NSTOR TECHNOLOGIES INC
EXHIBIT 10.2 - EMPLOYMENT AGREEMENT
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>9
<FILENAME>exhibit10-2.txt
<DESCRIPTION>EXHIBIT 10.2 - EMPLOYMENT AGREEMENT
<TEXT>
                                  EXHIBIT 10.2


                              EMPLOYMENT AGREEMENT

        This Employment  Agreement (the "Agreement") is made and entered into on
June 7 , 2002,  by   and  between  John E.  Gates  ("Employee")  and  Stonehouse
Technologies,  Inc., a Texas  corporation and  wholly-owned  subsidiary of nStor
Technologies,  Inc.  ("nStor")  ("Stonehouse").   Employee  and  Stonehouse  are
collectively referred to herein as the "parties".  Capitalized terms used herein
and not otherwise defined herein shall have the meaning given such terms in that
certain  Stock  Purchase  Agreement,  dated June __,  2002,  by and among  nStor
Technologies,  Inc, Pacific USA Holdings Corp.,  Pacific Technology Group, Inc.,
and Stonehouse (the "Stock Purchase Agreement").

1.  Duties.

    Stonehouse hereby employs  Employee,  and Employee hereby agrees to serve as
    the President and Chief Executive  Officer of Stonehouse during the Term (as
    defined hereinafter)  hereof.  Employee shall have such duties and powers as
    are  normally  accorded  a  President  and  Chief  Executive  Officer  of  a
    corporation  and shall  loyally,  conscientiously  and in good faith perform
    such  duties  as may be  assigned  to him from  time to time by the Board of
    Directors.

2.  Term and Termination.

          (a) Term of Agreement.

          (i)  Original  Term.  Unless  earlier  terminated  as provided in this
          Agreement,  the term of Employee's employment shall commence on June ,
          2002 (the  "Effective  Date") and shall  continue  until May 31, 2004;
          provided,  however,  that in the event the Net Revenues of  Stonehouse
          for the Valuation Period as reflected on the Net Revenue Statement are
          less  than  $1,000,000  (such  an  occurrence,  a "Net  Revenues  Test
          Failure"),  Employee's  employment  shall, at the option of Stonehouse
          and upon 30 days notice from  Stonehouse to Employee,  terminate  upon
          the date on which a final  determination of the amount of Net Revenues
          of Stonehouse for the Valuation  Period is made in accordance with the
          provisions  of  the  Stock   Purchase   Agreement  (the  "Net  Revenue
          Determination  Date") (the period from the Effective  Date through the
          earliest of (i) May 31, 2004, (ii) the Net Revenues Determination Date
          and (iii) the date of any earlier  termination in accordance with this
          Agreement, being hereafter referred to as the "Original Term").

          (ii) One Year  Renewals.  Unless (i)  Stonehouse or Employee  delivers
          written  notice of its or his  intent  not to extend  the term of this
          Agreement  on or prior to the date that is three (3)  months  prior to
          May 31, 2004 or the then applicable  Annual Renewal Period (as defined
          hereinafter),  if any, or (ii) this Agreement is otherwise  terminated
          prior May 31, 2004 or the then  applicable  Annual  Renewal  Period as
          provided in this  Agreement,  this  Agreement  shall be  automatically
          renewed for an  unlimited  number of  additional  one (1) year periods
          (each an "Annual  Renewal  Period").  The Original Term and any Annual
          Renewal  Periods  are  hereinafter  collectively  referred  to as  the
          "Term".

