Document:

EXHIBIT 10.17

 

NEITHER THIS NOTE NOR ANY OF THE SECURITIES INTO WHICH
THIS NOTE MAY BE CONVERTED ON THE TERMS HEREIN HAVE BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE TRANSFERRED WITHOUT THE PRIOR WRITTEN
CONSENT OF BORROWER AND (I) A REGISTRATION STATEMENT UNDER THE ACT AND
REGISTRATION OR QUALIFICATION FOR SALE UNDER APPROPRIATE STATE SECURITIES LAWS
SHALL BECOME EFFECTIVE WITH RESPECT THERETO, OR (II) BORROWER RECEIVES AN
OPINION OF COUNSEL IN FORM AND FROM COUNSEL ACCEPTABLE TO BORROWER TO THE
EFFECT THAT THE PROPOSED TRANSFER DOES NOT VIOLATE ANY PROVISIONS OF STATE OR
FEDERAL LAW.  ALL INDEBTEDNESS EVIDENCED
HEREBY AND REFERENCED HEREIN IS SUBORDINATED TO THE SENIOR INDEBTEDNESS OWED TO
THE SENIOR LENDERS IN ACCORDANCE WITH THE TERMS OF CERTAIN SUBORDINATION
AGREEMENTS AMONG THE SENIOR LENDERS, THE INITIAL HOLDER OF THIS NOTE AND THE
OTHER PARTIES NAMED THEREIN.

 

NEXSAN CORPORATION

 

8% Secured Convertible Subordinated Bridge Note

 

	
  $3,000,000

  	
   

  	
  November 2, 2006

  

 

FOR VALUE RECEIVED, the undersigned, NEXSAN
CORPORATION, a Delaware corporation (the “Borrower”), promises to pay to
TERRAPIN PARTNERS LLC (the “Lender”)
the sum of THREE MILLION DOLLARS ($3,000,000), together with interest on the
unpaid principal amount hereof at the rate of eight percent (8%) per annum,
compounded monthly, and the Premium (as hereinafter defined), if applicable, on
the Maturity Date (as hereinafter defined) or earlier upon the occurrence and
during the continuance of an Event of Default as hereinafter provided, subject,
however, to the exercise of the Lender’s right to convert this Note into
certain equity securities of the Borrower as hereinafter provided.  Interest shall be computed on the basis of a 360-day
year, composed of twelve 30-day months, and the actual number of days
elapsed.  If Borrower fails to pay the
outstanding principal balance of, and all accrued unpaid interest owed on, this
Note when due, whether at maturity, by acceleration or otherwise, then the
interest rate on this Note shall increase, effective as of the Maturity Date or
upon acceleration as provided below, to 18% per annum, compounded monthly until
paid in full.  All payments hereunder shall
be made in immediately available funds in lawful currency of the United States
of America, without offset, deduction, or counterclaim of any kind.

 

1.                                       Defined Terms.  Capitalized terms used in this Note that are
not otherwise defined herein shall be defined as follows:

 

“Common
Stock” means the Common Stock of the Borrower.

 

“Conversion
Securities” means the equity securities into which this Note
is convertible under the terms of this Note, which will be (i) Series A
Preferred Stock in the event of conversion in connection with a Disposition Transaction
or (ii) either Common 

 

 

Stock or Other Equity
Securities in the event of conversion in connection with a Financing.

 

“Disposition
Transaction” means the date of the closing of a sale to a third party of (i) all
or substantially all of the assets of Borrower or (ii) any sale of equity
of Borrower, consolidation, merger or other transaction or series of related
transactions pursuant to which the holders of outstanding voting securities of
the Borrower immediately prior to such transaction or transactions fail to hold
equity securities representing a majority of the voting power or equity
ownership of Borrower or the surviving entity immediately following such
transaction or transactions.

 

“Equity”
has the meaning set forth in the definition of Financing.

 

“Financing”
means the issuance of Common Stock or Other Equity Securities (collectively, “Equity”)
in a Threshold Round.  For purposes of
this definition, the term “Threshold Round” means the first Equity financing
that occurs after the date of issuance of this Note whereby the aggregate gross
proceeds of such Equity financing, when added to the gross proceeds of all
other Equity financings by the Borrower that shall have been consummated after
the date of issuance of this Note and prior to such Threshold Round, shall
equal or exceed Twenty Million ($20,000,000) Dollars.

 

“Initial
Bridge Lenders” has the meaning set forth in Section 4.

 

“Initial
Bridge Notes” has the meaning set forth in Section 4.

 

“Net
Proceeds” means, in connection with a Disposition Transaction, the net
proceeds available for distribution to holders of the Borrower’s outstanding
equity securities (on a fully-diluted, as-converted basis except as provided in
clause (i) immediately following) upon consummation of such
Disposition Transaction (i) assuming no conversion of this Note or the
Initial Bridge Notes and (ii) after payment of or provision for (w) the
repayment of the outstanding principal balance, and all accrued and unpaid
interest, premium and fees, if any, in respect of all debt of the Borrower for
borrowed money, including but not limited to this Note and the Initial Bridge
Notes, (x) investment banking, legal, accounting and other professional
fees and expenses relating to the Disposition Transaction, (y) the Series A
Preference Amount (as defined in the Borrower’s certificate of incorporation,
as amended from time to time) and (z) change of control, retention or
similar bonuses payable to employees of the Borrower.

 

“Note”
means this 8% Secured Convertible Subordinated Bridge Note.

 

“Other
Equity Securities” means Preferred Stock or other equity or debt securities
of the Borrower convertible into shares of Common Stock.

 

“Premium”
means, as the context may require, the Disposition Premium payable as provided
in Section 7(a), the Financing Premium payable as provided in Section 8(a),
or the Default Premium payable as provided in Section 9.

 

“Series A
Preferred Stock” means the Series A Preferred Stock of the Borrower.

 

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“Threshold Round” has the meaning set forth in
the definition of Financing.

 

2.                                       Waiver of Preemptive Rights.  The Borrower represents and warrants that it
has obtained from holders of the required number of shares of its Series A
Preferred Stock and other securities of any preemptive rights pursuant to the
Certificate of Incorporation, as amended, of the Borrower or by the terms of
any stockholders or other agreement duly executed waivers of any right of
existing stockholders of the Borrower to purchase their respective pro rata
portion of the Notes.

 

3.                                       Secured Note.  The Borrower hereby pledges and grants a
security interest in all of Borrower’s assets pursuant to the Amended and
Restated Subordinated Security Agreement, dated as of the date hereof, by and
between the Borrower, the Lender, the Initial Bridge Lenders and the Collateral
Agent, in the form of Exhibit A attached hereto.

