Document:

EXHIBIT 10.32

 

THIS SUBORDINATED SECURITY
AGREEMENT IS SUBJECT TO THE SUBORDINATION AGREEMENT, DATED AS OF THE DATE
HEREOF, AMONG NEXSAN CORPORATION, COMERICA BANK AND FONDS DE SOLIDARITE DES
TRAVAILLEURS DU QUEBEC (F.T.Q.)

 

THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”).  THE LENDER HEREOF, BY ACQUIRING THE NOTE,
AGREES THE NOTE MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT; (B) OUTSIDE THE
UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT
AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS; OR (C) WITHIN THE UNITED
STATES (1) IN ACCORDANCE WITH THE EXEMPTION FROM REGISTRATION UNDER THE
1933 ACT PROVIDED BY RULE 144 OR RULE 144A THEREUNDER, IF AVAILABLE, AND IN
COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR (2) IN A
TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE 1933 ACT OR APPLICABLE
STATE SECURITIES LAWS.

 

NEXSAN CORPORATION

 

12% Secured Note

 

	
  US$3,600,000

  	
  September 21, 2009

  	
  New
  York, New York

  

 

FOR VALUE RECEIVED, the undersigned, NEXSAN CORPORATION, a Delaware corporation (together with
its successors and assigns, the “Borrower”),
HEREBY UNCONDITIONALLY PROMISES TO PAY, to the order of FONDS DE
SOLIDARITE DES TRAVAILLEURS DU QUEBEC (F.T.Q.), a public legal
person duly constituted under the Act to establish the Fonds de solidarite des
travailleurs du Quebec (F.T.Q.) (together with its successors and assigns, the “Lender”), the amount of three million six hundred thousand
Dollars (US$3,6000,000) together with interest on the unpaid principal balance
hereof outstanding from time to time from the date hereof until payment in full
hereof at the rates and on the dates determined in accordance with this 12%
Secured Note (the “Note”).

 

ARTICLE
1

DEFINITIONS

 

SECTION 1.1                                             Interpretation

 

As used herein, the following terms have the following
respective meanings:

 

“Affiliate”
means with respect to any specified Person, any other Person who or which,
directly or indirectly, Controls, is Controlled by, or is under common Control
with such specified Persons.

 

1

 

“Applicable Legislation”
means all applicable federal, state, provincial, municipal or regional laws,
statutes, rules, regulations, by-laws, orders, judgments, decisions, policies,
directives, standards, requirements, injunctions, awards or decrees which are
applicable to the Borrower or a Subsidiary, as the case may be, their
respective property, activities or operations, including, the Environmental
Legislation.

 

“August 2006
Promissory Note” means the 8% secured convertible subordinated
bridge note in the amount of $2,678.68 dated August 8, 2006 and issued by
the Borrower to Wayne Kauth.

 

“Borrower” has
the meaning specified in the preamble hereto.

 

“Business Day”
means any day that is not a Saturday, Sunday or other day on which commercial
banks in New York City or Montreal are authorized or required by law to remain
closed.

 

“Canadian Dollars”
or “C$” means the lawful currency of
Canada.

 

“Capital Lease Obligations”
of any Person means the obligations of such Person to pay rent or other amounts
under any lease of (or other arrangement conveying the right to use) real or
personal property, or a combination thereof, which obligations are required to
be classified and accounted for as capital leases on a balance sheet of such
Person under GAAP, and the amount of such obligations shall be the capitalized
amount thereof determined in accordance with GAAP.

 

“Certificates”
means the Representations and Warranties Certificate, the Update to the
Environmental Due Diligence Questionnaire and any other certificate delivered
on the date hereof in connection with entering into the Transactions.

 

“Company IP”
means Intellectual Property that is used in and material to the business of the
Borrower and any Subsidiary as currently conducted, excluding Mass Market
Software.

 

“Control” means
with respect to any Person, (a) any other Person who has the power, directly
or indirectly, either to (i) vote 50% or more of the securities having
ordinary voting power for the election of directors or managers of such Person,
or (ii) direct or cause the direction of the management and policies of
such Person whether by contract or otherwise, or (b) any other Person who
is a director, officer, shareholder, member or partner who has 50% or more of
the securities having ordinary voting power for the election of directors or
managers (i) of such Person, (ii) of any Subsidiary of such Person,
or (iii) of any Person described in the preceding clause (a).

