-first
centuries or (B) date-related data in connection with any valid date in the
twentieth and twenty-first centuries. For purposes of this Section
4(k)(vii), with regards to computer software, computer hardware (whether
general or special purpose), other similar or related items of automated,
computerized, and/or software systems used by the Company in its business
which is designed and manufactured by a third party, the Company and the
Indemnifying Shareholders may rely on representations and warranties made
to the Company by such third party.
(viii) Except as disclosed on Section 4(k)(viii) of the Disclosure
Schedule, the Company has not undertaken any contract or relationship under
which it might have any Liability for any matters relating to the Year 2000
problem.
(l) Title to and Condition of Personal Property. The Company has good, valid
and marketable title to all of the Purchased Assets, including, without
limitation, each item of equipment and other personal property, tangible,
intangible or otherwise included as an asset in Section 2(a) of the
Disclosure Schedule (other than inventory disposed of in the Ordinary
Course of Business since the date of the Most Recent Balance Sheet to
Persons other than the Shareholders or Affiliates of the Company or the
Shareholders), free and clear of any Security Interests. Section 4(l) of
the Disclosure Schedule contains a list as of August 31, 1999 of all
machinery, equipment, tools, supplies, leasehold improvements, vehicles,
furniture, fixtures, office equipment, computer equipment, computer
software and other fixed assets owned by the Company or used by the Company
in the operation of its business. All tangible personal property owned by
the Company or used by the Company in the operation of its business is in
good operating condition and in a good state of maintenance and repair,
<PAGE>
ordinary wear and tear excepted, and is adequate for the business conducted
by the Company. Except for the licenses to use certain Intellectual
Property specifically identified on Section 4(k)(iv) of the Disclosure
Schedule, there are no properties or assets, tangible or intangible, owned
by any Person other than the Company which are used in connection with the
business of the Company or necessary for the operation of the Company's
business. All of the Purchased Assets are being transferred to Newco free
and clear of any Security Interests. After the Closing, Newco shall have
sole and exclusive ownership of the Purchased Assets.
(m) Contracts. Section 4(m) of the Disclosure Schedule lists all the contracts,
agreements and understandings to which the Company is a party. The
Indemnifying Shareholders have delivered to NTI and Newco a correct and
complete copy of each written agreement listed in Section 4(m) of the
Disclosure Schedule (as amended to date). With respect to each item listed
on Section 4(m) of the Disclosure Schedule: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) no party is
in breach or default, and no event has occurred which with notice or lapse
of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (C) no party has
repudiated any provision of the agreement. Except as otherwise indicated on
Section 4(m) of the Disclosure Schedule, each such item may be transferred
to Newco pursuant to this Agreement and will continue to be legal, valid,
binding, enforceable, and in full force and effect, in each case without
breaching the terms thereof or giving any party any right to accelerate,
modify or terminate such item or resulting in the forfeiture or impairment
of any right thereunder and without the consent, approval or act of, or the
making of any filing with any Person. Section 4(m) of the Disclosure
Schedule lists each currently outstanding bid or proposal for business
submitted by the Company in excess of US$5,000.
(n) Powers of Attorney. Except as set forth in Section 4(n) of the Disclosure
Schedule, there are no outstanding powers of attorney executed on behalf of
the Company.
(o) Insurance. The Company does not maintain any policies of insurance
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements).
(p) Litigation. Section 4(p) of the Disclosure Schedule sets forth each
instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge, or (ii) is a party, or to the
Knowledge of the Indemnifying Shareholders and/or the Company, is
threatened to be made a party to any claim, action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction
or before any arbitrator. Except as set forth in Section 4(p) of the
Disclosure Schedule, there is no other pending, or to the Knowledge of the
Indemnifying Shareholders and/or the Company, threatened claim, arbitration
proceeding, action, suit, investigation or other proceeding against or
involving the Company or any property or rights of the Company or any
officer or director or the Company. None of the actions, suits,
proceedings, hearings, and investigations set forth in Section 4(p) of the
Disclosure Schedule could individually or in the aggregate result in any
Material Adverse Effect with respect to the Company. Neither the
Indemnifying Shareholders nor the directors and officers (and employees
with responsibility for litigation matters) of the Company has any reason
to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against the Company.
<PAGE>
(q) Governmental Authorizations. Set forth on Section 4(q) of the Disclosure
Schedule is a list of all authorizations, consents, approvals, franchises,
licenses and permits required under applicable law or regulation for the
operation of the business of the Company as presently operated (the
"Governmental Authorizations"). All of the Governmental Authorizations have
been duly issued or obtained and are in full force and effect, and the
Company is in compliance with the terms of all the Governmental
Authorizations. Neither the Company nor the Indemnifying Shareholders has
any Knowledge of any facts which could be expected to cause them to believe
that the Governmental Authorizations will not be renewed by the appropriate
governmental authorities in the ordinary course. Each of the Governmental
Authorizations may be assigned and transferred to Newco in accordance with
this Agreement and will continue in full force and effect thereafter, in
each case without (i) the occurrence of any breach, default or forfeiture
of rights thereunder, or (ii) the consent, approval, or act of, or the
making of any filings with, any Person.
(r) Commitments and Warranties. All services and products provided by the
Company have been performed and provided in conformity with all applicable
contractual commitments (written or oral) and all express and implied
warranties (written or oral), and the Company has no Liability and, to the
Knowledge of the Indemnifying Shareholders and the Company, there is no
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them
giving rise to any Liability in connection with any such services or
products. Section 4(r) of the Disclosure Schedule includes copies of the
standard forms of agreement entered into between the Company and its
customers. The Company has not entered into any written or oral agreements
with any of its customers that include guaranties, warranties, or indemnity
provisions other than those included in the agreements included as part of
Section 4(r) of the Disclosure Schedule.
(s) Liability for Services Performed. The Company has no Liability (and, to the
Indemnifying Shareholders' Knowledge, there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) arising
out of any injury to individuals or property as a result of or in
connection with any services provided by the Company.
(t) Personnel. Section 4(t) of the Disclosure Schedule contains the names, job
descriptions, date of hire, annual salary rates and other compensation and
the amount of accrued and unused vacation time of all officers, directors,
employees, consultants, contractors and subcontractors of the Company
(including compensation paid or payable by the Company under any Employee
Benefit Plan or other arrangement), and a list of all employment contracts,
and consultant and/or employee policies (written or otherwise), employee
manuals or other written statements of rules or policies concerning
employment, including working conditions, vacation and sick leave, a
complete copy of each of which (or a description, if unwritten) has been
delivered to NTI and Newco.
<PAGE>
(u) Employees. The Company has complied with all applicable laws, rules and
regulations which relate to prices, wages, hours, discrimination in
employment and collective bargaining, and no penalties have been assessed
or could be assessed for failure to comply with any of the foregoing. The
Company and the Indemnifying Shareholders believe that the Company's
relations with its employees and consultants are satisfactory. None of the
employees or consultants of the Company are members of any labor union, and
the Company is not a party to, otherwise bound by or, to the Company's or
the Indemnifying Shareholders' Knowledge, threatened, with any labor or
collective bargaining agreement. None of the employees or consultants of
the Company are known to be engaged in organizing any labor union or other
employee group that is seeking recognition as a bargaining unit. Without
limiting the generality of Section 4(u), (i) no unfair labor practice
complaints are pending or, to the Company's and the Indemnifying
Shareholders' Knowledge, threatened against the Company, and (ii) no Person
has made any claim, and to the Company's or the Indemnifying Shareholders'
knowledge there is no Basis for any claim, against the Company under any
statute, regulation or ordinance relating to employees or employment
practices, including without limitation those relating to age, sex and
racial discrimination, conditions of employment, and wages and hours. The
Company has no contingent liability for sick leave, vacation time,
severance pay or similar items not reflected on the Most Recent Balance
Sheet. The Company has no contingent liability for occupational diseases of
its employees, former employees or others. Except as set forth in Section
4(u) of the Disclosure Schedule, the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
will not trigger any Liability or any severance pay obligation under any
agreement, including any collective bargaining agreement or under any law,
rule or regulation. Except as set forth on Section 4(u) of the Disclosure
Schedule, since January 1, 1998, no employee or independent contractor of
the Company has (i) been terminated, resigned or otherwise ceased his or
her relationship with the Company or otherwise adversely modified his or
her relationship with the Company or (ii) to the Knowledge of the Company
and the Indemnifying Shareholders, indicated that he or she intends to do
so.
(v) Employee Benefits.
(i) Section 4(v) of the Disclosure Schedule lists each Employee
Benefit Plan that the Company maintains, contributes to, or is required to
contribute to or under which the Company has any liability.
(ii) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
respects with the requirements of applicable laws and regulations.
(iii) All required reports and disclosures have been filed or
distributed appropriately with respect to each such Employee Benefit Plan.
(iv) The Indemnifying Shareholders have delivered to NTI and Newco
correct and complete copies of the plan documents and summary plan
descriptions including all amendments thereto, and all related trust
agreements, insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
<PAGE>
(w) Guaranties. The Company is not a guarantor or otherwise is liable for any
Liability or obligation (including indebtedness) of any other Person.