 

4.                                       Subordination.  This Note and the rights of the Lender in the
Collateral (as defined in the Security Agreement) are subordinate and subject
in the right of repayment to the prior payment in full of all of the present
and future indebtedness, claims, debts, liabilities or other obligations of the
Borrower or Nexsan Technologies Incorporated (“NTI”), a subsidiary of
the Borrower (“Senior Indebtedness”), owing to (i) ORIX Venture
Finance LLC (“Orix”), the current outstanding principal amount of which
is $4,000,000 (which principal amount shall be decreased to $3,000,000
contemporaneously with the execution and delivery of this Note by a prepayment
out of the proceeds hereof and shall not be increased while this Note is
outstanding), (ii) Comerica Bank (“Comerica”), the current
outstanding principal amount of which is not greater than $3,000,000 (the “Comerica
Loan Amount”) (but which may be increased in accordance with the current terms
thereof based upon increases in the outstanding balance of the Borrower’s
accounts receivable), and (iii) the holders of up to $150,000 aggregate
principal amount of purchase money indebtedness (“Permitted PMI”) secured by
liens on equipment acquired or held by NTI in the ordinary course of business
from time to time (collectively, the “Senior Lenders”), and shall rank
pari passu with the indebtedness of the Borrower under those certain 8%
Convertible Secured Promissory Notes, dated January 27, 2006, in the
aggregate principal amount of Two Million Dollars (US $2,000,000) and having a
maturity date of August 10, 2010 (the “January 2006 Notes”)
and those certain 8% Convertible Subordinated Secured Promissory Notes, dated August 8,
2006, in the aggregate principal amount of Two Million Dollars (US $2,000,000)
and having a maturity date of March 31, 2008 (the “August 2006
Notes” and, collectively with the January 2006 Notes, the “Initial
Bridge Notes”).  Except for the
Comerica Loan Amount and Permitted PMI, Borrower agrees not to incur any
additional Senior Indebtedness or any Indebtedness pari passu to this Note
until this Note is paid in full.  The
holders of the Initial Bridge Notes are referred to herein as the “Initial
Bridge Lenders”).  The Lender
represents and warrants to Borrower that it has heretofore delivered true and
correct copies of the subordination agreements between the Lender and Comerica
and Orix, respectively (collectively, the “Subordination Agreements”).

 

5.                                       Maturity Date.  As used herein, “Maturity Date” means
the first to occur of (i) March 31, 2008, (ii) the date Borrower
consummates a Financing, or (iii) the date Borrower consummates a
Disposition Transaction

 

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6.                                       Prepayment.  This Note may not be prepaid other than upon
consummation of a Financing or Disposition Transaction.

 

7.                                       Disposition Transaction.

 

(a)                                  Disposition Transaction.  Upon
consummation of a Disposition Transaction, subject to Section 7(b), all of
the unpaid principal plus all accrued and unpaid interest on this Note, shall
be immediately due and payable upon the closing of such Disposition
Transaction, together with a premium (the “Disposition Premium”),
payable in cash upon the closing of the Disposition Transaction, in an amount
equal to fifty percent (50%) of the original principal amount of this Note.

 

(b)                                 Conversion
of Note into Series A Preferred Stock. 
Notwithstanding Section 7(a), in lieu of repayment of this Note
under Section 7(a), the Lender may elect to convert this Note into shares
of Borrower’s Series A Preferred Stock at a conversion price per share
equal to the lesser of (x) the Reference Price (as defined below) or (y) 66-2/3%
of the Net Proceeds per share payable to the holders of securities of the
Borrower in connection with such Disposition Transaction (“Disposition
Conversion Right”) in accordance with Section 7(c).  As used herein, the term “Reference Price”
means $0.39 or such greater amount as the holders of 66-2/3% of the aggregate
principal amount of the August 2006 Notes may consent to from time to time
in writing prior to March 31, 2007; provided, however, that
the Reference Price shall not be greater than $0.39 unless all of the following
conditions are satisfied: (i) holders of at least 66-2/3% of the August 2006
Notes (including holders who shall have acquired notes of like tenor on the
exercise of preemptive rights or under the rights offering currently
contemplated, to the extent those have been completed at the time) shall have
approved such increase; (ii) the conversion price will in no event exceed
the lesser of (x) $0.55 per share or (y) an amount equal to 90% of
the conversion price or equivalent per share value of the Series A Preferred
Stock agreed by the parties in connection with an equity investment in the
Borrower by Fonds de solidarite FTQ (“FTQ”); (iii) FTQ (and only
FTQ) shall invest $5-$10 million by way of an equity investment in the Company;
(iv) the FTQ investment must be completed by March 31, 2007; and (v) the
August 2006 Notes must be amended to provide for the same increase in
conversion price.

 

(c)                                  Procedures
for Conversion of Series A Preferred Stock in Event of Disposition.  Not later than 10 business days prior to the
scheduled closing date of a proposed Disposition Transaction, the Borrower will
notify the Lender in writing of the material terms of the Disposition
Transaction (a “Disposition Notice”). 
The Disposition Notice shall include the Borrower’s good faith estimate
of (i) the Net Proceeds resulting from the Disposition Transaction and (ii) the
amounts per share that would be distributable to holders of Conversion
Securities if all of the Borrower’s convertible securities were converted into
the applicable Conversion Securities.  If
the Lender desires to exercise its Disposition Conversion Right, then the
Lender shall deliver to the Borrower at its principal office, within 10
business days after receipt of the Disposition Notice, written notice (a “Conversion
Notice”) of its election to exercise its Disposition Conversion Right,
together with this Note.  Not later than
two business days prior to the scheduled closing date of such Disposition
Transaction, Borrower shall notify the Lender of any adjustments to the
estimated amount per share that would be distributable to the holders of the
Borrower’s equity securities after the conversion of all of the Borrower’s 

 

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convertible securities
and the exercise of all outstanding warrants and options in accordance with the
Conversion Notices (and other notices of an intention to exercise options,
warrants or other conversion rights) received by the Borrower, and Lender shall
have the right to withdraw its Conversion Notice on written notice (a “Withdrawal
Notice”) to Borrower delivered not later than one business day prior to the
closing date of the Disposition Transaction. 
Borrower shall, as soon as practicable after consummation of the
Disposition Transaction, provided the Lender shall have timely delivered (and
not thereafter withdrawn) a Conversion Notice and surrendered this Note as
aforesaid, issue and deliver to the Lender a certificate or certificates for
the number of shares of Series A Preferred Stock to which the Lender shall
be entitled upon such conversion (bearing such legends as are required by
applicable state and federal securities law in the opinion of counsel to the
Borrower).  Any conversion of this Note
under this Section 7 shall be deemed to have been made immediately prior
to the closing of such Disposition Transaction, and on and after such closing
the Lender shall be treated for all purposes as the record holder of such
shares of Series A Preferred Stock. 
By electing to exercise its Disposition Conversion Right, the Lender
agrees to execute and become a party to all of the agreements entered into by
the other holders of shares of Series A Preferred Stock in connection with
such Disposition Transaction and to promptly take such actions as are reasonably
requested by the Borrower in order to effect the Disposition Transaction,
including without limitation, executing any required consents approving the
Disposition Transaction.  The Series A
Preferred Stock received by the Lender in the conversion shall be subject to
the same benefits and burdens as are all other shares of Series A
Preferred Stock, and the Lender shall become a party to all of the agreements
that have been entered into by the other holders of shares of Series A
Preferred Stock, with the same rights and obligations of such stockholders.

 

(d)                                 Reservation
of Stock Issuable Upon Conversion. 
The Borrower shall at all times reserve and keep available out of its
authorized but unissued shares of Series A Preferred Stock, solely for the
purpose of effecting the conversion of this Note, such number of its shares of Series A
Preferred Stock (including any Common Stock into which shares of the Series A
Preferred Stock are convertible, if applicable) as shall from time to time be
sufficient to effect the conversion of this Note; and if at any time the number
of authorized but unissued shares of Series A Preferred Stock (or Common
Stock into which such Series A Preferred Stock may be convertible) shall
not be sufficient to effect the conversion of all amounts owing under this
Note, in addition to such other remedies as shall be available to the Lender,
the Borrower will use its best efforts to take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Series A Preferred Stock (and/or Common Stock) to such number of
shares as shall be sufficient for such purposes.

 

8.                                       Financing Transaction.

 

(a)                                  Conversion
of Note in event of Financing.  Upon
consummation of a Financing, all of the unpaid principal of this Note, all
accrued and unpaid interest on this Note and a premium (the “Financing
Premium”) equal to 25% of the original principal amount of this Note shall
be immediately due and payable upon closing of such Financing; provided,
however, that if a Financing involves the issuance and sale of equity or
equity-linked securities of the Borrower, this Note may be converted, at the
option of the Lender, into fully paid and non-assessable (A) shares of
Common Stock in the event shares of Common Stock are issued in such Financing
or (B) Other Equity Securities of the same class and series (if
applicable) that are 

 

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issued by the Borrower in
such Financing in the event shares of Other Equity Securities are issued in
such Financing, in all such cases at a price per share equal to 66-2/3% of the
lowest per share purchase price paid by an unaffiliated third party in such
Financing (“Financing Conversion Right”).