 

“Code” means the
Internal Revenue Code of 1986, as amended.

 

“Collateral” has
the meaning specified in the Security Agreement.

 

“Comerica Bank Loan”
means the Amended and Restated Loan and Security Agreement dated as of July 28,
2009 between Comerica Bank and Nexsan Technologies incorporated, as amended
and/or restated and in effect from time to time.

 

2

 

“Default” means
any event or condition which constitutes an Event of Default or which upon
notice, lapse of time or both would, unless cured or waived, become an Event of
Default.

 

“Dollars” or “US$” means the lawful currency of the United States of
America.

 

“Employee” means
any individual who renders services to the Borrower or a Subsidiary under its
supervision and control, whether at full or part time, including, without
limitation, any officer, manager, employee, agent, trainee or student.

 

“Environmental Legislation”
means all applicable federal, state, provincial, municipal, regional or foreign
laws, statutes, rules, regulations, by-laws, judgments, decisions, decrees,
directives, standards, requirements, injunctions, awards, orders, policies,
permits, notices, approvals, licenses, certificates or other authorizations of
any governmental authority in effect relating to (a) the releases or
threatened release of any pollutant, contaminant or toxic or hazardous
material, substance or waste, or petroleum, or any fraction thereof (“Hazardous Substance”), (b) pollution or protection of
employee health or safety, public health or the environment; or (c) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substance.

 

“Equipment” has
the meaning specified in the Security Agreement.

 

“Equity Interests”
means shares of capital stock, partnership interests, membership interests in a
limited liability company, beneficial interests in a trust or other equity
ownership interests in a Person, and any warrants, options or other rights
entitling the holder thereof to purchase or acquire any such equity interest.

 

“ERISA” means
the Employee Retirement Income Security Act of 1974, as amended from time to
time.

 

“ERISA Affiliate”
means any trade or business (whether or not incorporated) that, together with
the Issuer, is treated as a single employer under Section 414(b) or (c) of
the Code or, solely for purposes of Section 302 of ERISA and Section 412
of the Code, is treated as a single employer under Section 414 of the
Code.

 

“ERISA Event”
means any one of the following (a) any “reportable event”, as defined in Section 4043
of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) any failure
by any Plan to satisfy the minimum funding standard (within the meaning of
Sections 412 and 430 of the Code or Section 302 of ERISA) applicable to
such Plan, in each case whether or not waived; (c) the filing pursuant to Section 412(c) of
the Code or Section 302(c) of ERISA, of an application for a waiver
of the minimum funding standard with respect to any Plan; (d) a
determination that any Plan is, or is expected to be, in “at-risk” status (as
defined in Section 303(i)(4) of ERISA or Section 430(i)(4) of
the Code); (e) the incurrence by the Issuer or any of its ERISA Affiliates
of any liability under Title IV of ERISA with respect to the termination of any
Plan; (f) the receipt by the Issuer or any ERISA Affiliate from the PBGC
or a plan administrator of any notice relating to an intention to terminate any
Plan or Plans or to appoint a trustee to administer any Plan; (g) the
incurrence by the Issuer or any of its ERISA Affiliates of any liability with
respect to the withdrawal or partial withdrawal from any Plan or Multiemployer
Plan; or (h) the receipt 

 

3

 

by the Issuer or any ERISA Affiliate of any notice, or
the receipt by any Multiemployer Plan from the Issuer or any ERISA Affiliate of
any notice, concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be, insolvent or
in reorganization, within the meaning of Title IV of ERISA, or is in endangered
or critical status, within the meaning of Section 305 of ERISA.

 

“Event of Default”
has the meaning specified in Section 4.1.

 

“Excluded Taxes”
means (a) income or franchise taxes imposed on (or measured by) the net
income or profits of the Lender by the United States of America or by any other
jurisdiction under the laws of which the Lender is organized or in which its
principal office or office which purchased, holds or owns the Note is located
(unless such taxes are imposed solely as a result of the Lender having
executed, delivered or performed its obligations or received payments under or
enforced this Note or any other Transaction Document entered into in which case
such Taxes shall not be treated as Excluded Taxes) (b) any branch profits
taxes imposed by the United States of America or any similar tax imposed by any
other jurisdiction referred to in clause (a) above, (c) any Taxes
imposed, deducted or withheld on or from any amounts payable to the Lender by
reason of the Lender’s failure to comply with Section 2.5(e) or
payable to the Lender at the time it changes the office which holds or owns the
Note, except to the extent that the. 
Lender was entitled, at the time of change of office or assignment, to
receive additional amounts from the Borrower with respect to such Taxes
pursuant to Section 2.5(a).