          (b) Termination By Company for Cause. Notwithstanding anything in this
          Agreement to the contrary,  express or implied,  this  Agreement,  and
          Employee's  employment,  may be  terminated  immediately  and  without
          notice by Stonehouse for "Fair and Honest Cause or Reason Regulated by
          Good Faith"  ("Cause").  For purposes of this  Agreement,  Cause shall
          include, but is not limited to Employee's:


<PAGE> 2


          (i)  engaging  or  participating  in any  activity  which is  directly
          competitive with or intentionally injurious to Stonehouse;

          (ii)  behavior  that  causes  key  employees  to leave  employment  of
          Stonehouse

          (iii)   commission  of  any  fraud   against   Stonehouse  or  use  or
          appropriation for his personal use and benefit of any funds, assets or
          properties of Stonehouse not authorized by Stonehouse to be so used or
          appropriated;

          (iv) knowing  violation of law,  conviction for commission of a felony
          or conviction for a crime involving dishonesty or moral turpitude:

          (v)  failure  to  carry  out  business  issues  that are  relevant  to
          Stonehouse's success; and

          (vi) sexual, verbal or mental harassment of any employee.

        Upon  termination  of this  Agreement  by  Stonehouse  pursuant  to this
        Section  2(b),  Employee  shall be  entitled  to  receive on the date of
        termination  any unpaid  Base  Salary  (as  defined in Section 4) earned
        through the date of  termination.  Upon  termination  of this  Agreement
        under this  Section  2(b),  employee  shall not be entitled to any Bonus
        amounts  otherwise  due under  Section 4, and  Stonehouse  shall have no
        further obligations to Employee under this Agreement.


          (c) Termination By Stonehouse Without Cause.  Notwithstanding anything
          in this Agreement to the contrary,  express or implied, this Agreement
          and Employee's employment, may be terminated at the will of Stonehouse
          without Cause upon delivery of written  notice to Employee;  provided,
          however,  that Employee  shall  nonetheless be entitled to receive (i)
          his Base Salary for the balance of the Term, and (ii) any unpaid Bonus
          (as hereinafter  defined)  amounts then earned by Employee through the
          date of termination.  All amounts payable to Employee under clause (i)
          shall be paid to Employee in that number of equal monthly installments
          as are  remaining  in the Term,  and all  amounts  payable to Employee
          under  clause  (ii) above  shall be paid  within  thirty  (30) days of
          termination. If Stonehouse elects to terminate this Agreement pursuant
          to this  subparagraph  2(c),  Stonehouse  shall  not have any  further
          obligations to Employee under this Agreement other than the payment of
          the  Base   Salary  and  Bonus   pursuant   to  this   Section   2(c).
          Notwithstanding the foregoing,  in the event Employee is terminated by
          Stonehouse under this Section 2(c) and Employee  thereafter engages or
          participates in any activity described in Section 2(b)(i),  Stonehouse
          shall not have any further obligations to pay Employee as set forth in
          this Section 2(c).

          (d)  Voluntary   Termination  by  Employee.   Employee  may  voluntary
          terminate his employment  with Stonehouse by giving  Stonehouse  sixty
          (60) days advance  written notice.  Upon any voluntary  termination of
          this  employment  with  Stonehouse  under this Section 2(d),  Employee
          shall be entitled to receive any unpaid Base Salary earned through the
          date of  termination.  Upon any  termination of Employee's  employment
          with Stonehouse  pursuant to this Section 2(d),  Employee shall not be
          entitled  to any Bonus  amounts  otherwise  due under  Section  4, and
          Stonehouse  shall not have any further  obligations  to Employee under
          this Agreement.

          (e) Automatic  Termination.  This Agreement and Employee's employment,
          shall terminate immediately and without the necessity of any notice or
          any other  action by any party  hereto  upon the first to occur of the
          following:

               (i)    The death of Employee;
               (ii)   The loss of Employee's legal capacity to contract;
               (iii)  The  inability  of  Employee  to  perform  his  duties  or
               responsibilities  hereunder,  as a result of  mental or  physical
               ailment or  incapacity,  for an aggregate of ninety (90) calendar
               days during any calendar year (whether or not consecutive) unless
               waived in writing by  Stonehouse;  or (iv) The  expiration of the
               Term of this  Agreement,  provided  that  timely  notice has been
               given as required by Section 2(a)(ii).