 

(b)                                 Conversion
Procedure for Conversion Securities in the Event of a Financing.  Not later than 10 business days prior to the
scheduled closing date of a proposed Financing, the Borrower will notify the
Lender in writing of the amount, price and material terms of the Conversion
Securities into which this Note is convertible. 
If the Lender desires to exercise its Financing Conversion Right, then
the Lender shall provide written notice to the Borrower within 10 business days
of receipt of the notice of Financing from the Borrower.  The Lender shall surrender this Note to the
Borrower in accordance with the Borrower’s instructions and take such other
actions as are requested by the Borrower in order to effect the Financing.  In the event of any conversion of this Note
which is made in conjunction with the issuance and sale of Conversion
Securities to other investors, such conversion shall be deemed to have been
made immediately prior to the closing of such issuance and sale, and on and
after such closing the Lender shall be treated for all purposes as the record
holder of such shares and as a purchaser of such shares under the applicable
agreements, instruments or documents governing the issuance and sale of such
Conversion Securities (the “Equity Documents”) and shall be bound by the
terms of such Equity Documents.  The
Conversion Securities received by the Lender in the conversion shall be subject
to the same benefits and burdens as are the shares of the securities purchased
at such closing, and the Lender shall become a party to the Equity Documents
and any and all other agreements entered into at or in connection with such
closing by the investor(s) at such closing, with the same rights and
obligations as such investor(s).  Upon
receipt of this Note and upon the Lender executing the Equity Documents and
taking such actions as are reasonably requested by the Borrower in order to
effect the Financing, the Borrower will issue and deliver to the Lender a
certificate or certificates for the number of shares of Conversion Securities
to which the Lender shall be entitled upon such conversion (bearing such
legends as are required by the Equity Documents) and applicable state and
federal securities law in the opinion of counsel to the Borrower).

 

9.                                       Remedies on Default.  If Borrower fails to pay (i) the outstanding
principal balance of and all accrued and unpaid interest on this Notes on the
Maturity Date or (ii) any payment of the principal of or interest on any
indebtedness of Borrower for borrowed money as and when due, which default in
the case of (ii) remains uncured or unwaived for 30 days or more, then and
in such event the Lender, subject to the terms of any Subordination Agreement
to which the Lender is party, may, upon written notice to Borrower, accelerate
the Notes held by it and enforce its rights and remedies under the Note in
which event the Lender will be entitled to receive, in addition to the
principal amount and accrued and unpaid interest on such Notes, a premium (the “Default
Premium”) equal to 10% of the original principal amount of the Notes held
by the Lender with interest thereon at a rate per annum equal to 18% from and
after and during the continuance of such default.  The foregoing rights shall be in addition to
and not in limitation of the right of the Lender to convert this Note in accordance
with the provisions hereof.

 

10.                                 Fractional Shares.  No fractional shares of the Conversion
Securities or Series A Preferred Stock shall be issued upon conversion of
this Note.  In lieu of the Borrower
issuing any 

 

6

 

fractional shares to the
Lender upon the conversion of this Note, the Borrower shall pay to the Lender
in cash the amount owing under this Note that is not so converted.

 

11.                                 Events of Default.  The Borrower shall be in default under this
Note upon the happening of any condition or event set forth below (each, an “Event
of Default”):

 

(a)                                  the
Borrower’s failure to pay any payment of principal or interest on the Maturity
Date;

 

(b)                                 default
by the Borrower in the performance of any other obligation, covenant, term or
provision contained in this Note, and such default shall continue uncured for a
period of 30 days or more after the earlier to occur of (i) the Borrower
receiving written notice of such default by the Lender or (ii) the discovery
by the Borrower of such default;

 

(c)                                  the
Borrower’s failure to pay any payment of principal of or interest on any
indebtedness of the Borrower for borrowed money, as and when due, which default
remains uncured for 30 days or more;

 

(d)                                 default
by the Borrower in the performance of any other obligation, covenant, term or
provision contained in any note or other instrument evidencing indebtedness for
borrowed money or any agreement pursuant to which such indebtedness was
incurred by the Borrower, and such default shall continue uncured for a period
of 30 days or more after the earlier to occur of (i) the Borrower
receiving written notice of such default by the Lender or (ii) the
discovery by the Borrower of such default;

 

(e)                                  any
warranty, representation, financial statement or other information furnished to
the Lender by or on behalf of the Borrower in connection with this Note or to
induce the Lender to make a loan to the Borrower proves to have been false in
any material respect when made or furnished; or

 

(f)                                    the
Borrower’s dissolution, termination of existence or insolvency; the appointment
of a receiver of all or any part of the property of the Borrower; an assignment
for the benefit of creditors by the Borrower; or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against the Borrower
or any guarantor, surety or endorser for the Borrower which results in the
entry of an order for relief or which remains undismissed, undischarged or
unbonded for a period of 60 days or more.

 

Upon the occurrence and during the continuance of an
Event of Default, the entire unpaid principal balance of this Note and all
accrued interest on such unpaid principal balance shall immediately be due and
payable at the option of the Lender.

 

12.                                 Representations and Warranties.  The Borrower hereby represents and warrants
to the Lender as follows:

 

(a)                                  The
Borrower is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware and has all requisite power
and authority to own and operate its properties and assets and to carry on its
business as now conducted and as currently proposed to be conducted.  The Borrower is duly qualified and authorized
to do 

 

7

 

business, and is in good
standing as a foreign corporation in every jurisdiction where, due to the
nature of its activities and of its properties (both owned and leased), the
failure to so qualify would have a material adverse effect on the Borrower.

 

(b)                                 All
action on the part of the Borrower and its officers, directors and stockholders
necessary for the authorization, execution and delivery of this Note and the
performance of all the Borrower’s obligations hereunder has been taken or, or
in the case of the issuance of equity securities of the Borrower upon
conversion of this Note, will be taken prior to such issuance.  This Note is a valid and binding obligation
of the Borrower, enforceable against Borrower in accordance with its terms.

 

(c)                                  All
shares of the equity securities of the Borrower to be issued upon conversion of
this Note when issued, sold and delivered in accordance with the terms of this
Note will be duly and validly issued, fully paid and nonassessable and will be
free of any taxes, liens, charges or encumbrances (other than those which the
Borrower shall promptly pay or discharge).

 

(d)                                 The
terms of the Series A Preferred Stock as set forth in the Borrower’s
certificate of incorporation do not include any provision for mandatory
redemption thereof by Borrower.

 

13.                                 Release.  Upon conversion of this Note (and payment to
the Lender of any cash owing pursuant to Section 10 of this Note) or
payment of all principal of and interest on this Note, the Borrower shall be
forever released from all its obligations and liabilities under this Note.

 

14.                                 Notices.  Any notices, demand, request or other
communication which either party hereto may be required or desire to give
hereunder shall be in writing and shall be hand delivered or sent by a
reputable overnight courier service, addressed as set forth below, and shall be
effective upon actual receipt as verified by written acknowledgment of
delivery.

 

If to the Borrower:

 

Nexsan Corporation

21700 Oxnard Street, Suite 1850

Woodland Hills, CA 91301

Attention: Chief Executive Officer

 

with a copy to:

 

Sonnenschein Nath & Rosenthal LLP

1221 Avenue of the Americas

New York, New York 10020

Attention: Denise M.  Tormey, Esq.