 

“Financial Officer”
means the chief financial officer, principal accounting officer, treasurer or
controller of the Borrower.

 

“GAAP” means
generally accepted accounting principles in the United States of America.

 

“Governmental Authority”
means the government of the United States of America, any other nation or any
political subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court, central bank or other
entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.

 

“Hazardous Substance”
has the meaning specified in the definition of “Environmental Legislation”.

 

“Indebtedness”
of any Person means, without duplication, (a) all obligations of such
Person for borrowed money or with respect to deposits or advances of any kind, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (c) all obligations of such Person upon which interest
charges are customarily paid, (d) all obligations of such Person under
conditional sale or other title retention agreements relating to property
acquired by such Person, (e) all obligations of such Person in respect of
the deferred purchase price of property or services (excluding current accounts
payable incurred in the ordinary course of business), (f) all Indebtedness
of others secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien on property
owned or acquired by such Person, whether or not the Indebtedness secured
thereby has been assumed, (g) all guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all

 

4

 

obligations, contingent or otherwise, of such Person
as an account party in respect of letters of credit and letters of guaranty, (j) all
obligations, contingent or otherwise, of such Person in respect of bankers’
acceptances and (k) obligations under any liquidated earn-out.  The Indebtedness of any Person shall include
the Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is liable therefor as a
result of such Person’s ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor.

 

“Indemnified Taxes”
means Taxes other than Excluded Taxes.

 

“Intellectual Property”
or “IP” means, in any jurisdiction: (i) patents
and patent rights, and the subject matter thereof; (ii) trademarks, trade
names, service marks, brand names, certification marks, trade dress and other
indications of origin, whether registered or not and the goodwill associated
therewith; (iii) copyrights, whether registered or not, and the subject
matter thereof, including computer programs, source codes, databases and the
documentation therefor; (iv) trade secrets and other confidential or
non-public information including inventions, formulae, compositions, inventor’s
notes, discoveries and improvements, know-how, manufacturing and production
processes and techniques, research and development information, drawings,
schematics, specifications, plans, proposals and technical data; (v) domain
names, whether or not used or currently in service; (vi)industrial designs; and
(vii) registrations of, and applications to register any of the foregoing,
and any renewal, extension, reissue, division, continuation, continuation in
part, patent of addition, re-examination, derivation or modification thereof.

 

“Investment”
means any beneficial ownership of (including stock, partnership interest or
other securities) of any Person, or any loan, advance or other extension of
credit or any capital contribution to any Person.

 

“Inventory” has
the meaning specified in the Security Agreement.

 

“January 2006
Promissory Notes” means the 8% secured convertible subordinated
promissory note dated January 27, 2006 in the amount of $2,678.68 issued
by the Borrower to Wayne Kauth and the 8% secured convertible subordinated
promissory note dated January 27, 2006 in the amount of $4,314.86 issued
by the Borrower to Alfred Mandel.

 

“Lender” has the
meaning specified in the preamble hereto.

 

“Lien” means
with respect to any asset (a) any mortgage, deed of trust, lien, loan,
charge, an assignment in guarantee, a security interest, a lien, a pledge, a
security interest in, a hypothecation or any other charge or encumbrance on or
of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset, (c) licenses of software, and (d) in
the case of securities, any purchase option, call or similar right of a third
party with respect to such securities.

 

“Mass Market Software”
means software available at retail, the loss of use of which would not have a material
adverse effect upon the business of the Borrower or any Subsidiary.

 

5

 

“Material Adverse Effect”
means a material adverse effect on (a) the business, assets, liabilities,
financial condition, property, or results of operations of the Borrower or (b) the
validity or enforceability of, or a material impairment of the material rights,
remedies or benefits available to the Lender under, any Transaction Document.

 

“Material Contract”
means any contract, agreement, lease, commitment or other instrument, whether
written or oral, to which the Borrower is a party or by which it is bound and (a) which
is related to the Company IP that is owned by or exclusively licensed to the
Borrower or (b) which requires the provision by the Borrower to any Person
of goods or services having a fair market value in excess of US$100,000.