Section 4(w) of the Disclosure Schedule includes a true, correct and
complete list of all liabilities and obligations of the Company for which
the Shareholders are guarantors or otherwise liable.
(x) Environmental, Health, and Safety Matters.
(i) The Company and its predecessors and Affiliates have complied and
are in compliance with all Environmental, Health, and Safety Requirements.
(ii) Without limiting the generality of the foregoing, the Company and
its Affiliates have obtained and complied with, and are in compliance with,
all permits, licenses and other authorizations that are required pursuant
to Environmental, Health, and Safety Requirements for the occupation of its
facilities and the operation of its business; a list of all such permits,
licenses and other authorizations is set forth on Section 4(x)(ii) of the
Disclosure Schedule.
(iii) Neither the Company nor its predecessors or Affiliates has
received any written or oral notice, report or other information regarding
any actual or alleged violation of Environmental, Health, and Safety
Requirements, or any liabilities or potential liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating to any of them
or its facilities arising under Environmental, Health, and Safety
Requirements.
(iv) No facts, events or conditions relating to the past or present
facilities, properties or operations of the Company or any of its
predecessors or Affiliates will prevent, hinder or limit continued
compliance with Environmental, Health, and Safety Requirements, give rise
to any investigatory, remedial or corrective obligations pursuant to
Environmental, Health, and Safety Requirements (whether on-site or
off-site), or give rise to any other liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) pursuant to Environmental,
Health, and Safety Requirements, including without limitation any relating
to onsite or offsite releases or threatened releases of hazardous
materials, substances or wastes, personal injury, property damage or
natural resources damage.
(y) Certain Business Relationships with the Company. Except as disclosed on
Section 4(y) of the Disclosure Schedule, neither the Shareholders nor any
current director, officer, employee, agent or independent contractor of the
Company (individually a "Related Party" and collectively the "Related
Parties") or any Affiliate of the Shareholders or any Related Party: (i)
owns, directly or indirectly, any interest in any Person which is a
competitor, potential competitor, supplier or customer of the Company; (ii)
owns, directly or indirectly, in whole or in part, any property, asset or
right, real, personal or mixed, tangible or intangible (including, but not
limited to, any of the Intellectual Property) which is utilized by or in
connection with the business of the Company; (iii) is a customer or
supplier of the Company; or (iv) directly or indirectly has an interest in
or is a party to any contract, agreement, lease, arrangement or
understanding, whether or not in writing, pertaining or relating to the
Company, except for employment, consulting or other personal service
agreements which are listed on Section 4(t) of the Disclosure Schedule.
<PAGE>
(z) Absence of Certain Business Practices. Neither the Indemnifying
Shareholders, nor any Related Party, any Affiliate of the Indemnifying
Shareholders nor of any Related Party, any agent of the Company, or any
other Person acting on behalf of or associated with the Company, acting
alone or together, has: (i) received, directly or indirectly, any rebates,
payments, commissions, promotional allowances or any other economic
benefits, regardless of their nature or type, from any customer, supplier,
employee or agent of any customer or supplier, official or employee of any
government (domestic or foreign) or other Person; or (ii) directly or
indirectly, given or agreed to give any money, gift or similar benefit to
any customer, supplier, employee or agent of any customer or supplier,
official or employee of any government (domestic or foreign), or any
political party or candidate for office (domestic or foreign) or other
Person who was, is or may be in a position to help or hinder the business
of the Company (or assist the Company in connection with any actual or
proposed transaction) which (A) may subject the Company to any damage or
penalty in any civil, criminal or governmental litigation or proceeding,
(B) if not given in the past, may have had an adverse effect on the assets,
business, operations or prospects of the Company or (C) if not continued in
the future, may adversely affect the assets, business, operations or
prospects of the Company.
(aa) Customers and Suppliers. Section 4(aa) of the Disclosure Schedule lists the
5 largest customers of the Company and the 10 largest suppliers of goods or
services to the Company during the last three fiscal years, and the eight
month period ending August 31, 1999, and with respect to each, the name and
address, dollar volume involved and nature of the relationship (including
the principal categories of products purchased or sold or nature of
services provided). Except as indicated on Section 4(aa) of the Disclosure
Schedule, all supplies and services necessary for the conduct of the
Company's businesses as presently conducted and as proposed to be conducted
may be readily obtained from alternate sources on comparable terms and
conditions as those presently available to the Company. No facts,
circumstances or conditions exist which create a reasonable Basis for
believing that either the Company or Newco after the Closing Date would be
unable to continue to procure and provide the supplies and services
necessary to conduct its business on substantially the same terms and
conditions as such supplies and services are currently procured and
provided. Since January 1, 1998, no customer of the Company has terminated
or adversely modified its relationship with the Company or notified the
Company or the Indemnifying Shareholders (orally or in writing) of their
intention to terminate or adversely modify its relationship with the
Company, and no such customer has substantially decreased its purchases
from the Company, or notified the Company or the Indemnifying Shareholders
that the customer intends to reduce the volume of business that it
currently conducts with the Company.
5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing (it being
understood that the Shareholders shall cause the Company to comply with its
obligations under this Section 5):
<PAGE>
(a) Conditions Precedent. Each of the Parties shall act diligently and use
their commercially reasonable efforts to satisfy all conditions precedent
to the Closing which are in whole or in part within their control,
including, but not limited to, obtaining consents, waivers and approvals
from, and making filings and applications with, third parties and
governmental authorities.
(b) Operation of Business. The Company shall not engage in any practice, take
any action, or enter into any transaction outside the Ordinary Course of
Business. The Company shall not take any action which is or would be
prohibited by Section 4(g).
(c) Purchase of Inventory. NTI and Newco will purchase from the Company and the
Company will sell to NTI and Newco its inventory of Model No. 44002AA, as
identified on Schedule 2(a) of the Disclosure Schedule, at a price equal to
US$3,000.00 per unit.
(d) Preservation of Business. The Company shall keep the Purchased Assets and
its business and properties substantially intact and in good operating
condition. The Company shall preserve the goodwill of the Company and its
relationships with lessors, licensors, suppliers, customers, distributors,
employees and others having business relations with it. The Company and the
Shareholders shall use all reasonable efforts, consistent with past
practices, to promote the Company's business, to maintain the reputation
associated with the Company's business and shall not take or omit to take
any action which causes, or which is likely to cause, any deterioration of
the Purchased Assets or the Company's present business or relationships
with suppliers or customers or others having business relationships with
the Company.
(e) Full Access. The Company will permit representatives of Newco to have full
access at all reasonable times, and in a manner so as not to unduly
interfere with the normal business operations of the Company, to all
premises, properties, personnel, books, records (including Tax records),
contracts, financial records, personnel, outside accountants and
consultants, and documents of or pertaining to the Company. At the request
of Newco, the Company will permit Newco's lenders, and their respective
counsel, to have the same access as permitted to Newco in accordance with
the immediately preceding sentence. The Company shall cause its personnel
and outside accountants and consultants to assist the other Parties hereto
in furtherance of the Closing and shall furnish to Newco all information
and documents reasonably requested by Newco in furtherance of the Closing.
(f) Preserve Accuracy of Representations and Warranties; Notice of
Developments. Each of the Parties shall refrain from taking any action
which would render any of their representations or warranties contained in
this Agreement inaccurate as of the Closing Date. The Company will give
prompt written notice to Newco of any breach of any of the Company's or the
Shareholders' representations, warranties, covenants or agreements
contained herein, or any occurrence which might make any such
representation or warranty inaccurate as of the Closing Date. No disclosure
by any Party pursuant to this Section 5(f), however, shall be deemed to
amend or supplement any Disclosure Schedule or to relieve any Party for any
breach of any representation or warranty or violation of any agreement or
covenant.
<PAGE>
(g) Exclusivity. Except for the transactions contemplated by this Agreement,
unless and until this Agreement shall have been terminated, the
Shareholders will not (and the Shareholders will not cause or permit the
Company to) (i) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any
capital stock or other voting securities, or any substantial portion of the
assets, of the Company (including any acquisition structured as a merger,
consolidation, or share exchange), (ii) participate in, or facilitate in
any other manner any effort or attempt by any Person to do or seek any of
the foregoing, or (iii) except as required by law, disclose any information
not customarily disclosed to any Person concerning the business and
properties of the Company, afford to any Person (other than Newco) access
to the properties, books or records of the Company or otherwise assist or
encourage any Person, in connection with any of the foregoing. The
Shareholders will notify Newco immediately if any Person makes any
proposal, offer, inquiry, or contract with respect to any of the foregoing.
In order to enforce the Shareholders' obligations under this Section 5(g),
on the date hereof, the Shareholders shall deposit their certificates of
capital contribution representing their respective equity contribution in
the Company with Lee and Li, counsel to NTI and Newco, to be held in escrow
pursuant to the Stock Escrow Agreement, and returned to the Shareholders
immediately after the Closing.
(h) No Termination of Shareholders' Obligation by Subsequent Incapacity. The
Shareholders specifically agree that their obligations hereunder,
including, without limitation, the obligations pursuant to Section 9
hereof, shall not be modified or eliminated by their death or incapacity.