 

If to the Lender:

 

Terrapin Partners LLC

540 Madison Avenue, 17`h floor

New York, NY 10022

Attention: Managing Partner Private Equity

 

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with a copy to:

 

Jason Weiss

 

15.                                 Severability.  If any provision of this Note is held by any
court of competent jurisdiction to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provision of this Note; but this Note shall be construed as if such
invalid, illegal, or unenforceable provision had not been contained in this
Note, but only to the extent it is invalid, illegal, or unenforceable.

 

16.                                 Compliance with Securities Laws.  The Lender by acceptance of this Note
represents and acknowledges that:

 

(a)                                  This
Note is being, and (if the Lender elects to convert) the equity securities of
the Borrower issued upon conversion of this Note (collectively, the “Stock”),
will be, acquired by the Lender for the Lender’s own account without the
participation of any other person, with the intent of holding this Note and the
Stock for investment, and without the intent of participating directly or
indirectly, in a distribution of this Note or the Stock and not with a view to,
or for resale in connection with, any distribution of this Note or the Stock;

 

(b)                                 The
Lender is able to bear the economic risks of the investment in this Note and
the Stock, including the risk of complete loss of the investment;

 

(c)                                  This
Note and the Stock will be issued and sold to the Lender without registration
under any state law relating to the registration of securities for sale, and
will be issued and sold in reliance on the exemptions from registration under
the Securities Act of 1933, as amended (the “1933 Act”), provided by
Sections 3(b) and/or 4(2) thereof and the rules and regulations
promulgated thereunder;

 

(d)                                 The
Lender has had the opportunity to ask questions of and receive answers from the
Borrower and any person acting on its behalf and to obtain all material
information reasonably available with respect to the Borrower and its affairs;
and

 

(e)                                  (i) The
Lender is an Accredited Investor (as that term is defined in Rule 501
promulgated by the Securities and Exchange Commission under the Securities
Act); (ii) the Lender has such knowledge and experience in business and
financial matters as to be capable of evaluating the merits and risks of the
investment contemplated to be made hereunder; and (iii) the Lender
understands that such investment bears a high degree of risk and could result
in a total loss of the Lender’s investment.

 

17.                                 Waivers.  The Borrower hereby waives presentment and
demand for payment, notice of dishonor, protest and notice of protest of this
Note.  No extension of time for payment
of any amount due hereunder and no alteration, amendment or waiver of any provision
of this 

 

9

 

Note made by agreement
between the Lender and any other person or party shall release, discharge,
modify, change or affect the liability of the Borrower under this Note.

 

18.                                 Usury Savings Provision.  This Note is subject to the express condition
that at no time shall the Borrower be obligated or required to pay interest at
a rate which could subject the Lender to either civil or criminal liability, or
which could adversely affect the rights of the Lender hereunder, as a result of
such rate being in excess of the maximum rate which Borrower is permitted by
law to contract or agree to pay.  If by
the terms of this Note or any other instrument, the Borrower is at any time
required or obligated to pay interest at a rate in excess of such maximum rate,
the rate of interest under this Note shall be deemed to be immediately reduced
to such maximum rate, interest payable hereunder shall be computed (or
recomputed) at such maximum rate and the portion of all prior interest payments
in excess of such maximum rate shall be applied to payment of principal
hereunder.

 

19.                                 Prohibition on Transfer; Binding Effect.  Neither the Lender nor the Borrower shall,
without the prior written consent of the other party, assign or transfer any
right, interest, or obligation under this Note to any other party; provided,
however, that this Note may be transferred by the Lender to any person that,
with respect to the Lender, is controlling, controlled by or commonly
controlled.  This Note shall inure to the
benefit of, and be binding upon and enforceable by, the successors, permitted
assigns and permitted transferees of the parties hereto.

 

20.                                 Governing Law.  This Note and the rights and obligations of
the parties hereunder shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York (without regard to
principles of conflicts of law).

 

21.                                 Costs and Expenses.  The Borrower promises to pay to the Lender on
demand by the Lender all costs and expenses incurred by the Lender in
connection with the collection and enforcement of this Note or any portion
hereof, including, without limitation, all court costs, whether or not suit is
filed hereon, whether in connection with bankruptcy, insolvency or appeal, or
whether collection is made against the Borrower.  At the close of this financing, Borrower will
reimburse Terrapin Partners LLC up to $15,000 in out-of-pocket expenses
associated with this financing.

 

[Signature Page Follows]

 

10

 

IN WITNESS WHEREOF, this Note has been duly executed
by the Borrower as of the day and year first above written.

 

	
   

  	
  NEXSAN CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Philip Black

  
	
   

  	
   

  	
   Philip Black, Chief Executive Officer

  

 

LENDER:

 

Acknowledged and agreed to as of

the date first above written:

 

TERRAPIN PARTNERS LLC

 

 

	
  By:

  	
  /s/ Jason Weiss

  	
   

  
	
   

  	
    Name: Jason Weiss

  	
   

  
	
   

  	
    Title: Managing Partner

  	
   

  
	
   

  	
   

  	
   

  

 

11

 

ALLONGE TO

8% SECURED CONVERTIBLE SUBORDINATED BRIDGE NOTE

DATED NOVEMBER 2, 2006

 

FOR VALUE RECEIVED, Nexsan Corporation, a Delaware
corporation (the “Company”),
hereby agrees with Terrapin Partners Nexsan Partnership, a California general
partnership of which Terrapin Partners LLC is the Managing Partner  (as successor in interest to Terrapin
Partners LLC, the “Holder”), as
holder of that certain 8% Secured Convertible Subordinated Bridge Note of the
Company dated November 2, 2006 (the “Note”), hereby
agree to amend the Note as follows:

 

1. The introductory paragraph to the Note is hereby
amended by add the following two sentences as the last sentence of such
paragraph:

 

“In addition to all other conversion rights set forth
in this Note, Holder is entitled at its option, at any time and from time to
time on and after the date hereof and prior to the Maturity Date, to convert a
minimum of $500,000 and up to all of the principal amount hereof and all
accrued and unpaid interest, into shares of Series A Preferred Stock at a
conversion price per share of $0.45, by delivery of this Note accompanied by
written notice that the Holder elects to convert this Note, at the office of
the Company in Thousand Oaks, California. If such conversion would result in
the issuance of fractional shares of Series A Preferred  Stock, the number of shares of Series A
Preferred Stock issued upon conversion shall be rounded up to the nearest whole
number.”

 

2. The definition of “Net Proceeds” in the Note is
hereby amended to add at the end of clause (i) thereof (after the word “Notes”
and before the word “and”) the words “to the extent then outstanding”.

 

3. Paragraph 5 of the Note regarding the Maturity Date
is hereby amended to read in its entirety as follows:

 

“5. Maturity Date.
As used herein, “Maturity Date” shall mean the first to occur of (i) August 15,
2008, (ii) the date Borrower consummates a Financing, or (iii) the
date Borrower consummates a Disposition Transaction; provided, however, that
the Holder shall have the right upon written notice to the Company given not
later than July 31, 2008, to extend the August 15, 2008 date referred
to herein to a date not later than November 15, 2008.”

 

4.  Paragraph 7(b) of
the Note, regarding the conversion price of the Note in connection with a “Disposition
Transaction” (as defined in the Note), is hereby amended to read in its
entirety as follows:

 

“(b) Conversion of Note into Series A
Preferred Stock. Notwithstanding Section 7(a), in lieu of repayment of
this Note under Section 7(a), the Lender may elect to convert this Note
into shares of Borrower’s Series A Preferred Stock at a conversion price
per share equal to the lesser of (x) $0.45 or (y) 66-2/3% of the Net
Proceeds per share payable to the holders of securities of the Borrower in connection
with such Disposition Transaction (“Disposition Conversion Right”) in
accordance with Section 7(c).”