<PAGE> 3


Upon  termination  of this  Agreement  pursuant to clauses (i), (ii) or (iii) of
this Section 2(e),  Employee or Employee's  estate, as the case may be, shall be
entitled to an amount  equal to (i) any unpaid Base  Salary  earned  through the
date of termination and any unpaid Bonus earned through the date of termination,
plus  (ii)  Employee's  Base  Salary  for a period  of three  (3)  months or the
remaining period of the Term, whichever is less. The amounts payable pursuant to
this  Section  2(e)  shall be  payable  within  thirty  (30) days of the date of
termination. Upon payment of such amounts, Stonehouse shall not have any further
obligations  to Employee or  Employee's  estate,  as the case may be, under this
Agreement.

3.      Exclusivity of Employment.

          (a)  Loyal and  Conscientious  Service.  Subject  to the  Addendum  to
          Employment  Agreement  included as part of this Agreement,  during the
          Term of this Agreement, Employee shall devote his full time, interest,
          abilities and energies to Stonehouse and use his best efforts,  skills
          and  abilities  to  promote  the  general   welfare  and  interest  of
          Stonehouse  and to  preserve,  maintain  and enhance its  business and
          business relationships with its customers and employees.

          (b)  Non-competition.  During  the  Term  of  this  Agreement  and the
          Restricted  Period (defined  below),  Employee shall not,  directly or
          indirectly, render services of a business,  professional or commercial
          nature to any other person or entity that  competes  with the business
          of  Stonehouse  or any  of its  affiliates  (a  "Stonehouse  Entity"),
          including nStor, whether alone, as an employee,  as a partner, or as a
          shareholder,  officer or director of any corporation or other business
          entity,  or as a trustee,  fiduciary or in any similar  representative
          capacity  of any other  entity.  Notwithstanding  the  foregoing,  the
          expenditure of reasonable amounts of time for educational,  charitable
          or  professional  activities  shall  not be  deemed a  breach  of this
          Agreement if those  activities do not  materially  interfere  with the
          services   required  under  this  Agreement.   For  purposes  of  this
          Agreement,  "Restricted  Period" shall mean that period  commencing on
          the date of termination of this Agreement and ending on the date which
          is two (2)  years  thereafter  or,  in the  event  this  Agreement  is
          terminated by Stonehouse  because of a Net Revenues Test Failure,  the
          date which  results in a  Restricted  Period of equal  duration to the
          Original Term of this Agreement.

4.      Compensation.

          (a) Base Salary.

               (i) Beginning on the date hereof,  and continuing the entire Term
               of this Agreement,  Stonehouse  shall pay Employee a fixed annual
               salary  in an  amount  equal  to  Two  Hundred  Thousand  Dollars
               ($200,000.00)  or such greater amount as may be determined by the
               Board of  Directors  of  Stonehouse  from time to time (the "Base
               Salary").

               (ii) The Base Salary shall be paid in equal installments (subject
               to proration  for any period of employment of less than a year or
               any applicable  payroll period therein) on  Stonehouse's  regular
               payroll  dates.  Employee  authorizes  Stonehouse  to  make  such
               deductions  and  withholdings  from his Base Salary and any other
               earnings  of Employee  from  Stonehouse  as are  required by law,
               which deductions shall include,  without limitation,  withholding
               for federal and state income tax and Social Security and Medicare
               withholding.


<PAGE> 4


          (b) Bonus.  Commencing in the fiscal year  beginning  July 1, 2002 and
          for each fiscal year of Stonehouse  thereafter during the Term of this
          Agreement,  Employee  shall be  eligible  to receive a cash bonus (the
          "Bonus"),  in an amount equal to (i) 100% of the first $50,000 (or any
          lesser  amount) of  Stonehouse's  Net Revenues in excess of $1,000,000
          and (ii) 13.33% of Stonehouse's Net Revenues in excess of $1,050,000.

          (c)  Additional  Compensation  and  Benefits  During  the Term of this
          Agreement.