6. Other Agreements. The Parties covenant and agree as follows:
(a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor
under Section 9 below). The Shareholders acknowledge and agree that from
and after the Closing, Newco will be entitled to possession of all
documents, books, records (including Tax records), agreements, and
financial data of any sort relating to the Purchased Assets and the Assumed
Liabilities, provided, that the Company and the Shareholders shall have
reasonable access at all reasonable times to any such books and records for
the sole purpose of complying with any of their product warranty
obligations.
(b) Due Diligence Review. NTI and Newco shall be entitled to conduct a due
diligence review of the assets, properties, books and records of the
Company for a period of 75 days (the "Due Diligence Period") beginning on
the date hereof (the "Due Diligence Review"). The Company shall (and shall
cause its directors, officers, employees, auditors, counsel and agents to)
afford NTI, Newco and their directors, officers, employees, auditors,
counsel and agents reasonable access at all reasonable times during the Due
Diligence Period to its properties, offices and other facilities, to its
officers and employees and to all books and records, and shall furnish such
persons with all financial, operating and other data and information as may
be requested during such Due Diligence Review. If during the Due Diligence
Review NTI or Newco discover information that NTI or Newco deem, in their
sole discretion, to have a Material Adverse Effect with respect to the
Company, NTI and Newco shall advise the Company and the Shareholders in
writing of their determination and this Agreement shall be deemed to be
terminated, each Party shall be released from their respective obligations
hereunder, the Deposit shall be returned to NTI, together with all interest
thereon, and no Party shall have any obligation to any other Party
hereunder on account of this Agreement.
<PAGE>
(c) Schedules. The Parties hereto acknowledge that this Agreement is being
entered into by the Parties as of the date hereof without the benefit of
the Disclosure Schedule except Sections 2(a) and 2(b) thereof. The
Indemnifying Shareholders and the Company shall deliver the Disclosure
Schedule to NTI and Newco as soon as practical but in no event later than
20 days from the date hereof. The parties shall discuss the Disclosure
Schedule and attempt in good faith to resolve any issues that arise. Should
NTI and Newco determine that certain disclosures on such Disclosure
Schedule make it inadvisable to proceed with the transactions contemplated
hereby, NTI and Newco shall advise the Shareholders and the Company in
writing of its determination and this Agreement shall be deemed to be
terminated, each Party shall be released from their respective obligations
hereunder, the Deposit shall be returned to NTI, together with all interest
thereon, and no Party shall have any obligation to any other Party
hereunder on account of this Agreement.
(d) Name Change. The Company and the Shareholders hereby represent and warrant
to NTI and Newco that the trade name "OneofUs" is included with the
Purchased Assets and that the exclusive right to perpetually use such trade
name without payment of any nature will be transferred to Newco on the
Closing Date. On the Closing Date, the Company will immediately cease using
the name "OneofUs" in its business and the Shareholders shall take and/or
cause the Company to take all necessary corporate actions, including
submitting necessary filings with the government authorities, to transfer
the trade name "OneofUs" to Newco. Neither the Company nor the Shareholders
shall take any action to deregister the Company's English corporate name
"OneofUs" without the prior written consent of Newco.
(e) Consents. The Parties shall cooperate with one another to promptly obtain
all consents, approvals, authorizations and waivers of third parties, and
make all filings with and send all notices to third parties, referenced in
Section 2(c) or otherwise contemplated hereby which were not obtained as of
the Closing Date.
(f) Employee Matters.
(i) Effective as of 12:01 a.m., EST, on the Closing Date, the
employment by the Company of those employees identified in Section 6(f) of
the Disclosure Schedule, shall terminate and such employees shall cease to
participate in any Employee Benefit Plans maintained by or for the benefit
of the Company or its employees, and Newco shall be deemed to have offered
employment to each individual whose employment was so terminated (the
"Business Employees"), effective at 12:01 a.m., EST, on the Closing Date
or, in the case of a Business Employee not actively at work on the Closing
Date on account of a disability, on the day such employee reports for work
after termination of such disability upon substantially the same terms and
conditions with substantially the same duties and responsibilities and at
substantially the same rate of pay as in effect on the Closing Date while
such individuals were employed by the Company.
<PAGE>
(ii) Newco agrees that effective as of 12:01 a.m., EST, on the Closing
Date, all Business Employees who shall commence employment with Newco
("Transferred Employees") shall be entitled to, and be provided with, any
employee benefit or entitlement required by applicable law.
(iii) The Parties agree that (A) Newco shall not be obligated to
assume, continue or maintain any of the Employee Benefit Plans nor shall
Newco be obligated to assume or recognize any years of service the
Transferred Employee has accrued with the Company; (B) no assets or
liabilities of the Employee Benefit Plans shall be transferred to, or
assumed by, Newco or Newco's benefit plans; and (C) the Company shall be
responsible solely for funding and/or paying any benefits under any of the
Employee Benefit Plans, including any termination or severance benefits and
other employee entitlements accrued under such plans by or attributable to
employees of the Company.
(iv) Nothing in this Agreement, express or implied, shall confer upon
any employee of the Company, or any representative of any such employee,
any rights or remedies, including any right to employment or continued
employment for any period, of any nature whatsoever.
(g) Litigation Support. In the event and for so long as any Party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i)
any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or
prior to the Closing Date involving the Company, each of the other Parties
will cooperate with him, her or it and his, her or its counsel in the
contest or defense, make available their personnel, and provide such
testimony and access to their books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of
the contesting or defending Party (unless the contesting or defending Party
is entitled to indemnification therefor under Section 9 below).
(h) Transition. Neither the Company nor the Shareholders will take any action
that is designed or intended or could readily be expected to have the
effect of discouraging any lessor, licensor, customer, supplier, or other
business associate of the Company from maintaining the same business
relationships with NTI or Newco after the Closing as it maintained with the
Company prior to the Closing. The Shareholders and the Company will refer
all customer inquiries relating to the businesses of the Company to Newco
from and after the Closing.
(i) Independent Accountants. After the Closing, the Indemnifying Shareholders
shall (i) use reasonable efforts to cause the Company's past and present
independent auditors and accounting personnel to make available to NTI and
Newco and their representatives all financial information, including the
right to examine all working papers pertaining to audits or reviews
previously or hereafter made by such auditors, and (ii) provide such
cooperation as NTI and Newco and their representatives may request in
connection with any audit or review of the Company that NTI and Newco may
direct their representatives to make. Without limiting the generality of
the foregoing, the Indemnifying Shareholders agrees that they will
<PAGE>
cooperate with, and cause the Company's past and present independent
auditors, accounting personnel and other necessary Persons to cooperate
with NTI and Newco in the preparation of any documents filed by NTI and
Newco with the U.S. Securities and Exchange Commission (the "SEC") in
connection with an offering of securities, to the extent information about
the Company is required therein.
(j) Tax Matters. The Shareholders covenant and agree not to take any action, or
fail to take any action, with respect to Taxes, that would have an adverse
effect on NTI or Newco on or after the Closing Date, including, without
limitation, amending or otherwise supplementing any Tax Return or report of
the Company with respect to any period prior to the Closing Date without
NTI and Newco. If any taxing authority conducts any audit or investigation
relating to the Company prior to the Closing Date, NTI or Newco may, in
their sole election, have the right to supervise such audit or
investigation and provide any response required in connection therewith.
The Shareholders and the Company shall pay all Taxes which arise by virtue
of the transfer of the Purchased Assets and the transactions contemplated
hereby.
(k) Audited Financial Statements. The Indemnifying Shareholders shall cause the
Company and the Company's auditors to cooperate with NTI or Newco's
auditors in the preparation of audited consolidated balance sheets and
statements of income, changes in stockholders' equity, and cash flow,
including the audit report thereon as of and for such periods as NTI or
Newco may request.
(l) Satisfaction of Obligations. On the Closing Date, the Shareholders shall
cause the Company to, and the Company shall, satisfy, in accordance with
their terms (and whether or not then due) and without discount, defense or
offset, all Liabilities of the Company relating to the Purchased Assets,
other than the Assumed Liabilities.
(m) Investigations; Notices. The representations, warranties and covenants set
forth in this Agreement shall not be affected or diminished in any way by
any investigation (or failure to investigate) at any time by or on behalf
of the party for whose benefit such representations, warranties and
covenants were made. No representation, warranty, covenant or agreement
herein shall limit the generality of any other representation, warranty,
covenant or agreement.
(n) Restrictive Covenants.