 

 

5. Except to the limited extent modified by
this Allonge, which becomes effective as of the date set forth below (the “Effective
Date”), all remaining terms and conditions of the Note shall remain in full
force and effect and enforceable against the Company and the Holder. All
references in the Amended and Restated Subordinated Security Agreement, dated
as of November 2, 2006, to the Terrapin Note shall include this Allonge
from and after the Effective Date.

 

The Holder agrees to attach this Allonge to the Note.

 

IN WITNESS WHEREOF, the Company and the Holder have
caused this Allonge to be duly executed and delivered in duplicate counterparts
as of the 17th day of July, 2007.

 

	
   

  	
  NEXSAN CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Philip Black

  
	
   

  	
   

  	
  Philip Black, President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TERRAPIN PARTNERS NEXSAN PARTNERSHIP

  
	
   

  	
   

  	
  By Terrapin Partners LLC, Managing Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jason Weiss

  
	
   

  	
   

  	
  Name: Jason Weiss

  
	
   

  	
   

  	
  Title: Managing Partner of Terrapin
  Partners, LLC

  
				

 

2EXHIBIT
10.18

 

NEITHER THIS NOTE NOR ANY OF
THE SECURITIES INTO WHICH THIS NOTE MAY BE CONVERTED ON THE TERMS HEREIN
HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),
OR ANY STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED WITHOUT THE PRIOR
WRITTEN CONSENT OF BORROWER AND (I) A REGISTRATION STATEMENT UNDER THE ACT
AND REGISTRATION OR QUALIFICATION FOR SALE UNDER APPROPRIATE STATE SECURITIES
LAWS SHALL BECOME EFFECTIVE WITH RESPECT THERETO, OR (II) BORROWER
RECEIVES AN OPINION OF COUNSEL IN FORM AND FROM COUNSEL ACCEPTABLE TO
BORROWER TO THE EFFECT THAT THE PROPOSED TRANSFER DOES NOT VIOLATE ANY
PROVISIONS OF STATE OR FEDERAL LAW.  ALL
INDEBTEDNESS EVIDENCED HEREBY AND REFERENCED HEREIN IS SUBORDINATED TO THE
SENIOR INDEBTEDNESS OWED TO THE SENIOR LENDERS IN ACCORDANCE WITH THE TERMS OF
CERTAIN SUBORDINATION AGREEMENTS AMONG THE SENIOR LENDERS, THE INITIAL HOLDER
OF THIS NOTE AND THE OTHER PARTIES NAMED THEREIN.

 

NEXSAN
CORPORATION

 

Amended and
Restated 8% Secured Convertible Subordinated Bridge Note

 

	
  $3,000,000

  	
   

  	
  As of
  November 2, 2006

  

 

THIS AMENDED AND RESTATED 8%
SECURED CONVERTIBLE SUBORDINATED BRIDGE NOTE amends and replaces in its
entirety that certain 8% Secured Convertible Subordinated Bridge Note dated November 2,
2006, as amended by that certain Allonge dated July 17, 2007 issued to
Terrapin Partners LLC and subsequently assigned to an affiliate of Terrapin
Partners LLC.

 

FOR VALUE RECEIVED, the
undersigned, NEXSAN CORPORATION, a Delaware
corporation (the “Borrower”), promises to pay to TERRAPIN
PARTNERS NEXSAN PARTNERSHIP, LP (the “Lender”) the sum of
THREE MILLION DOLLARS ($3,000,000), together with interest on the unpaid
principal amount hereof at the rate of eight percent (8%) per annum, compounded
monthly, and the Premium (as hereinafter defined), if applicable, on the
Maturity Date (as hereinafter defined) or earlier upon the occurrence and
during the continuance of an Event of Default as hereinafter provided, subject,
however, to the exercise of the Lender’s right to convert this Note into
certain equity securities of the Borrower as hereinafter provided.  Interest shall be computed on the basis of a
360-day year, composed of twelve 30-day months, and the actual number of days
elapsed.  If Borrower fails to pay the
outstanding principal balance of, and all accrued unpaid interest owed on, this
Note when due, whether at maturity, by acceleration or otherwise, then the
interest rate on this Note shall increase, effective as of the Maturity Date or
upon acceleration as provided below, to 18% per annum, compounded monthly until
paid in full. All payments hereunder shall be made in immediately available
funds in lawful currency of the United States of America, without offset,
deduction, or counterclaim of any kind.

 

1.  Defined Terms.  Capitalized terms used in this Note that are
not otherwise defined herein shall be defined as follows:

 

“Common Stock” means
the Common Stock of the Borrower.

 

“Conversion Securities”
means the equity securities into which this Note is convertible under the terms
of this Note, which will be (i) Series A Preferred Stock in the event
of conversion in connection with a Disposition Transaction or in accordance
with Section 9 of this Note, (ii) either Common Stock or Other Equity
Securities in the event of conversion in connection with a Financing other than
an IPO (as hereinafter defined), or (iii) Common Stock in the event of
conversion in connection with an IPO.

 

 

 

“Disposition Transaction”
means the date of the closing of a sale to a third party of (i) all or
substantially all of the assets of Borrower or (ii) any sale of equity of
Borrower, consolidation, merger or other transaction or series of related
transactions (but excluding an IPO) pursuant to which the holders of
outstanding voting securities of the Borrower immediately prior to such
transaction or transactions fail to hold equity securities representing a
majority of the voting power or equity ownership of Borrower or the surviving
entity immediately following such transaction or transactions.

 

“Equity” has the
meaning set forth in the definition of Financing.

 

“Financing” means the
issuance of Common Stock or Other Equity Securities (collectively, “Equity”) in
a Threshold Round. For purposes of this definition, the term “Threshold Round”
means the first Equity financing that occurs after the date of issuance of this
Note whereby the aggregate gross proceeds of such Equity financing, when added
to the gross proceeds of all other Equity financings by the Borrower that shall
have been consummated after the date of issuance of this Note and prior to such
Threshold Round, shall equal or exceed Twenty Million ($20,000,000) Dollars.
Without limiting the foregoing, a Threshold Round shall include an underwritten
public offering by the Borrower of Common Stock otherwise meeting the
definition of Threshold Round.

 

“Initial Bridge Lenders”
has the meaning set forth in Section 4.

 

“Initial Bridge Notes”
has the meaning set forth in Section 4.

 

“IPO” means the first
underwritten public offering for the account of the Borrower pursuant to a
registration statement filed on Form S-1 (or its successor form) under the
Securities Act of 1933, as amended, which results in: (i) aggregate
proceeds (inclusive of underwriter discounts and commissions) to the Borrower
of not less than $30,000,000; and (ii) a per share price in the offering
based upon a pre-money equity valuation of the Borrower of not less than
$130,000,000.

 

“Net Proceeds” means,
in connection with a Disposition Transaction, the net proceeds available for
distribution to holders of the Borrower’s outstanding equity securities (on a
fully-diluted, as-converted basis except as provided in clause (i) immediately
following) upon consummation of such Disposition Transaction (i) assuming
no conversion of this Note or the Initial Bridge Notes to the extent then
outstanding and (ii) after payment of or provision for (w) the
repayment of the outstanding principal balance, and all accrued and unpaid
interest, premium and fees, if any, in respect of all debt of the Borrower for
borrowed money, including but not limited to this Note and the Initial Bridge
Notes, (x) investment banking, legal, accounting and other professional
fees and expenses relating to the Disposition Transaction, (y) the Series A
Preference Amount (as defined in the Borrower’s certificate of incorporation,
as amended from time to time) and (z) change of control, retention or
similar bonuses payable to employees of the Borrower.