               (i)  Employee  shall be entitled  to four weeks paid  vacation in
               each twelve-month period during the Term of this Agreement;
               (ii)  Stonehouse   shall  pay  or  reimburse   Employee  for  all
               reasonable  and  necessary  travel  and other  business  expenses
               incurred or paid by Employee in connection  with the  performance
               of his services  under this Agreement upon approval of Stonehouse
               and presentation of expense statements,  vouchers,  logs and such
               other supporting information as Stonehouse may reasonably request
               from time to time;
               (iii) Stonehouse shall pay for Employee's portion of the standard
               medical insurance plan, standard disability plan, standard dental
               plan and standard life insurance plan provided for by Stonehouse.
               Employee  shall  additionally  be eligible to  participate in any
               standard Stonehouse retirement benefits including but not limited
               to Stonehouse 401(k)  retirement  plans. Any additional  premiums
               for  Employee's   dependents  shall  be  the   responsibility  of
               Employee;
               (iv)  Employee   shall  be  entitled  to  receive  an  automobile
               allowance  of  $750.00  per month to be paid to  Employee  on the
               first of every month during the Term of this Agreement .
               (v) Employee shall be entitled to receive country club membership
               benefits in the form of monthly dues  compensations in the amount
               of  $500.00  per  month to be paid on the  first  of every  month
               during the Term of this Agreement.

          (d)  nStor  Stock  Options.  Employee  will be  granted  an  option to
          purchase  250,000  shares of nStor  common  stock,  par value $.05 per
          share,  pursuant  to a  stock  option  agreement  (the  "Stock  Option
          Agreement"),  which will provide that one third of the options (83,333
          shares)  will be  exercisable  at $.50 per share and deemed  vested on
          July 1, 2003, and two thirds of the options  (166,667  shares) will be
          exercisable  at $.75 per share,  with 41,667 shares deemed vested each
          six months on January 1, 2004, July 1, 2004,  January 1, 2005 and July
          1, 2005,  respectively.  All other terms of the option shall be as set
          forth  in  the  Stock  Option  Agreement  and  subject  to  the  nStor
          Technologies, Inc. 2001 Stock Option Plan.

5.   Nondisclosure  and Assignment of Proprietary and Confidential  Information.
     In  consideration  and  recognition  of the fact that Employee has had, and
     during the course of his employment  with  Stonehouse  may have,  access to
     Confidential Information (as hereinafter defined) of Stonehouse Entities or
     other information and data or secrets of a proprietary nature of Stonehouse
     Entities which such Stonehouse  Entities desire to keep  confidential,  and
     that a Stonehouse Entity has furnished,  or during the course of Employee's
     employment  will  furnish,  such  Confidential   Information  to  Employee,
     Employee agrees and acknowledges as follows:


<PAGE> 5


          (a) Confidential  Information.  As used herein, the term "Confidential
          Information" shall mean and include,  without limitation,  any and all
          marketing and sales data, plans and strategies, financial projections,
          customer lists,  prospective  customer lists,  promotional ideas, data
          concerning the services, designs, methods,  inventions,  improvements,
          discoveries  or  designs,  whether  or  not  patentable,   "know-how",
          training and sales techniques,  and any other information of a similar
          nature of any  Stonehouse  Entity  disclosed  to Employee or otherwise
          made known to him as a consequence  of or through his  performance  of
          this  Agreement  (including   information   originated  by  Employee);
          provided,  however,  that the term Confidential  Information shall not
          include  any  information  that (i) at the time of the  disclosure  or
          thereafter  is or  becomes  generally  available  to and  known by the
          public,  other than as a result of a  disclosure  by  Employee  or any
          agent or representative of Employee in violation of this Agreement; or
          (ii) was  available  to  Employee on a  non-confidential  basis from a
          source  other than a  Stonehouse  Entity,  or any of their  respective
          officers, directors,  employees, agents or other representatives which
          source  was  not  disclosing  such  information  in  violation  of any
          agreement not to so disclose.