(i) Each of the Shareholders, other than the Indemnifying Shareholders
(the "Restricted Shareholders"), and the Company acknowledge that in order
to assure NTI and Newco that NTI and Newco will retain the value of the
Purchased Assets as a "going concern," the Restricted Shareholders and the
Company agree not to utilize their special knowledge of the business of the
Company and their relationships with customers, suppliers and others to
compete with NTI and Newco. For a period of five years beginning on the
Closing Date, the Restricted Shareholders and the Company shall not engage
or have an interest, anywhere in Taiwan or any other geographic area where
NTI or Newco does business or in which its products or services are
marketed, alone or in association with others, as principal, officer,
agent, employee, director, partner, stockholder, or through the investment
of capital, lending of money or property, rendering of services or
<PAGE>
otherwise, in any business competitive with or similar to that engaged in
by the Company, NTI or Newco as of the Closing Date provided, however, that
the Company may enter into one business transaction per year with the prior
written consent of Newco for the sole purpose of maintaining the Company's
corporate registration. During the same period, the Restricted Shareholders
and the Company shall not, and shall not permit any of its or his or her
employees, agents or others under its or his or her control to, directly or
indirectly, on behalf of any of them or any other Person, other than NTI or
Newco, (A) call upon, accept business from, or solicit the business of any
Person who is, or who had been at any time during the preceding two years,
a customer of the Company, NTI or Newco or any successor to the business of
the Company, NTI or Newco or otherwise divert or attempt to divert any
business from the Company, NTI or Newco or any such successor, provided,
however, that the Shareholders may cause the Company to, and the Company
may furnish replacement products to the Company's former customers for the
sole purpose of fulfilling the Company's product warranty obligations to
such former customers, if any or (B) recruit or otherwise solicit or induce
any person who is an employee of, or otherwise engaged by, the Company, NTI
or Newco, or any person that NTI, Newco or any successor thereto placed (or
was a candidate or applicant for placement) for employment or engagement
with any of its clients, customers or other Persons to terminate his or her
employment or other relationship with the Company, NTI or Newco or such
successor, or any Person with whom such person has been placed for
employment or engagement), or hire any person who has left the employ of
the Company, NTI or Newco or any such successor or any Person with whom
such Person was placed for employment or engagement during the preceding
two years. The Shareholders and the Company shall not at any time, directly
or indirectly, use or purport to authorize any Person to use any name,
mark, logo, trade dress or other identifying words or images which are the
same as or similar to those used currently or in the past by the Company in
connection with any product or service, whether or not such use would be in
a business competitive with that of NTI or Newco. The ownership or control
of up to five percent of the outstanding voting securities or securities of
any class of a company with a class of securities which are publicly traded
shall not be deemed to be a violation of the provisions of this Section.
The obligations of the Restricted Shareholders and the Company hereunder
shall be joint and several. The Parties understand and acknowledge that
Johan Olstenius shall be subject to the restrictive covenants set forth in
the Employment Agreement and Li-Chen Liu shall be subject to the
restrictive covenants set forth in the Noncompetition Agreement.
(ii) The Company and the Restricted Shareholders acknowledge that the
Intellectual Property and all other confidential or proprietary information
with respect to the business and operations of the Company and with respect
to the Purchased Assets are valuable, special and unique. The Company and
the Restricted Shareholders shall not, at any time after the Closing Date,
disclose, directly or indirectly, to any Person, other than NTI or Newco,
or use or purport to authorize any Person to use any confidential or
proprietary information with respect to the Company, the Purchased Assets,
NTI or Newco, whether or not for their own benefit, without the prior
written consent of NTI or Newco, including without limitation, information
as to the financial condition, results of operations, customers, strategic
<PAGE>
partners, job applicants, job candidates, persons placed for employment or
engagement, suppliers, products, products under development, services,
inventions, sources, leads or methods of obtaining new products or
business, Intellectual Property, pricing methods or formulas, cost of
supplies, marketing strategies or any other information relating to the
Company, the Purchased Assets, NTI and Newco which could reasonably be
regarded as confidential, but not including information which is or shall
become generally available to the public other than as a result of an
unauthorized disclosure by the Restricted Shareholders or the Company or a
Person to whom the Restricted Shareholders or the Company has provided such
information. The Shareholders and the Company acknowledge that NTI and
Newco would not enter into this Agreement without the assurance that all
such confidential and/or proprietary information will be used for the
exclusive benefit of Newco.
(iii) The restrictions set forth in this Section 6(n) are considered
by the parties to be reasonable for the purposes of protecting the value of
the business and goodwill of NTI and Newco and the Purchased Assets. The
Parties acknowledge that NTI and Newco would be irreparably harmed and that
monetary damages would not provide an adequate remedy to NTI and Newco in
the event the covenants contained in this Section 6(n) were not complied
with in accordance with their terms. Accordingly, the Shareholders and the
Company agree that any breach or threatened breach by any of them of any
provision of this Section 6(n) shall entitle NTI and Newco to injunctive
and other equitable relief to secure the enforcement of these provisions,
in addition to any other remedies which may be available to them, and that
they shall be entitled to receive from the Shareholders and the Company
reimbursement for all attorneys' fees and expenses incurred by NTI and
Newco in enforcing these provisions. In addition to its other rights and
remedies, NTI and Newco shall have the right to require the Shareholders or
the Company, if either breaches any of the covenants contained in this
Section 6(n) to account for and pay over to NTI and Newco, as the case may
be, all compensation, profits, money, accruals and other benefits derived
or received, directly or indirectly, by such party from the action
constituting such breach. If the Shareholders or the Company breaches the
covenant set forth in this Section 6(n), the running of the five-year
period described therein shall be tolled for so long as such breach
continues. It is the desire and intent of the parties that the provisions
of this Section 6(n) be enforced to the fullest extent permissible under
the laws and public policies of each jurisdiction in which enforcement is
sought. If any provisions of this Section 6(n) relating to the time period,
scope of activities or geographic area of restrictions is declared by a
court of competent jurisdiction to exceed the maximum permissible time
period, scope of activities or geographic area, the maximum time period,
scope of activities or geographic area, as the case may be, shall be
reduced to the maximum which such court deems enforceable. If any
provisions of this Section 6(n) other than those described in the preceding
sentence are adjudicated to be invalid or unenforceable, the invalid or
unenforceable provisions shall be deemed amended (with respect only to the
jurisdiction in which such adjudication is made) in such manner as to
render them enforceable and to effectuate as nearly as possible the
original intentions and agreement of the parties.
(o) Product Specifications. Within sixty (60) days of the date hereof, the
Company agrees that all of the inventory listed on Section 2(a) of the
Disclosure Schedule will have been completed to the satisfaction of NTI and
Newco and shall comply with the specifications set forth in Exhibit H
hereto.
<PAGE>
7. Conditions Precedent to Closing.
(a) Conditions Precedent to the Obligations of NTI and Newco. The obligations
of NTI and Newco to consummate the transactions contemplated by this
Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions:
(i) The representations and warranties of the Shareholders and the
Company contained in this Agreement and in any certificate or other
document delivered pursuant to this Agreement shall be true and correct in
all material respects (except for representations and warranties which are
by their terms qualified by materiality, which shall be true and correct in
all respects) as of the Closing Date with the same force and effect as
though made on and as of such date.
(ii) All of the terms, covenants and conditions of this Agreement to
be performed or complied with by the Shareholders and the Company on or
prior to the Closing Date shall have been duly performed or complied with
in all material respects.
(iii) There shall not have occurred any Material Adverse Effect.
(iv) The Shareholders and the Company shall have obtained all
authorizations, waivers, consents and approvals of, and made all filings,
applications and notices with, Persons which are necessary or advisable to
consummate the transactions contemplated by this Agreement, each of which
shall have been obtained without the imposition of any adverse term or
condition.
(v) NTI and Newco shall have received from legal counsel to the
Shareholders and the Company, an opinion letter, dated the Closing Date, in
a form reasonably satisfactory to NTI and Newco.
(vi) The Shareholders and the Company shall have delivered to Newco a
certificate executed by an officer of the Company, dated the Closing Date,
certifying in such detail as Newco may reasonably request, that the
conditions specified in Sections 6(a)(i), (ii), (iii), (iv), (viii) and
(ix) have been fulfilled.
(vii) Johan Olstenius, Stuart Campbell and Fahim Ahmed shall have
executed and delivered to Newco the Employment Agreements, the Stock Option
Agreements and the Subscription Agreements.
(viii) Li-Chen Liu shall have executed and delivered to NTI the
Noncompetition Agreement.
<PAGE>
(ix) All authorizations, approvals, waivers, consents, filings,
applications and notices required by governmental authorities for the
consummation of the transactions contemplated by this Agreement, including
without limitation, authorizations under the laws of the ROC governing
foreign investment for Newco to establish a branch office in the ROC and/or
which are reasonably necessary for the operation of the Purchased Assets on
a going concern basis consistent with past practices shall have been made
or obtained; and all of such items shall have been obtained without the
imposition of any term or condition which would adversely affect NTI, Newco
or the Purchased Assets.
(x) No litigation, arbitration or other proceeding shall be pending
or, to the Knowledge of the Parties, threatened by or before any court,
arbitration panel or governmental authority; no law or regulation shall
have been enacted after the date of this Agreement; and no judicial or
administrative decision shall have been rendered; in each case, which
enjoins, prohibits or materially restricts, or seeks to enjoin, prohibit or
materially restrict, the consummation of the transactions contemplated by
this Agreement or the operation of the Purchased Assets on a going concern
basis by Newco.