 

“Material Indebtedness”
has the meaning specified in Section 4.1(e).

 

“Maturity Date”
has the meaning specified in Section 2.1.

 

“Multiemployer Plan”
means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

 

“Nexsan Canada”
has the meaning specified in Section 3.2(c)(i).

 

“Note” has the
meaning specified in the preamble hereto.

 

“Noteholders”
means Wayne Kauth and Alfred Mandel.

 

“Obligations”
means the outstanding principal amount of the Note and interest (and premium,
if any) on the Note (including, without limitation, interest accruing at the
then applicable rate provided herein after the Maturity Date and interest
accruing at the then applicable rate provided herein after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization
or like proceeding, relating to the Borrower, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding) and all
other obligations of the Borrowers to the Lender of every kind and description
pursuant to or in connection with the Transaction Documents, direct or
indirect, absolute or contingent, primary or secondary, due or to become due,
now existing or hereafter arising, regardless of how they arise or by what
agreement or instrument, if any, in each case whether on account of principal,
interest, premium, fees, indemnities, costs, expenses or otherwise (including,
without limitation, all fees and disbursements of counsel that are required to
be paid by the Borrower pursuant to any of the Transaction Documents), and
including obligations to perform acts and refrain from taking action as well as
obligations to pay money.

 

“Other Taxes”
means any and all present or future stamp or documentary taxes or any other
taxes, charges or similar levies arising from any payment made hereunder or
from the execution, delivery or enforcement of, or otherwise with respect to,
this Note.

 

“PBGC” means the
Pension Benefit Guaranty Corporation referred to and defined in ERISA and any
successor entity performing similar functions.

 

“Plan” means any
employee pension benefit plan (other than a Multiemployer Plan) subject to the
provisions of Title IV of ERISA or Section 412 of the Code or Section 302
of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or,
if such plan were terminated, would 

 

6

 

under Section 4069 of ERISA be deemed to be) an “employer”
as defined in Section 3(5) of ERISA.

 

“Person” means
any natural person, corporation, business trust, joint venture, association,
company, partnership, limited liability company, or government, individual or
family trusts, or any agency or political subdivision thereof.

 

“Permitted Investments”
means (a) Investments existing on the date hereof disclosed in the
Representations and Warranties Certificate; (b) marketable direct
obligations issued or unconditionally guaranteed by the United States of
America or any agency or any State thereof maturing within one (1) year
from the date of acquisition thereof, (ii) commercial paper maturing no
more than one (1) year from the date of creation thereof and at the time
of acquisition having a rating of at least A-2 or P-2 from either Standard &
Poor’s Corporation or Moody’s Investors Service, (iii) certificates of
deposit maturing no more than one (1) year from the date of investment
therein issued by Comerica Bank and (iv) money market accounts held at Comerica
Bank; and (c) ownership of the capital stock of any wholly-owned
Subsidiaries in the future if the Borrower has complied with the provisions
contained in Section 3.2(d).

 

“Permitted Liens”
has the meaning specified in Section 3.2(b).

 

“Representations and
Warranties Certificate” means the certificate executed on the date
hereof by the Borrower in favor of the Lender containing additional
representations and warranties made by the Borrower.

 

“Restated Certificate”
means the fifth amended and restated certificate of incorporation of the
Borrower dated March 29, 2007.

 

“Restricted Payment”
means any dividend or other distribution (whether in cash, securities or other
property) with respect to any Equity Interests in the Borrower or any
Subsidiary, or any payment (whether in cash, securities or other property),
including any sinking fund or similar deposit, on account of the purchase,
redemption, retirement, acquisition, cancellation or termination of any such
Equity Interests in the Borrower or any option, warrant or other right to
acquire any such Equity Interests in the Borrower.

 

“Security Agreement”
means the Security Agreement executed on the date hereof by the Borrower in
favor of the Lender securing the Obligations hereunder.

 

“Subordinated Debt”
means any debt incurred by the Borrower or any of its Subsidiaries that is
subordinated to payment in full of the Obligations hereunder on terms
acceptable to the Lender (and identified as being such by the Borrower and the
Lender).

 

“Subordination Agreement”
means the Subordination Agreement executed on the date hereof between the
Lender and Comerica Bank.

 

“Subsidiary”
means any Person of which the Borrower has direct or indirect Control.