 

“Note” means this
Amended and Restated 8% Secured Convertible Subordinated Bridge Note.

 

 

2

 

“Other Equity Securities”
means Preferred Stock or other equity or debt securities of the Borrower
convertible into shares of Common Stock.

 

“Premium” means, as
the context may require, the Disposition Premium payable as provided in Section 7(a),
the Financing Premium payable as provided in Section 8(a), or the Default
Premium payable as provided in Section 12.

 

“Series A Preferred
Stock” means the Series A Preferred Stock of the Borrower.

 

“Threshold Round” has
the meaning set forth in the definition of Financing.

 

2.  Waiver of Preemptive
Rights.  The Borrower
represents and warrants that it has obtained from holders of the required
number of shares of its Series A Preferred Stock and other securities of
any preemptive rights pursuant to the Certificate of Incorporation, as amended,
of the Borrower or by the terms of any stockholders or other agreement duly
executed waivers of any right of existing stockholders of the Borrower to
purchase their respective pro rata portion of the Notes.

 

3.  Secured Note.  The Borrower hereby
pledges and grants a security interest in  all of
Borrower’s assets pursuant to the Amended and Restated Subordinated Security
Agreement, dated as of the date hereof, by and between the Borrower, the
Lender, the Initial Bridge Lenders and the Collateral Agent, in the form of Exhibit A
attached hereto.

 

4.  Subordination.  This Note and the rights of the
Lender in the Collateral (as defined in the Security Agreement) are subordinate
and subject in the right of repayment to the prior payment in full of all of
the present and future indebtedness, claims, debts, liabilities or other
obligations of the Borrower or Nexsan Technologies Incorporated (“NTI”),
a subsidiary of the Borrower (“Senior Indebtedness”), owing to (i) Comerica
Bank (“Comerica”), the current outstanding principal amount of which is
not greater than $3,000,000 (the “Comerica Loan Amount”) (but subject to
limits based on the Company’s accounts receivables), and (ii) the holders
of up to $150,000 aggregate principal amount of purchase money indebtedness (“Permitted
PMI”) secured by liens on equipment acquired or held by NTI in the ordinary
course of business from time to time (collectively, the “Senior Lenders”),
and shall rank pari passu with the indebtedness of the Borrower under those
certain 8% Convertible Secured Promissory Notes, dated January 27, 2006
and August 8, 2006, in the aggregate principal amount of Nine Thousand Six
Hundred Seventy Two Dollars and Twenty Two Cents (US $9,672.22) and having a
maturity date of August 10, 2010 (the “Initial Bridge Notes”) .
Except for the Comerica Loan Amount and Permitted PMI, Borrower agrees not to
incur any additional Senior Indebtedness or any Indebtedness pari passu to this
Note until this Note is paid in full. 
The holders of the Initial Bridge Notes are referred to herein as the “Initial
Bridge Lenders”).  The Lender
represents and warrants to Borrower that it has heretofore delivered true and
correct copies of the subordination agreements between the Lender and Comerica
(collectively, the “Subordination Agreement”).

 

5.  Maturity Date.  As used herein, “Maturity Date” means
the first to occur of (i) November 15, 2009, (ii) the date
Borrower consummates a Financing, or (iii) the date Borrower consummates a
Disposition Transaction

 

6.  Prepayment.  This Note may not be prepaid other than upon
consummation of a Financing or Disposition Transaction.

 

7.  Disposition Transaction.

 

(a)  Disposition Transaction.  Upon consummation of a Disposition
Transaction, subject to Section 7(b), all of the unpaid principal plus all
accrued and unpaid interest on this Note, shall be immediately due and payable
upon the closing of such Disposition Transaction, together with a premium (the “Disposition
Premium”), payable in cash upon the closing of the Disposition Transaction,
in an amount equal to fifty percent (50%) of the original principal amount of
this Note.

 

 

3

 

(b)  Conversion of Note into Series A
Preferred Stock.  Notwithstanding Section 7(a),
in lieu of repayment of this Note under Section 7(a), the Lender may elect
to convert the unpaid principal plus all accrued and unpaid interest on this
Note into shares of Borrower’s Series A Preferred Stock at a conversion
price per share equal to the lesser of (x) $0.45 or (y) 66-2/3% of
the Net Proceeds per share payable to the holders of securities of the Borrower
in connection with such Disposition Transaction (“Disposition Conversion Right”)
in accordance with Section 7(c).

 

(c)  Procedures for
Conversion of Series A Preferred Stock in Event of Disposition.  Not later than 10 business days prior to the
scheduled closing date of a proposed Disposition Transaction, the Borrower will
notify the Lender in writing of the material terms of the Disposition
Transaction (a “Disposition Notice”). 
The Disposition Notice shall include the Borrower’s good faith estimate
of (i) the Net Proceeds resulting from the Disposition Transaction and (ii) the
amounts per share that would be distributable to holders of Conversion
Securities if all of the Borrower’s convertible securities were converted into
the applicable Conversion Securities. If the Lender desires to exercise its
Disposition Conversion Right, then the Lender shall deliver to the Borrower at
its principal office, within 10 business days after receipt of the Disposition
Notice, written notice (a “Conversion Notice”) of its election to
exercise its Disposition Conversion Right, together with this Note.  Not later than two business days prior to the
scheduled closing date of such Disposition Transaction, Borrower shall notify
the Lender of any adjustments to the estimated amount per share that would be
distributable to the holders of the Borrower’s equity securities after the
conversion of all of the Borrower’s convertible securities and the exercise of
all outstanding warrants and options in accordance with the Conversion Notices
(and other notices of an intention to exercise options, warrants or other
conversion rights) received by the Borrower, and Lender shall have the right to
withdraw its Conversion Notice on written notice (a “Withdrawal Notice”)
to Borrower delivered not later than one business day prior to the closing date
of the Disposition Transaction. Borrower shall, as soon as practicable after
consummation of the Disposition Transaction, provided the Lender shall have
timely delivered (and not thereafter withdrawn) a Conversion Notice and
surrendered this Note as aforesaid, issue and deliver to the Lender a
certificate or certificates for the number of shares of Series A Preferred
Stock to which the Lender shall be entitled upon such conversion (bearing such
legends as are required by applicable state and federal securities law in the
opinion of counsel to the Borrower).  Any
conversion of this Note under this Section 7 shall be deemed to have been
made immediately prior to the closing of such Disposition Transaction, and on
and after such closing the Lender shall be treated for all purposes as the
record holder of such shares of Series A Preferred Stock.  By electing to exercise its Disposition
Conversion Right, the Lender agrees to execute and become a party to all of the
agreements entered into by the other holders of shares of Series A
Preferred Stock in connection with such Disposition Transaction and to promptly
take such actions as are reasonably requested by the Borrower in order to
effect the Disposition Transaction, including without limitation, executing any
required consents approving the Disposition Transaction.  The Series A Preferred Stock received by
the Lender in the conversion shall be subject to the same benefits and burdens
as are all other shares of Series A Preferred Stock, and the Lender shall
become a party to all of the agreements that have been entered into by the
other holders of shares of Series A Preferred Stock, with the same rights
and obligations of such stockholders.

 

(d)  Reservation of
Stock Issuable Upon Conversion.  The Borrower shall at all times reserve and
keep available out of its authorized but unissued shares of Series A
Preferred Stock, solely for the purpose of effecting the conversion of this
Note, such number of its shares of Series A Preferred Stock (including any
Common Stock into which shares of the Series A Preferred Stock are
convertible, if applicable) as shall from time to time be sufficient to effect
the conversion of this Note; and if at any time the number of authorized but
unissued shares of Series A Preferred Stock (or Common Stock into which
such Series A Preferred Stock may be convertible) shall not be sufficient
to effect the conversion of all 

 

 

4

 

amounts owing under this
Note, in addition to such other remedies as shall be available to the Lender,
the Borrower will use its best efforts to take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Series A Preferred Stock (and/or Common Stock) to such
number of shares as shall be sufficient for such purposes.