(xi) Copies of the Articles of Incorporation of the Company certified
as of a recent date by the appropriate governmental agency of the
jurisdiction of the Company's incorporation and copies of the by-laws of
the Company certified on the Closing Date by the Secretary or an Assistant
Secretary of the Company shall have been delivered to Newco.
(xii) Incumbency and specimen signature certificates, dated the
Closing Date, with respect to the officers of the Company executing this
Agreement shall have been executed and delivered to Newco.
(xiii) Copies of the resolutions of the Board of Directors of the
Company authorizing the execution and performance of this Agreement and the
transactions contemplated hereby, certified by the Secretary or an
Assistant Secretary of the Company, as of the Closing Date, shall have been
delivered to Newco.
(xiv) Certificates of title with respect to any of the Purchased
Assets for which a certificate of title is required in order to transfer
title shall have been executed and delivered to Newco; and documents
necessary to transfer all trade names included in the Purchased Assets
shall have been executed and delivered to Newco.
(xv) The Shareholders and the Company shall have delivered to Newco
such other bills of sale, assignments and other instruments of transfer or
conveyance as Newco may reasonably request or as may be otherwise necessary
or required by the governmental authorities in Taiwan, to evidence and
effect the sale, assignment, transfer, conveyance and delivery of the
Purchased Assets to Newco.
(b) Conditions Precedent to the Obligations of the Company and the
Shareholders. The obligations of the Company and the Shareholders to
consummate the transactions contemplated by this Agreement are subject to
the satisfaction at or prior to the Closing of the following conditions:
<PAGE>
(i) The representations and warranties of NTI and Newco contained in
this Agreement or in any certificate or other document delivered pursuant
to this Agreement shall be true and correct in all material respects
(except for representations and warranties which are by their terms
qualified by materiality, which shall be true and correct in all respects)
as of the Closing Date with the same force and effect as though made on and
as of such date.
(ii) All of the terms, covenants and conditions of this Agreement to
be performed or complied with by NTI or Newco on or prior to the Closing
Date shall have been duly performed or complied with in all material
respects.
(iii) NTI and Newco shall have delivered to the Company a certificate
executed by an officer thereof, dated the Closing Date, certifying in such
detail as the Company may reasonably request, that the conditions specified
in Sections 7(b)(i) and (ii) above have been fulfilled.
(iv) The Consideration, including the Deposit, shall have been
delivered to the Company.
(v) Copies of the Articles or Certificate of Incorporation of NTI and
Newco certified as of a recent date by the Secretary of State of the state
of its incorporation, and copies of the by-laws of NTI and Newco, certified
on the Closing Date, by the Secretary or an Assistant Secretary of NTI and
Newco, respectively, shall have been delivered to the Company.
(vi) Certificates of good standing of NTI and Newco issued as of a
recent date by the Secretary of State of its state of incorporation shall
have been delivered to the Company.
(vii) Newco shall have executed and delivered the Employment
Agreements.
(viii) NTI shall have executed and delivered the Stock Option
Agreements, the Subscription Agreements and the Noncompetition Agreement.
(ix) Incumbency and specimen signature certificates, dated the Closing
Date, with respect to the officers of NTI and Newco executing this
Agreement shall have been delivered to the Company.
<PAGE>
(x) Copies of the resolutions of Board of Directors of NTI and Newco
authorizing the execution and performance of this Agreement and the
transactions contemplated hereby, certified by the Secretary or an
Assistant Secretary of NTI and Newco, as of the Closing Date, shall have
been delivered by the Company.
(xi) An opinion Akerman, Senterfitt & Eidson, P.A., counsel to NTI and
Newco, dated the Closing Date, in a form reasonably satisfactory to the
Company.
8. Closing.
All proceedings to be taken and all documents to be executed at the Closing
shall be deemed to have been taken, delivered and executed simultaneously, and
no proceeding shall be deemed taken nor documents deemed executed or delivered
until all have been taken, delivered and executed. The Company and the
Shareholders are taking all steps and actions as Newco may reasonably request or
as may otherwise be necessary to put Newco in actual possession or control of
the Purchased Assets.
9. Remedies for Breaches of this Agreement.
(a) Survival of Representations and Warranties. The Parties agree that the (i)
the representations and warranties contained in Sections 4(i), 4(k), 4(v)
and 4(x) (collectively, the "Transaction Representations and Warranties")
shall survive the Closing until 30 days after the expiration of the statute
of limitations applicable thereto, and (ii) all of the remaining
representations, warranties, covenants and agreements of the Parties
contained in this Agreement or in any certificate, document, instrument or
agreement delivered pursuant to this Agreement shall survive the Closing
hereunder and continue in full force and effect thereafter for a period of
five years.
(b) Indemnification by the Company and the Shareholders. The Company and the
Indemnifying Shareholders agree, jointly and severally, to indemnify and
hold harmless NTI and Newco and their respective directors, officers,
employees and agents from, against and in respect of, the full amount of
any and all Adverse Consequences, arising from, in connection with, or
incident to:
(i) any breach, inaccuracy or violation of (or any third party
allegation of any breach, inaccuracy or violation of) any of the
representations, warranties, covenants or agreements of the Company or the
Shareholders contained in this Agreement, any schedule or exhibit to this
Agreement or in any document, agreement or certificate delivered by any of
them at or prior to the Closing;
(ii) any and all claims arising out of, relating to, resulting from or
caused (whether in whole or in part) by any transaction, status, event,
condition, occurrence, or situation in any way relating to any of the
Purchased Assets, the Company or the conduct of its business arising or
occurring in whole or in part on or prior to the Closing Date without
regard to whether such claims exist on the Closing Date or arise at any
time thereafter;
<PAGE>
(iii) any and all claims arising from, as a result of, or with respect
to any and all obligations or liabilities of the Company, whether known or
unknown, asserted or unasserted, absolute, contingent or otherwise, not
expressly included in the Assumed Liabilities (including, but not limited
to, all losses and liabilities arising by reason of the Company's failure
to satisfy and discharge, as same become due);
(iv) as a result of, arising from or in connection with any and all
loss or liability, including the costs and expenses of prosecution or
defense incurred by NTI and Newco as a consequence of any litigation
currently pending (A) against the Company, (B) relating to the Purchased
Assets, or (C) relating to the Assumed Liabilities;
(v) any and all Taxes, due or claimed to be due (including, without
limitation, Taxes on properties, income, franchises, licenses, sales,
services and payrolls) by any federal, state, local and foreign authorities
applicable to the Purchased Assets or the Company in respect of or
attributable to any and all taxable periods or portions thereof ending on
or before the Closing Date, or which arise by virtue of the transfer of the
Purchased Assets and the transactions contemplated hereby;
(vi) the activities or Liabilities of any entity which at any time has
been owned, in whole or in part, by the Company; and
(vii) any and all actions, suits, proceedings, demands, assessments or
judgments, costs and expenses incidental to any of the foregoing.
Notwithstanding anything contained herein to the contrary, in no event shall the
Company or the Indemnifying Shareholders have liability for any breach of the
representations and warranties in excess of US$2,850,000, except that no maximum
liability shall apply for any breach that resulted from intentional
misrepresentation equivalent to fraud.
(c) Indemnification by Newco. Newco agrees to indemnify and hold harmless the
Company and the Indemnifying Shareholders from, against and in respect of,
the full amount of any and all Adverse Consequences arising from, in
connection with, or incident to:
(i) any breach, inaccuracy or violation of (or any third party
allegation of any breach, inaccuracy or violation of) any of the
representations, warranties, covenants or agreements of NTI or Newco
contained in this Agreement, any schedule or exhibit to this Agreement or
in any document or certificate delivered by NTI or Newco at or prior to the
Closing; and
(ii) any and all actions, suits, proceedings, demands, assessments or
judgments, costs and expenses incidental to any of the foregoing.
(d) Matters Involving Third Parties.
<PAGE>
(i) If any third party shall notify any party entitled to
indemnification hereunder (the "Indemnified Party") with respect to any
matter (a "Third Party Claim") which may give rise to a claim for
indemnification against any other Party (the "Indemnifying Party") under
this Section 9 then the Indemnified Party shall promptly notify each
Indemnifying Party thereof in writing; provided, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is materially
prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party is responsible for and will fully indemnify the
Indemnified Party from and against the entirety of any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, (B) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party will have
the financial resources to defend against the Third Party Claim and fulfill
its indemnification obligations hereunder, (C) the Third Party Claim
involves only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice
materially adverse to the continuing business interests of the Indemnified
Party, (E) the named parties to the Third Party Claim do not include both
the Indemnified Party and the Indemnifying Party, and (F) the Indemnifying
Party conducts the defense of the Third Party Claim actively and
diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 9(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not
to be withheld unreasonably).
(iv) In the event any of the conditions in Section 9(d)(ii) above is
or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not consult
with, or obtain any consent from, any Indemnifying Party in connection
therewith), (B) the Indemnifying Party will reimburse the Indemnified Party
promptly and periodically for the costs of defending against the Third
Party Claim (including reasonable attorneys' fees and expenses), and (C)
each Indemnifying Party will remain responsible for any Adverse
<PAGE>
Consequences the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim to
the fullest extent provided in this Section 9.