          (b)  Exclusive  Rights;  Assignment  to  Stonehouse.   The  Stonehouse
          Entities have exclusive  rights to all Confidential  Information,  and
          Employee hereby assigns to the Stonehouse Entities all rights he might
          otherwise possess in any Confidential Information.  Except as required
          in the performance of his duties  hereunder,  Employee will not at any
          time  during or after his  employment,  directly  or  indirectly  use,
          communicate,  disclose, disseminate, lecture upon, publish articles or
          otherwise  disclose  or put in the  public  domain,  any  Confidential
          Information  . Employee  agrees to deliver to  Stonehouse  any and all
          copies of  Confidential  Information  in the  possession or control of
          Employee upon the expiration or termination of this  Agreement,  or at
          any  other  time  upon  request.  This  Section  5 shall  survive  the
          termination  of this  Agreement  and  the  termination  of  Employee's
          employment with Stonehouse.

6.  Solicitation  of  Employees,   Customers  and  OthersIn   consideration  and
    recognition  of the fact that  Employee's  position  with  Stonehouse  is an
    executive  position  involving  fiduciary  responsibility  to Stonehouse and
    access to Confidential Information,  Employee agrees that during the Term of
    this Agreement and the Restricted  Period he will not directly or indirectly
    solicit, influence or attempt to influence any customer, potential customer,
    supplier or any employee of any  Stonehouse  Entity to cease doing  business
    with or being  employed by any  Stonehouse  Entity or to do business  with a
    competing company or seek employment with another company.

7.  Remedies and Enforcement Upon Breach.  Employee agrees and acknowledges that
    any violation of Sections  3(b), 5 and 6 shall entitle  Stonehouse to pursue
    any appropriate remedies or relief provided by law or equity and to obtain a
    temporary restraining order if warranted,  injunctive relief if appropriate,
    and/or  specific  performance  of the above  and  foregoing  agreements  and
    covenants.  Employee has carefully  read and  considered  the  provisions of
    Sections 3(b), 5 and 6 of this Agreement,  and agrees that the  restrictions
    contained therein (including,  but not limited to, the time period) are fair
    and  reasonable  and that  these  provisions  are  reasonably  required  for
    protection of the interests of the  Stonehouse  Entities.  Employee  further
    agrees that a violation  by Employee of any of the  covenants  contained  in
    Sections  3(b), 5 and 6 will cause damage to one or more  StonehouseEntities
    that will be significant, material and difficult or impossible to adequately
    measure,  and that in the event of such a breach,  such Stonehouse Entity or
    Entities  will be entitled to seek and obtain  injunctive  relief.  Employee
    expressly   acknowledges  and  agrees  that  the  respective  covenants  and
    agreements  will be  construed in such a manner as to be  enforceable  under
    applicable  laws  if a more  limited  scope  is  determined  by a  court  of
    competent jurisdiction to be required.

8.  Representation  by Employee.  Employee  represents  and warrants  that he is
    under no  restriction  or  disability  by reason  of any prior  contract  or
    otherwise  which  would prevent him from entering  into and  performing  his
    duties and obligations under this Agreement.


<PAGE> 6


9.  Notices. All notices,  requests, demands and other communications under this
    Agreement  must be in writing and shall be deemed to have been duly given on
    the date of service if served  personally  on the party to whom notice is to
    be given,  or on the date  indicated  on the  return  receipt as the date of
    receipt or  refusal if mailed to the party to whom  notice is to be given by
    first class mail, registered or certified,  postage prepaid,  return receipt
    requested, and properly addressed as follows:

        to Stonehouse:       nStor Technologies, Inc.
                             10140 Mesa Rim Road
                             San Diego, California 92121
                             Attn: President
                             Fax: 858-458-1613

        to the Employee:     John E. Gates

Any party may change its address for the purpose of this Section 9 by giving the
other party written notice of the new address in the manner set forth above.

10. Entire  Agreement.  This  Agreement,  including  the Addendum to  Employment
    Agreement   attached   hereto,   constitutes   the  entire   agreement   and
    understanding of the parties with respect to the  transactions  contemplated
    hereby, and supersedes all prior agreements, arrangements and understandings
    relating to the subject matter hereof, written or otherwise.