 

8.  Financing Transaction.

 

(a)  Conversion of Note in event of
Financing.  Upon consummation of a
Financing, all of the unpaid principal of this Note, all accrued and unpaid
interest on this Note and a premium (the “Financing Premium”) equal to
25% of the original principal amount of this Note shall be immediately due and
payable upon closing of such Financing; provided, however, that if a Financing
involves the issuance and sale of equity or equity-linked securities of the
Borrower,  the unpaid principal and all
accrued and unpaid interest on this Note may be converted, at the option of the
Lender, into fully paid and non-assessable (A) shares of Common Stock in
the event shares of Common Stock are issued in such Financing or (B) Other
Equity Securities of the same class and series (if applicable) that are issued
by the Borrower in such Financing in the event shares of Other Equity
Securities are issued in such Financing, in all such cases at a price per share
equal to 66-2/3% of the lowest per share purchase price paid by an unaffiliated
third party in such Financing (“Financing Conversion Right”).

 

(b)  Conversion Procedure for
Conversion Securities in the Event of a Financing.  Not later than 10 business days prior to the
scheduled closing date of a proposed Financing, the Borrower will notify the
Lender in writing of the amount, price and material terms of the Conversion
Securities into which this Note is convertible. 
If the Lender desires to exercise its Financing Conversion Right, then
the Lender shall provide written notice to the Borrower within 10 business days
of receipt of the notice of Financing from the Borrower.  The Lender shall surrender this Note to the
Borrower in accordance with the Borrower’s instructions and take such other
actions as are requested by the Borrower in order to effect the Financing.  In the event of any conversion of this Note
which is made in conjunction with the issuance and sale of Conversion
Securities to other investors, such conversion shall be deemed to have been
made immediately prior to the closing of such issuance and sale, and on and
after such closing the Lender shall be treated for all purposes as the record
holder of such shares and as a purchaser of such shares under the applicable
agreements, instruments or documents governing the issuance and sale of such
Conversion Securities (the “Equity Documents”) and shall be bound by the
terms of such Equity Documents.  The
Conversion Securities received by the Lender in the conversion shall be subject
to the same benefits and burdens as are the shares of the securities purchased
at such closing, and the Lender shall become a party to the Equity Documents
and any and all other agreements entered into at or in connection with such
closing by the investor(s) at such closing, with the same rights and
obligations as such investor(s).  Upon
receipt of this Note and upon the Lender executing the Equity Documents and
taking such actions as are reasonably requested by the Borrower in order to
effect the Financing, the Borrower will issue and deliver to the Lender a
certificate or certificates for the number of shares of Conversion Securities
to which the Lender shall be entitled upon such conversion (bearing such
legends as are required by the Equity Documents) and applicable state and
federal securities law in the opinion of counsel to the Borrower).

 

9. Other
Conversion Rights. In addition to all other conversion rights
set forth in this Note, Holder is entitled at its option, at any time and from
time to time on and after the date hereof and prior to the Maturity Date, to
convert a minimum of $500,000 and up to all of the principal amount hereof and
all accrued and unpaid interest, into shares of Series A Preferred Stock
at a conversion price per share of $0.45, by delivery of this Note accompanied
by written notice that the Holder elects to convert this Note, at the office of
the Company in Thousand Oaks, California.  
If such conversion would result in the issuance of fractional shares of Series A
Preferred  Stock, the number of shares of
Series A Preferred Stock issued upon conversion shall be rounded up to the
nearest whole number.

 

10. Rights
Upon Conversion. Lender shall not have any rights of a
stockholder of the Borrower, either at law or in equity, except upon conversion
of this Note.

 

 

5

 

11. Adjustments.
In the event that the Borrower shall, at any time, change or divide or
otherwise reclassify its Common Stock or Series A Preferred Stock into the
same or a different number of shares, with or without par value, or into shares
of any class or classes, then, upon the conversion of this Note, the Lender
shall receive, in addition to or in substitution for the shares of Common Stock
or Series A Preferred Stock to which it would otherwise be entitled upon
conversion, such additional (or lesser) number of shares of stock or scrip of
the Borrower, or such reclassified shares of stock of the Borrower, which it
would have been entitled to receive had it converted this Note, prior to the
happening of any of the foregoing events. 
In the event this Note is converted into Common Stock in connection with
an IPO, Lender shall receive the same number of shares of Common Stock which it
would have been entitled to receive had it first converted this Note into Series A
Preferred Stock immediately prior to the IPO. 
Any adjustment pursuant to this Section 11 shall be binding on the
Lender if made in good faith by the Board of Directors of Borrower.

 

12. Remedies
on Default.  If Borrower
fails to pay (i) the outstanding principal balance of and all accrued and
unpaid interest on this Notes on the Maturity Date or (ii) any payment of
the principal of or interest on any indebtedness of Borrower for borrowed money
as and when due, which default in the case of (ii) remains uncured or
unwaived for 30 days or more, then and in such event the Lender, subject to the
terms of any Subordination Agreement to which the Lender is party, may, upon
written notice to Borrower, accelerate the Notes held by it and enforce its
rights and remedies under the Note in which event the Lender will be entitled
to receive, in addition to the principal amount and accrued and unpaid interest
on such Notes, a premium (the “Default Premium”) equal to 10% of the
original principal amount of the Notes held by the Lender with interest thereon
at a rate per annum equal to 18% from and after and during the continuance of
such default. The foregoing rights shall be in addition to and not in
limitation of the right of the Lender to convert this Note in accordance with
the provisions hereof.

 

13.  Fractional Shares.  No fractional
shares of the Conversion Securities or Series A Preferred Stock shall be
issued upon conversion of this Note.  In
lieu of the Borrower issuing any fractional shares to the Lender upon the
conversion of this Note, the Borrower shall pay to the Lender in cash the
amount owing under this Note that is not so converted.

 

14.  Events of Default.  The Borrower shall be in default under this
Note upon the happening of any condition or event set forth below (each, an “Event of Default”):

 

(a)  the Borrower’s failure to pay any
payment of principal or interest on the Maturity Date;

 

(b)  default by the Borrower in the
performance of any other obligation, covenant, term or provision contained in
this Note, and such default shall continue uncured for a period of 30 days or
more after the earlier to occur of (i) the Borrower receiving written
notice of such default by the Lender or (ii) the discovery by the Borrower
of such default;

 

(c)  the Borrower’s failure to pay any
payment of principal of or interest on any indebtedness of the Borrower for
borrowed money, as and when due, which default remains uncured for 30 days or
more;

 

(d)  default by the Borrower in the
performance of any other obligation, covenant, term or provision contained in
any note or other instrument evidencing indebtedness for borrowed money or any
agreement pursuant to which such indebtedness was incurred by the Borrower, and
such default shall continue uncured for a period of 30 days or more after the
earlier to occur of (i) the Borrower receiving written notice of such
default by the Lender or (ii) the discovery by the Borrower of such
default;

 

(e)  any warranty, representation,
financial statement or other information furnished to the Lender by or on
behalf of the Borrower in connection with this Note or to induce the Lender to
make a loan to the Borrower proves to have been false in any material respect when
made or furnished; or

 

 

6

 

(f)  the Borrower’s dissolution,
termination of existence or insolvency; the appointment of a receiver of all or
any part of the property of the Borrower; an assignment for the benefit of
creditors by the Borrower; or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against the Borrower or any guarantor,
surety or endorser for the Borrower which results in the entry of an order for
relief or which remains undismissed, undischarged or unbonded for a period of
60 days or more.