(e) Determination of Adverse Consequences. The Parties shall take into account
the time cost of money (using the Applicable Rate as the discount rate) in
determining Adverse Consequences for purposes of this Section 9. All
indemnification payments under this Section 9 shall be deemed adjustments
to the Consideration.
(f) Other Indemnification Provisions. The foregoing indemnification provisions
are in addition to, and not in derogation of, any statutory, equitable, or
common law remedy (including without limitation any such remedy arising
under Environmental, Health, and Safety Requirements) any Party may have
with respect to the Company and the Indemnifying Shareholders, or the
transactions contemplated by this Agreement.
10. Termination.
(a) Termination of Agreement. The Parties may terminate this Agreement as
provided below:
(i) NTI, Newco, the Company and the Shareholders may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) NTI and Newco may terminate this Agreement by giving written
notice to the Shareholders and the Company at any time prior to the Closing
(A) in the event any Shareholders or the Company has breached any
representation, warranty, or covenant contained in this Agreement in any
material respect, NTI and Newco have notified the Company of the breach,
and the breach has continued without cure for a period of 10 days after the
notice of breach; (B) if the Closing shall not have occurred on or before
March 13, 2000 (or such later date as may be mutually agreed to by the
Parties) by reason of the failure of any condition precedent under Section
7(a) hereof (unless the failure results primarily from NTI and Newco
breaching any representation, warranty, or covenant contained in this
Agreement); (C) pursuant to Section 6(b); or (D) pursuant to Section 6(c);
and
(iii) The Shareholders and the Company may terminate this Agreement by
giving written notice to NTI and Newco at any time prior to the Closing (A)
in the event NTI and Newco have breached any representation, warranty or
covenant contained in this Agreement in any material respect, the
Shareholders and the Company have notified NTI and Newco of the breach, and
the breach has continued without cure for a period of 10 days after the
notice of breach; (B) if the Closing shall not have occurred on or before
March 13, 2000 or such later date as may be mutually agreed to by the
Parties) by reason of the failure of any condition precedent under Section
7(b) hereof (unless the failure results primarily from the Shareholders and
the Company breaching any representation, warranty, or covenant contained
in this Agreement); or (C) if after the occurrence of an event, the NTI
Common Stock ceases to be listed on The American Stock Exchange or the SEC
issues a stop order or other suspension of effectiveness of a registration
statement filed by NTI.
<PAGE>
(b) Effect of Termination. If any Party terminates this Agreement pursuant to
Section 11(a) above, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party
(except for any Liability of any Party then in breach). No termination of
this Agreement shall relieve any party for its breach or violation of this
Agreement.
11. Miscellaneous.
(a) Telecopied Signatures. Any telecopied signature shall be deemed a manually
executed original.
(b) No Third-Party Beneficiaries. This Agreement shall not confer any rights or
remedies upon any Person other than the Parties and their Shareholders and
their respective successors and permitted assignee and the Indemnified
Parties referred to in Section 9 hereof.
(c) Entire Agreement. This Agreement, the Escrow Agreement and the Stock Escrow
Agreement (including the documents referred to herein and therein)
constitute the entire agreement among the Parties and supersedes any prior
understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to subject matter
hereof.
(d) Succession and Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the Parties named herein
and their respective successors and permitted assignee. No Party may assign
either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the other
Parties; provided, however, that NTI or Newco may (i) assign any or all of
its rights and interests hereunder to one or more of its Affiliates, (ii)
designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases NTI or Newco nonetheless shall
remain responsible for the performance of all of its obligations hereunder)
and (iii) without the approval of the Company or the Shareholders assign
its rights and interests hereunder to its lenders (and any agent for the
lenders), and the Parties consent to any exercise by such lenders (and such
agents) of their rights and remedies with respect to such collateral.
(e) Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by overnight delivery service and addressed
to the intended recipient as set forth below:
<PAGE>
If to the Company:
OneofUs Company Limited
4F-1, No. 49, Sec. 3
Ho-Ping East Rd.
Ta-An District
Taipei 106
Taiwan R.O.C.
Attn: Johan Olstenius
If to NTI:
nStor Technologies, Inc.
100 Century Boulevard
West Palm Beach, FL 33417
Attn: H. Irwin Levy
Copy to:
Akerman Senterfitt & Eidson, P.A.
Las Olas Centre, Suite 950
450 East Las Olas Boulevard
Ft. Lauderdale, Florida 33301
Attn: Donn A. Beloff, Esq.
If to Newco:
nStor Technologies, Inc.
100 Century Boulevard
West Palm Beach, FL 33417
Attn: H. Irwin Levy
Copy to:
Akerman Senterfitt & Eidson, P.A.
Las Olas Centre, Suite 950
450 East Las Olas Boulevard
Ft. Lauderdale, Florida 33301
Attn: Donn A. Beloff, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
<PAGE>
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Florida without giving
effect to any choice or conflict of law provision or rule (whether of the
State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
Florida.
(i) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation,
or breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any
other situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear his or her or its own costs and
expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the negotiation of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
The word "including" shall mean including without limitation. The Parties
intend that each representation, warranty, and covenant contained herein
shall have independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the
fact that there exists another representation, warranty, or covenant
relating to the same subject matter (regardless of the relative levels of
specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
(m) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits, Annexes,
Schedules and Certificates identified in this Agreement are incorporated
herein by reference and made a part hereof.
(n) Specific Performance. Each of the Parties acknowledges and agrees that the
other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in
any action instituted in any court of the United States or any state
thereof having jurisdiction over the Parties and the matter (subject to the
provisions set forth in Section 9(o) below), in addition to any other
remedy to which they may be entitled, at law or in equity.
<PAGE>
(o) Submission to Jurisdiction. Each of the Parties submits to the exclusive
jurisdiction of any state or federal court sitting in Palm Beach County,
Florida, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding
shall be heard and determined in any such court. Each of the Parties waives
any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety, or other security that
might be required of any other Party with respect thereto. Any Party may
make service on any other Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided
for the giving of notices in Section 9(g) above. Each Party agrees that a
final judgment in any action or proceeding so brought shall be conclusive
and may be enforced by suit on the judgment or in any other manner provided
by law or at equity.
(p) Prevailing Party. In any action or proceeding arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover
reasonable attorney's fees and costs from the other party to the action or
proceeding.
(q) Public Announcements. Except as otherwise required by law, neither the
Shareholders nor the Company nor any of their representatives will issue
any press release or make any other public announcement relating to,
connected with or arising out of this Agreement or the transactions
contemplated herein, including the existence and terms of this Agreement,
without obtaining the prior approval of NTI to the contents and the manner
of presentation and publication thereof.
(r) WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
******
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
nSTOR TECHNOLOGIES, INC.
By: /S/ Jack Jaiven
Name: Jack Jaiven
Title: Vice President
nSTOR TAIWAN, INC.
By: /S/ Jack Jaiven
Name: Jack Jaiven
Title: Vice President
ONEOFUS COMPANY LIMITED
By: /S/ Johan Olstenius
Name: Johan Olstenius
Title: President
SHAREHOLDERS:
/S/ Johan Olstenius
Johan Olstenius
/S/ Li-Chen Liu
Li-Chen Liu
/S/ Ching-Long Wu
Ching-Long Wu
/S/ Kuo-Chung Liu
Kuo-Chung Liu
/S/ Wu-Shin Liu
Wu-Shin Liu
<PAGE>
EXHIBIT 10.1
FORM OF EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") dated as of Janaury 19, 2000 is entered into by and
between nStor Taiwan, Inc. (the "Company"), a Florida corporation and a
wholly-owned subsidiary of nStor Technologies, Inc. ("NTI") and
_________________ (the "Executive").
Recitals
The Company, through its Board of Directors, desires to retain the services of
Executive, and Executive desires to be retained by the Company, on the terms and
conditions set forth in this Agreement.
Agreement
For and in consideration of the foregoing and of the mutual covenants of the
parties herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. EMPLOYMENT. The Company hereby employs Executive to serve in the capacities
described herein and Executive hereby accepts such employment and agrees to
perform the services described herein upon the terms and conditions
hereinafter set forth.
2. TERM. The term of Executive's employment pursuant to this Agreement shall
commence on the date hereof and shall terminate at the close of business on
the fourth anniversary of the date hereof, which period is referred to
herein as the "Initial Term." The Initial Term shall be subject to earlier
termination in accordance with the other terms and conditions set forth
herein. Upon the expiration of the Initial Term, the Executive's employment
shall continue automatically for periods of twelve calendar months (each
such term being referred to herein as an "Additional Term") unless, at
least 30 days prior to the termination of the Initial Term or an Additional
Term, as the case may be, the Executive or the Company gives notice to the
other of its intention to terminate the Executive's employment at the end
of such Initial Term or Additional Term.