11. Amendment.  This   Agreement  may  be  amended,   modified,   superseded  or
    cancelled,  and  any of the terms,  covenants  or  conditions  hereof may be
    amended,  only  by a  written  instrument  executed  by  Employee  and by an
    authorized  representative of Stonehouse,  which expressly states the intent
    of the parties to modify the terms of this Agreement.

12. Waiver.  Any failure to exercise or delay in exercising any right,  power or
    privilege herein  contained,  or any failure or delay at any time to require
    the other party's performance of any obligation under this Agreement,  shall
    not  affect  the  right  to  subsequently  exercise  that  right,  power  or
    privilege, or to require performance of that obligation.  A waiver of any of
    the provisions of this Agreement shall not be deemed, nor shall constitute a
    continuing  waiver. A waiver shall not be binding unless executed in writing
    by the party making the waiver.

13. Assignment;   Binding Effect.  This Agreement shall inure to the benefit of,
    and be  enforceable by, Stonehouse and its successors and assigns;  however,
    this  Agreement is personal to Employee and may not be assigned. The parties
    agree   that  nStor  shall  be  deemed  a third  party  beneficiary  of this
    Agreement.

14. Severability.  Whenever possible,  each provision of this Agreement shall be
    interpreted  in such manner as to be valid and  effective  under  applicable
    law. If any provision of this Agreement  shall be unlawful,  void or for any
    reason unenforceable, it shall be deemed separable from, and shall in no way
    affect the validity or enforceability  of, the remaining  provisions of this
    Agreement,  and the rights and  obligations of the parties shall be enforced
    to the fullest extent possible.


<PAGE> 7


15. Attorney's  Fees. In any judicial  action or  proceeding or any  arbitration
    proceeding  between  the parties to enforce  any of the  provisions  of this
    Agreement,  to  seek  damages  on  account  of the  breach  hereof,  to seek
    injunctive  relief  to  prevent  the  breach  hereof,  to  seek  a  judicial
    determination  of the rights or  obligations  of any party  hereto or in any
    judicial  action or proceeding  or any  arbitration  proceeding  between the
    parties  in which  this  Agreement  is raised as a  defense,  regardless  of
    whether the action or proceeding is prosecuted to judgement, and in addition
    to any other remedy,  the unsuccessful  party shall pay the successful party
    all reasonable  costs and expenses,  including  reasonable  attorney's fees,
    incurred by the successful party.

16. Governing  Law. This  Agreement  shall be construed in accordance  with, and
    governed  by, the laws  of the State of Texas,  excluding  any choice of law
    principles,   which   direct  the   application   of  the  laws  of  another
    jurisdiction.

17. Effect  of Heading.  The subject headings of this Agreement are included for
    convenience  only, and  shall not affect the construction or  interpretation
    of any of its provisions.

18. Counterparts.  This  Agreement may be executed simultaneously in one or more
    counterparts,  each  of which shall be deemed an original,  but all of which
    together shall constitute  one and the same instrument.

IN WITNESS  WHEREOF,  the parties  hereto have executed this Agreement as of the
date first above written.

        "Stonehouse"         Stonehouse Technologies, Inc.,
                             a Texas Corporation

                             By: /s/ Jack Jaiven
                             Its: Vice President

        "Employee"           /s/ John E. Gates
                                 John E. Gates


<PAGE> 8


                        ADDENDUM TO EMPLOYMENT AGREEMENT

As an Addendum to the  Agreement,  Employee and nStor hereby agree that Employee
shall serve as a contract sales consultant for nStor at additional  compensation
(the  "Additional  Compensation")  of $50,000  per year,  for a term of one year
commencing on the date hereof, which term may be cancelable by either party upon
thirty (30) days prior  written  notice  effective  not earlier  than January 1,
2003. The Additional  Compensation shall be payable in equal installments on the
Stonehouse  Base Salary payment dates (subject to proration for a period of less
than one year or any applicable period therein).

                             nStor Technologies, Inc.,
                             a Delaware Corporation

                             By: /s/ Jack Jaiven
                             Its: Vice President


                             "Employee"

                             /s/ John E. Gates
                             John E. Gates

</TEXT>
</DOCUMENT>