 

“Taxes” means
any and all present or future taxes, levies, imposts, duties, deductions,
charges or withholdings imposed by any Governmental Authority.

 

7

 

“Transaction Documents”
means this Note, the Security Agreement, the Subordination Agreement, the
Warrant, the Certificates and any other agreement, instrument or document
(including any UCC financing statement or collateral or security document)
delivered in connection herewith or therewith as such agreements, instruments
and documents may be amended from time to time in accordance with the terms
hereof.

 

“Transactions”
means the issuance of this Note, the execution and delivery of the Security
Agreement and the performance by the Borrower of its obligations under the
Transaction Documents, the use of the proceeds of this Note and the creation,
perfection and enforcement of the Liens as contemplated by the Security
Agreement.

 

“Update to the
Environmental Due Diligence Questionnaire” means an update executed
on the date hereof by the Borrower in favor of the Lender, updating the
Environmental Due Diligence Questionnaire executed by the Borrower in favor of
the Lender on March 29, 2007.

 

“Warrant” means
the Nexsan Corporation Warrant executed on the date hereof by the Borrower in
favor of the Lender.

 

SECTION 1.2                                             Terms Generally

 

The definitions of terms herein shall apply equally to
the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including”
shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have
the same meaning and effect as the word “shall”.  Unless the context requires otherwise, (a) any
definition of or reference to any agreement, instrument or other document
herein shall be construed as referring to such agreement, instrument or other
document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be
construed to include such Person’s successors and assigns, (c) the words “herein”,
“hereof’ and “hereunder”, and words of similar import, shall be construed to
refer to this Note in its entirety and not to any particular provision hereof, (d) all
references herein to Articles and Sections shall be construed to refer to
Articles and Sections of this Note and (e) the words “asset” and “property”
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.

 

ARTICLE
2

TERMS OF PAYMENT

 

SECTION 2.1                                             Payment of Principal

 

Unless prepaid as set forth in Section 2.2 or
accelerated as set forth in Section 4.1, the full principal amount of this
Note (including, for purposes of clarification and without limitation, all
interest thereon which has been added to the principal thereof pursuant to Section 2.3)
shall be payable on September 21, 2012 (the “Maturity
Date”), together with all unpaid interest thereon and all fees and
other amounts due with respect thereto.

 

8

 

SECTION 2.2                                             Optional Prepayments

 

The Borrower shall have the right to prepay on any
Business Day all or any portion (in an amount not less than US$100,000) of the
principal amount of this Note at any time or from time to time, provided
that the Borrower shall give the Lender three Business Days’ notice of the
amount of each such prepayment (which notice shall be irrevocable and effective
upon receipt), and, on the date specified in any such notice, the Borrower
shall pay such amount, together with accrued interest thereon to the date of
such prepayment, plus a premium in an amount equal to 3% of the amount being
prepaid.  Notwithstanding the foregoing,
the Borrower shall not be entitled to prepay using funds borrowed from any
source but shall only prepay pursuant to this Section 2.2 using cash flows
generated by the normal operations of itself or its Subsidiaries.

 

SECTION 2.3                                             Interest

 

(a)                                  Interest shall accrue on the outstanding
principal amount of this Note at a rate per annum equal to 12%.  Interest shall accrue on a daily basis and
shall be compounded monthly.  Compounded
interest shall be due and payable at the same time that the principal of this
Note is due and payable.

 

(b)                                 Anything in this Note to the contrary
notwithstanding, any overdue amount of principal, interest, fees or other
amounts payable under this Note shall bear interest, payable on demand, at a
rate equal to 18% per annum.

 

(c)                                  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.

 

SECTION 2.4                                             Payments and Computations

 

(a)                                  The Borrower shall pre-authorize the
debit of each payment hereunder not later than at 11:00 A.M.  (New York City time) on the day when due in
United States dollars to the Lender in same day funds, by wire transfer to the
account specified by the Lender at the time such payment is made, not later
than 1:00 p.m.  New York time on the
date on which such payment shall become due (each such payment made after such
time on such due date to be deemed to have been made on the next succeeding
Business Day).  All payments made
hereunder shall be made unconditionally, indefeasibly and in full without
deduction, setoff, recoupment, counterclaim or other defense, all of which are
hereby waived to the maximum extent permitted by applicable law.