3. DUTIES. Executive shall serve as and have the title of President of the
Company. The Executive's principal place of employment shall be in Taipei,
Taiwan. Executive agrees to devote his full business time, energy, skills
and best efforts to such employment while so employed. Nothing in this
Agreement shall preclude Executive from engaging, so long as, in the
reasonable determination of the Board of Directors, such activities do not
interfere with his duties and responsibilities hereunder, in charitable and
community affairs, from managing any passive investment made by him or from
serving, subject to the prior approval of the Board of Directors, as a
member of the board of directors or as a trustee of any other corporation,
association or entity.
4. COMPENSATION. The Company shall pay Executive, and Executive agrees to
accept, (i) on the date hereof, US$____________ in common stock of NTI, par
value $0.05 per share ("NTI Common Stock"), which NTI Common Stock will be
valued based on the average closing price of one share of NTI Common Stock
on The American Stock Exchange for the ten (10) trading days immediately
preceding the date hereof and will be subject to the restrictions set forth
in that certain Subscription Agreement of even date herewith between NTI
and the Executive; and (ii) base compensation ("Base Compensation") at the
rate of US$________ per month for the first year of the Initial Term, and
US$____________ per month for the second year of the Initial Term.
Executive's Base Compensation will be increased by 5% in each of the
remaining two years of the Initial Term. The Base Compensation specified in
this Section 4 may be further increased annually during the term of this
Agreement in the sole discretion of the Compensation Committee of the Board
of Directors.
5. FRINGE BENEFITS.
(a) Generally. Executive shall be eligible for fringe benefits
pursuant to any health and disability insurance, pension, retirement,
profit sharing, stock option, or other employee fringe benefit plan that
either the Company or NTI, makes available to their employees and for which
Executive will qualify according to his eligibility under the provisions
thereof without giving effect to Executive's prior years of service with
OneofUs Limited Company ("OneofUs") for purposes of such eligibility.
(b) Vacation, Holidays and Illness. During the term of this Agreement,
Executive shall be entitled to days off with pay for vacation (not less
than four weeks per year), Taiwanese national holidays, illness or other
appropriate purposes.
6. EXPENSES. Except as otherwise agreed to herein, the Executive shall be
reimbursed for all usual expenses incurred on behalf of the Company, in
accordance with Company practices and procedures, provided that Executive
furnishes the Company with adequate documentary evidence required by the United
States Internal Revenue Code (the "Code") or any regulation promulgated
thereunder for the substantiation of such expenditures as a deductible business
expense of the Company and not as deductible compensation to Executive.
7. TERMINATION. The term of Executive's employment under this Agreement may be
terminated prior to expiration of the Initial Term or any Additional Term
provided in Section 2 hereof only in accordance with the following Sections.
(a) For Cause. This Agreement may be immediately terminated by the
Company for Cause. For purposes of this Agreement, the term "Cause" shall
mean the termination of the Executive by the Board of Directors of the
Company as a result of the existence or occurrence of one or more of the
following conditions or events:
<PAGE>
(i) a material breach by the Executive of any provision of this
Agreement, or the willful and continued failure of Executive to
perform his duties under his employment with the Company, which
failure or breach shall continue for more than ten (10) days after
written notice thereof is received by the Executive;
(ii) performance by the Executive of any act of fraud or material
misrepresentation or a material act of misappropriation which results
or is intended to result in Executive's Personal Enrichment at the
expense of the Company. For purposes of this Agreement, the term
"Personal Enrichment" shall mean financial gain over and above the
salary, bonus, benefits or other compensation to which Executive is
otherwise entitled under this Agreement;
(iii) conviction of the Executive of any crime which constitutes
a felony offense involving violence (but not involving a motorized
vehicle) or fraud, embezzlement, theft or business activities;
(iv) the entry of a judgment or order enjoining or preventing the
Executive from such activities as are essential for the Executive to
perform his services as required by this Agreement unless such
judgment or order is the subject of an appeal or other proceeding to
set it aside or modify it and such proceeding is timely filed and
being pursued with due diligence; or
(v) Executive has engaged in willful and deliberate conduct or
activities intended to materially damage the business of the Company,
it being understood that neither conduct or activities pursuant to the
Executive's exercise of his good faith business judgment nor
unintentional physical damage to properties by the Executive shall be
a ground for such a determination.
(b) With Good Reason. This Agreement may be immediately terminated by
the Executive for Good Reason. For purposes of this Agreement, the term
"Good Reason" shall mean the termination by the Executive of his employment
with the Company as a result of the existence or occurrence of one or more
of the following conditions or events:
(i) the failure by the Company to comply with the provisions of
Sections 4, 5 or 6 which failure or breach shall continue for more
than ten (10) days after the date on which the Board of Directors of
the Company receives written notice;
(ii) the requirement by the Company that the Executive be based
at any location outside of Taiwan;
(iii) the reassignment by the Company of the Executive's material
responsibilities to a third party without the consent of the
Executive; or
(iv) the Executive is asked to (A) take any action which is, or
which the Executive considers based on an opinion of counsel to be, a
violation of law or (B) refrain from taking any action required by
law.
<PAGE>
(c) Mutual. Executive's employment under this Agreement may be
terminated upon mutual written agreement of the Company and the Executive.
(d) Death. In the event of the death of Executive, this Agreement shall
terminate immediately.
(e) Disability. If, during Executive's employment under this
Agreement, Executive shall become permanently disabled and unable to
perform his duties as required herein ("Disability") for a consecutive
period of one hundred eighty (180) days, then the Company many, upon thirty
(30) days written notice to Executive, terminate Executive's employment
under this Agreement.
8. DEATH AND DISABILITY. In the event of the termination of Executive's
employment under this Agreement by reason of the Executive's death or
Disability, the Company shall pay Executive (or his heirs and/or personal
representatives), Base Compensation through a date which is one year after the
date of Death or the date of termination for Disability as provided in Sections
7(d) and 7(e), respectively.
9. RESTRICTIVE COVENANTS. In consideration of the foregoing, the Executive
agrees that the Executive shall not:
(a) during the term of his employment and, if the Company shall terminate the
Executive for Cause or if the Executive voluntarily terminates his
employment with the Company without Good Reason, for a period of one (1)
year following the date of termination (the "Noncompete Period"), directly
or indirectly, alone or as a partner, joint venturer, officer, director,
employee, consultant, agent, independent contractor, or security holder, of
any company or business, engage in, or finance, or provide financial
assistance with respect to, any business activity competitive with or
similar to that engaged in by NTI, Newco or any of their subsidiaries,
successors, or assigns (the "NTI Companies") as of the date hereof (the
"NTI Business"); provided, however, that the beneficial ownership of less
than five percent (5%) of any class of securities of any entity having a
class of equity securities actively traded on a national securities
exchange or over-the-counter market shall not be deemed, in and of itself,
to violate the prohibitions of this Section;
(b) during the Noncompete Period, directly or indirectly, (i) induce any
customer of the Company or any NTI Company to patronize any business which
is directly or indirectly in competition with the NTI Business conducted by
any of the NTI Companies; (ii) canvass, solicit or accept from any Person
which is a customer of the NTI Business conducted by any of the NTI
Companies, any such competitive business, provided, however, that the
Executive may cause OneofUs to furnish replacement products to former
customers of OneofUs for the sole purpose of fulfilling OneofUs' product
warranty obligations to such former customers, if any; or (iii) request or
advise any customer or other business relationship of the NTI Business
conducted by any of the NTI Companies to withdraw, curtail or cancel any
such person's business with the NTI Companies or their successors; and
<PAGE>
(c) during the Noncompete Period, directly or indirectly, employ any person who
was employed by the NTI Companies, or in any manner seek to induce any
employee of the NTI Companies to leave his or her employment.
10. CONFIDENTIAL INFORMATION. Executive recognizes and acknowledges that he will
have access to certain confidential information of the Company and NTI and of
corporations with whom the Company and NTI do business, and that such
information constitutes valuable, special and unique property of the Company and
NTI and such other corporations. For the period of time which is the greater of
(i) the fifth anniversary of the date hereof or (ii) one year after the
Executive is no longer employed by the Company ("Confidentiality Period"),
Executive agrees not to disclose or use, except in the discharge of his duties
and responsibilities hereunder, any such confidential information, including
without limitation, information regarding research, developments, product
designs or specifications, manufacturing processes, "know-how," prices,
suppliers, customers, costs or any knowledge or information with respect to
confidential or trade secrets of the Company or NTI. Notwithstanding the
preceding sentence, it is understood that such confidential information does not
include information that is publicly available unless such information became
publicly available as a result of a breach of this Section 10 or information
that is required by law or the order of any governmental authority under color
of law to be disclosed. Executive acknowledges and agrees that all notes,
records, reports, sketches, plans, unpublished memoranda or other documents
belonging to the Company or NTI, but held by Executive, concerning any
information relating to the Company or NTI's business, whether confidential or
not, are the property of the Company and NTI and will be promptly delivered to
it upon Executive's leaving the employ of the Company. Executive also agrees to
execute such confidentiality agreements that the Board may adopt, and may modify
from time to time, as a standard form to be executed by all employees of the
Company, to the extent such standard forms are not materially more restrictive
than the provisions of this Agreement.