 

Upon the occurrence and
during the continuance of an Event of Default, the entire unpaid principal
balance of this Note and all accrued interest on such unpaid principal balance
shall immediately be due and payable at the option of the Lender.

 

15.  Representations and
Warranties.  The Borrower
hereby represents and warrants to the Lender as follows:

 

(a)  The Borrower is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Delaware and has all requisite power and authority to own and operate its
properties and assets and to carry on its business as now conducted and as
currently proposed to be conducted.  The
Borrower is duly qualified and authorized to do business, and is in good
standing as a foreign corporation in every jurisdiction where, due to the
nature of its activities and of its properties (both owned and leased), the
failure to so qualify would have a material adverse effect on the Borrower.

 

(b)  All action on the part of the
Borrower and its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Note and the performance of all
the Borrower’s obligations hereunder has been taken or, or in the case of the
issuance of equity securities of the Borrower upon conversion of this Note,
will be taken prior to such issuance. This Note is a valid and binding
obligation of the Borrower, enforceable against Borrower in accordance with its
terms.

 

(c)  All shares of the equity securities
of the Borrower to be issued upon conversion of this Note when issued, sold and
delivered in accordance with the terms of this Note will be duly and validly
issued, fully paid and nonassessable and will be free of any taxes, liens,
charges or encumbrances (other than those which the Borrower shall promptly pay
or discharge).

 

(d)  The terms of the Series A
Preferred Stock as set forth in the Borrower’s certificate of incorporation do
not include any provision for  mandatory
redemption thereof by Borrower.

 

16.  Release.  Upon conversion of this Note (and payment to
the Lender of any cash owing pursuant to Section 15 of this Note) or
payment of all principal of and interest on this Note, the Borrower shall be
forever released from all its obligations and liabilities under this Note. The
Lender shall forthwith release any and all security interests held by it in the
Borrower or any of its assets and shall execute and deliver such documents as
the Borrower may reasonably request, including UCC-3 termination statements, to
evidence such release.

 

17.  Notices.  Any notices, demand, request or other
communication which either party hereto may be required or desire to give
hereunder shall be in writing and shall be hand delivered or sent by a
reputable overnight courier service, addressed as set forth below, and shall be
effective upon actual receipt as verified by written acknowledgment of
delivery.

 

If to the Borrower:

 

Nexsan Corporation

55 St. Charles Drive, Suite 202

Thousand Oaks, CA  91360

Attention: Chief Executive Officer

 

 

7

 

with a copy to:

 

Sonnenschein Nath & Rosenthal LLP

1221 Avenue of the Americas

New York, New York 10020

Attention: Denise M. Tormey, Esq.

 

If to the Lender:

 

Terrapin Partners Nexsan Partnership

c/o Terrapin Partners LLC

540 Madison Avenue, 17th floor

New York, NY 10022

Attention:  Managing Partner Private
Equity

 

with a copy to:

 

Jason Weiss

18.  Severability.  If any provision of this Note is held by any
court of competent jurisdiction to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provision of this Note; but this Note shall be construed as if such
invalid, illegal, or unenforceable provision had not been contained in this
Note, but only to the extent it is invalid, illegal, or unenforceable.

 

19.  Compliance with Securities
Laws.  The Lender by
acceptance of this Note represents and acknowledges that:

 

(a)  This Note is being, and (if the
Lender elects to convert) the equity securities of the Borrower issued upon
conversion of this Note (collectively, the “Stock”), will be, acquired
by the Lender for the Lender’s own account without the participation of any other
person, with the intent of holding this Note and the Stock for investment, and
without the intent of participating directly or indirectly, in a distribution
of this Note or the Stock and not with a view to, or for resale in connection
with, any distribution of this Note or the Stock;

 

(b)  The Lender is able to bear the
economic risks of the investment in this Note and the Stock, including the risk
of complete loss of the investment;

 

(c)  This Note and the Stock will be
issued and sold to the Lender without registration under any state law relating
to the registration of securities for sale, and will be issued and sold in
reliance on the exemptions from registration under the Securities Act of 1933,
as amended (the “1933 Act”), provided by Sections 3(b) and/or 4(2) thereof
and the rules and regulations promulgated thereunder;

 

(d)  The Lender has had the opportunity
to ask questions of and receive answers from the Borrower and any person acting
on its behalf and to obtain all material information reasonably available with
respect to the Borrower and its affairs; and

 

(e) (i) The Lender is an Accredited
Investor (as that term is defined in Rule 501 promulgated by the
Securities and Exchange Commission under the Securities Act); (ii) the
Lender has such knowledge and experience in business and financial matters as
to be capable of evaluating the merits and risks of the investment contemplated
to be made hereunder; and (iii) the Lender understands that such
investment bears a high degree of risk and could result in a total loss of the
Lender’s investment.

 

 

8

 

20.  Waivers.  The Borrower hereby waives presentment and
demand for payment, notice of dishonor, protest and notice of protest of this
Note.  No extension of time for payment
of any amount due hereunder and no alteration, amendment or waiver of any
provision of this Note made by agreement between the Lender and any other
person or party shall release, discharge, modify, change or affect the
liability of the Borrower under this Note.

 

21.  Usury Savings Provision.  This Note is subject to the express condition
that at no time shall the Borrower be obligated or required to pay interest at
a rate which could subject the Lender to either civil or criminal liability, or
which could adversely affect the rights of the Lender hereunder, as a result of
such rate being in excess of the maximum rate which Borrower is permitted by
law to contract or agree to pay.  If by
the terms of this Note or any other instrument, the Borrower is at any time
required or obligated to pay interest at a rate in excess of such maximum rate,
the rate of interest under this Note shall be deemed to be immediately reduced
to such maximum rate, interest payable hereunder shall be computed (or recomputed)
at such maximum rate and the portion of all prior interest payments in excess
of such maximum rate shall be applied to payment of principal hereunder.

 

22.  Prohibition on Transfer;
Binding Effect.   Neither
the Lender nor the Borrower shall, without the prior written consent of the
other party, assign or transfer any right, interest, or obligation under this
Note to any other party; provided, however, that this Note may be transferred
by the Lender to any person that, with respect to the Lender, is controlling,
controlled by or commonly controlled.  This Note shall inure to the
benefit of, and be binding upon and enforceable by, the successors, permitted
assigns and permitted transferees of the parties hereto.

 

23.  Governing Law.  This Note and the rights and obligations of
the parties hereunder shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York (without regard to
principles of conflicts of law).

 

24.  Costs and Expenses.
The Borrower promises to pay to the Lender on demand by the Lender all costs
and expenses incurred by the Lender in connection with the collection and 

enforcement of this Note or any portion hereof, including, without limitation,
all court costs, whether or not suit is filed hereon, whether in connection
with bankruptcy, insolvency or appeal, or whether collection is made against
the Borrower.

 

[Signature
Page Follows]

 

 

9

 

IN WITNESS WHEREOF, this
Amended and Restated Note has been duly executed by the Borrower as of this 26th
day of March 2008.

 

	
   

  	
  NEXSAN CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Philip Black

  
	
   

  	
   

  	
  Philip Black, Chief Executive Officer

  

 

LENDER:

 

Acknowledged and agreed to
as of 

the date first above written:

 

TERRAPIN PARTNERS NEXSAN
PARTNERSHIP LP

   By: Terrapin Partners, LLC, Managing Partner

 

	
  By:

  	
  /s/
  Jason Weiss

  	
   

  
	
   

  	
  Name:
  Jason Weiss

  	
   

  
	
   

  	
  Title:
  Managing Partner

  	
   

  

 

 

 

10

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