 

(b)                                 Whenever any payment hereunder shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest.

 

SECTION 2.5                                             Taxes

 

(a)                                  Any and all payments by or on account of
any obligation of the Borrower hereunder shall be made free and clear of and
without deduction for any 

 

9

 

Indemnified Taxes or Other Taxes unless required by
law; provided that if the Borrower shall be required to deduct any Indemnified
Taxes or Other Taxes from such payments, then (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the Lender
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.

 

(b)                                 The Borrower shall pay any Other Taxes to
the relevant Governmental Authority in accordance with applicable law.

 

(c)                                  The Borrower shall indemnify and
accordingly reimburse the Lender, within 10 days after written demand therefor,
for the full amount of any Indemnified Taxes or Other Taxes paid by the Lender,
as the case may be, on or with respect to any payment by or on account of any
obligation of the Issuer hereunder (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts ,payable under this Section)
and any penalties, interest and reasonable out-of-pocket expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority.  If the Lender has actual
knowledge of any Indemnified Taxes or Other Taxes that are reimbursable to the
Lender by the Borrower, the Lender shall, within a reasonable period of time,
provide notice to the Borrower of such occurrence; provided, however, that (i) the
giving of such notice shall not be a condition to the Lender’s indemnity or
reimbursement for such Indemnified Taxes or Other Taxes and (ii) failure
or delay on the part of the Lender to provide such notice shall not constitute
a waiver of the Lender’s right to demand indemnity and reimbursement for such
Indemnified Taxes or Other Taxes.  A
certificate as to the amount of such payment or liability delivered to the
Borrower by the Lender shall be conclusive absent manifest error.

 

(d)                                 As soon as practicable after any payment
of Indemnified Taxes or Other Taxes by the Borrower to a Governmental
Authority, the Borrower shall deliver to the Lender the original or a certified
copy of a receipt issued by such Governmental Authority evidencing such
payment, a copy of the return reporting such payment or other evidence of such
payment reasonably satisfactory to the Lender.

 

(e)                                  The Lender that is entitled to an
exemption from or reduction of withholding tax under the laws of the
jurisdiction in which the Borrower is located, or any treaty to which such
jurisdiction is a party, with respect to any payments under this Note shall
deliver to the Borrower, in the manner and at the time or times prescribed by
applicable law, such properly completed and duly executed documentation
prescribed by applicable law or reasonably requested by the Borrower as will
permit such payments to be made without withholding or at a reduced rate.

 

10

 

(f)                                    If the Lender receives a refund of any
Taxes or Other Taxes as to which it has been indemnified by the Borrower or with
respect to which the Borrower has paid additional amounts pursuant to this Section 2.5,
it shall pay (subject to the Lender’s right of set-off) over such refund to the
Borrower (but only to the extent of indemnity payments made, or additional
amounts paid, by the Borrower under this Section 2.5 with respect to the
Taxes or Other Taxes giving rise to such refund), net of all reasonable
out-of-pocket expenses of the Lender and without interest (other than any
interest paid by the relevant Governmental Authority with respect to such
refund); provided that the Borrower, upon the request of the Lender, agrees to
repay the amount paid over to the Borrower (plus any penalties, interest or
other charges imposed by the relevant Governmental Authority) to the Lender in
the event the Lender is required to repay such refund to such Governmental
Authority.  This Section shall not
be construed to require the Lender to make available its tax returns (or any
other information relating to its taxes which it deems confidential) to the
Borrower or any other Person.

 

SECTION 2.6                                             Representations and Warranties

 

The Borrower hereby represents and warrants to the
Lender as follows:

 

(a)                                  The Borrower and each of the Subsidiaries
(i) are duly constituted, organized and validly subsisting and in good
standing (x) in the case of the Borrower, under the laws of the State of
Delaware and (y) in the case of each Subsidiary, under the laws of such
Subsidiary’s jurisdiction of organization (to the extent the concept of good
standing is recognized in such jurisdiction), and the Borrower and each
Subsidiary have the capacity, the power and are duly qualified to own or lease
such Person’s assets and to carry on their respective businesses as each such
Person presently does, (ii) have all requisite power and authority, and
all material governmental licenses, authorizations, consents and approvals,
required to own and hold their respective properties and to carry on their
respective businesses as now being conducted (including without limitation, in
the case of the Borrower, to enter into and perform its obligations under the
Transaction Documents) and (iii) are duly qualified to do business and in
good standing as a foreign Person in all jurisdictions in which the character
of their respective properties or the nature of their respective businesses
requires such qualification.  The
Transactions are within the Borrower’s organizational powers and have been duly
and validly authorized by all necessary corporate actions on its part and
require no other corporate actions by it. 
Each of the Transaction Documents has been duly executed and delivered
by the Borrower and constitutes a legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, winding up, moratorium or other laws affecting
creditors’ rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law.