11. ACKNOWLEDGMENTS OF THE PARTIES. The parties agree and acknowledge that the
restrictions contained in Sections 9 and 10 are reasonable in scope and duration
and are necessary to protect the NTI Companies. If any provision of Section 9 or
10 as applied to any party or to any circumstance is adjudged by a court to be
invalid or unenforceable, the same shall in no way affect any other circumstance
or the validity or enforceability of any other provision of this Agreement. If
any such provision, or any part thereof, is held to be unenforceable because of
the duration of such provision or the area covered thereby, the parties agree
that the court making such determination shall have the power to reduce the
duration and/or area of such provision, and/or to delete specific words or
phrases, and in its reduced form, such provision shall then be enforceable and
shall be enforced. It is expressly acknowledged and agreed that the restrictions
contained in Sections 9 and 10 herein shall survive and continue to be in
effect, in accordance with the terms hereof, following the expiration or
termination for any reason of the Executive's relationship with the Company. The
provisions of Sections 9 and 10 shall be construed as an agreement on the part
of Executive independent of any other part of this Agreement or any other
agreement, and the existence of any claim or cause of action of Executive
against the Company or the NTI Companies, whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by the Company
of the provisions of Sections 9 or 10.
<PAGE>
12. INTELLECTUAL PROPERTY.
(a) Executive waives any right (including personal or moral right), title or
interest in and to works of authorship, works-made-for-hire and other
inventions, patents, trademarks, service marks, trade names, logos,
copyrights, mask works, confidential business information (including
formulas, compositions, manufacturing and production processes and
techniques, prototypes, technical data, design, drawings, diskettes, stored
data, switch, application, operating system, specifications, lists of and
data relating to, current, prior and prospective customers and suppliers,
pricing and cost information, business and marketing plans and proposals),
computer software and any other intellectual property conceived or
developed by Executive while working for OneofUs, Newco or any NTI Company
or in which the Executive has or may have any proprietary rights
("Intellectual Property"), and hereby transfers any such right, title or
interest which the Executive has or may have in the Intellectual Property
to the Company.
(b) At all times, during and after Executive's employment with Newco, Executive
shall not assert any right (including any personal or moral right) against
Newco or any NTI Company in and to any Intellectual Property.
13. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by overnight delivery service to
the addresses below or to such other address as either party shall designate by
written notice to the other:
If to the Executive:
To the address set forth below his signature on the signature page hereof.
If to the Company:
H. Irwin Levy
c/o nStor Technologies, Inc.
100 Century Boulevard
West Palm Beach, Florida 33417
14. ENTIRE AGREEMENT; MODIFICATION.
(a) This Agreement contains the entire agreement of the Company and Executive,
and the Company and Executive hereby acknowledge and agree that this
Agreement supersedes any prior statements, writings, promises,
understandings or commitments between the parties hereof.
(b) No future oral statements, promises or commitments with respect to the
subject matter hereof, or other purported modification hereof, shall be
binding upon the parties hereto unless the same is reduced to writing and
signed by each party hereto.
15. ASSIGNMENT. The rights and obligations of the parties under this Agreement
shall inure to the benefit of and shall be binding upon the successors and
permitted assigns of the parties. Neither party may assign his or its rights or
obligations under this Agreement without the prior written consent of the other
party provided, however, the Company may assign its rights and delegate its
obligations hereunder to any NTI Company without the prior consent of Executive.
<PAGE>
16. TERMINATION. All of the provisions of this Agreement shall terminate upon
the termination of this Agreement, except that (i) Section 9 shall only
terminate upon the expiration of the Noncompete Period; (ii) Section 10 shall
only terminate upon the expiration of the Confidentiality Period and (iii)
Section 12 shall survive the termination of this Agreement to the extent of its
terms.
17. NO MITIGATION. The Executive shall not be required to mitigate the amount of
any payments due hereunder upon termination of Executive's employment by seeking
other employment or otherwise, nor shall the amount of any such payments be
reduced by any employment by another employer after termination of Executive's
employment hereunder.
18. MISCELLANEOUS.
(a) The section headings contained herein are for reference purposes only and
shall not in any way affect the meaning or the interpretation of this
Agreement.
(b) The failure of any party to enforce any provision of this Agreement shall
in no manner affect the right to enforce the same, and the waiver by any
party of any breach of any provision of this Agreement shall not be
construed to be a waiver by such party of any succeeding breach of such
provision or a waiver by such party of any breach of any other provision.
(c) All written notices required in this Agreement shall be sent by overnight
delivery service against receipt.
(d) In the event any one or more of the provisions of this Agreement shall for
any reason be held invalid, illegal or unenforceable, the remaining
provisions of this Agreement shall be unimpaired, and the invalid, illegal
or unenforceable provision shall be replaced by a mutually acceptable
valid, and enforceable provision which comes closest to the intent of the
parties.
(e) The prevailing party in any litigation brought to enforce the provisions
contained in this Agreement shall be entitled to reimbursement from the
nonprevailing party for reasonable attorneys' fees and expenses incurred in
connection with such litigation, as well as interest on any judgment at the
maximum interest rate allowed by applicable law.
(f) This Agreement may be executed in any number of counterparts, each of which
shall constitute an original and all of which together shall constitute one
and the same instrument.
(g) This Agreement shall be governed by and construed in accordance with the
laws of the State of Florida.
[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of
the day and year first above written.
nSTOR TAIWAN, INC.
By: /S/ Jack Jaiven
Name: Jack Jaiven
Title: Vice President
EXECUTIVE
_____________________
Address:
<PAGE>
EXHIBIT 10.2
January 17, 2000
Mr. Larry Hemmerich
10140 Mesa Rim Road
San Diego, CA 92121
Dear Larry:
This letter confirms the employment arrangement between you and nStor
Technologies, Inc. (nStor):
Term: Two years (January 17, 2000 - January 16, 2002)
Position: President and CEO. You will devote full business time, energy, skills
and best efforts to such employment.
Compensation:
Base: $325,000 per year
Bonus: First year - $125,000
Second year - based on objectives set by the Board of
Directors
Incentive: 10% of net pre-tax earnings based upon the audited financial
statements of nStor for 2001, to be paid within 15 days from the date such
amount has been determined
StockOptions: Effective on the date of commencement of employment, you will be
granted an option to purchase 1million shares of nStor common stock on the
following terms:
Exercise price - $2.50 (which was slightly above the average market
price during the last week of December, 1999 when the terms of the
employment arrangement were agreed to)
Vesting 1/17/01 333,333 shares
7/17/01 333,334 shares
1/17/02 333,333 shares
<PAGE>
January 17, 2000
Mr. Larry Hemmerich
Page 2 of 2
However, if the market price reached $9.50 at any time prior to
7/17/01, 500,000 shares (less what is already vested) will become
exercisable immediately or if the market price reaches $14.50 at any time
prior to 1/17/02, all unvested options will become exercisable immediately.
Expiration date: 1/17/10
Termination: If the Board of Directors chooses to terminate your employment
prior to 7/17/01, other than for cause (fraud or illegal acts), 50% of your
options will be vested and you will have five years from that date to
exercise them. If you voluntarily terminate your employment, or if your
employment is terminated for cause, you will only be entitled to your Base
Compensation earned up to the date of termination. If you voluntarily
terminate your employment, all rights with respect to any then exercisable
options will lapse after 30 days from the date of the voluntary
termination. If your employment is terminated for cause, all rights with
respect to any then exercisable options will lapse immediately.
Relocation Reasonable expenses to relocate from Santa Barbara to San Diego
Expenses: area
Approved By: Very truly yours,
/s/ Larry Hemmerich /s/ Jack Jaiven
_____________________________ _____________________________
Larry Hemmerich Jack Jaiven
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000075448
<NAME> NSTOR TECHNOLOGIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,612
<SECURITIES> 0
<RECEIVABLES> 9,324
<ALLOWANCES> (1,587)
<INVENTORY> 6,561
<CURRENT-ASSETS> 18,289
<PP&E> 24,565 <F1>
<DEPRECIATION> (5,147)<F2>
<TOTAL-ASSETS> 37,774
<CURRENT-LIABILITIES> 18,211
<BONDS> 0
0
0 <F3>
<COMMON> 1,569
<OTHER-SE> 11,657
<TOTAL-LIABILITY-AND-EQUITY> 37,774
<SALES> 12,540
<TOTAL-REVENUES> 12,571
<CGS> 8,969
<TOTAL-COSTS> 5,113
<OTHER-EXPENSES> 1,116 <F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 298
<INCOME-PRETAX> 2,650
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,650
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,650 <F5>
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.07
<FN>
<F1> PP&E includes $18,165 of goodwill and other intangible assets.
<F2> Accumulated depreciation includes $1,865 of accumulated amortization.
<F3> Preferred stock issued and outstanding as of 3/31/00 includes the
following: Series C Convertible Preferred Stock - 3,000 shares; Series D
Convertible Preferred Stock - 2,000 shares; Series E Convertible Preferred
Stock - 3,500 shares; and Series F Convertible Preferred Stock - 936
shares.
<F4> Other expenses represents depreciation and amortization.
<F5> Net income does not include dividends on preferred stock. Net income
applicable to common stock is $2,439.
</FN>
</TABLE>