 

(b)                                 No recording, order, authorization,
consent, license, registration, approval, exemption, filing, notice or other
similar action by or with any governmental body, governmental official or other
regulatory authority is or will be necessary 

 

11

 

(i) to permit the execution, delivery and
performance by the Borrower of its obligations under the Transaction Documents
in accordance with the terms thereof, (ii) for the legality, validity,
binding effect or enforceability of the Transaction Documents, (iii) to
enable the Lender to enforce its rights and remedies under the Transaction
Documents, or (iv) to create and perfect the Lien granted under the
Security Agreement on the Collateral, except for such as have been obtained or
made and are in full force and effect (copies of which have been delivered by
the Borrower to the Lender) and except for filings necessary to perfect Liens
created pursuant to the Security Agreement.

 

(c)                                  Neither the execution or delivery of the
Transaction Documents nor the performance by the Borrower of any of its
obligations under the Transaction Documents will be in conflict, contravene,
breach or result in any default under the Restated Certificate, by-laws, or
other organizational documents of the Borrower or, upon receipt of the consents
from the Noteholders, under any mortgage, lease, material agreement, other
material legally binding instrument, license, permit, statute, regulation,
order, judgment, decree or law to which the Borrower is a party or by which the
Borrower may be bound or be subject or result in or require the creation or
imposition of any Lien (other than in favor of the Lender pursuant to the
Security Agreement) upon or with respect to any of the properties now owned or
hereafter acquired by it.  Neither the
Borrower nor any of its Subsidiaries is an “investment company” as defined in,
or subject to regulation under, the Investment Company Act of 1940.  The Borrower and its Subsidiaries has timely
filed or caused to be filed all Tax returns and reports required to have been
filed and has paid or caused to be paid all Taxes required to have been paid by
it, except Taxes that are being contested in good faith by appropriate
proceedings and for which the Borrower or such Subsidiary, as applicable, has set
aside on its books adequate reserves.  No
Tax Liens have been filed and no claims are being asserted with respect to any
such Taxes.

 

(d)                                 No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such
ERISA Events for which liability is reasonably expected to occur, could
reasonably be expected to result in a Material Adverse Effect.  The present value of all accumulated benefit
obligations under each Plan (based on the assumptions used for purposes of
Statement of Financial Accounting Standards No.  87) did not, as of the
date of the most recent financial statements reflecting such amounts, exceed
the fair market value of the assets of such Plan, and the present value of all
accumulated benefit obligations of all underfunded Plans (based on the
assumptions used for purposes of Statement of Financial Accounting Standards No. 
87) did not, as of the date of the most recent financial statements reflecting
such amounts, exceed by more than US$100,000 the fair market value of the
assets of all such underfunded Plans.

 

(e)                                  Immediately after the issuance of this
Note, (i) the fair value of the assets of the Borrower, at a fair
valuation, will exceed its debts and liabilities, subordinated, contingent or
otherwise; (ii) the present fair saleable value of the property of the
Borrower will be greater than the amount that will be required to pay the
probable 

 

12

 

liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (iii) the Borrower will be able to pay its
debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (iv) the Borrower will not
have unreasonably small capital with which to conduct the business in which it
is engaged as such business is now conducted and is proposed to be conducted
after the date hereof.

 

(f)                                    The provisions of the Security Agreement
create legal and valid Liens on all the Collateral in favor of the Lender and
such Liens constitute perfected and continuing Liens on the Collateral,
securing the Obligations, enforceable against the Borrower or any Subsidiary
and all third parties, and having priority over all other Liens on the
Collateral except in the case of Permitted Liens, to the extent any such
Permitted Liens would have priority over the Liens in favor of the Lender
pursuant to any applicable law or agreement.

 

(g)                                 Neither the Borrower nor any Subsidiary
is engaged principally, nor as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulations G, T, U, or X of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of the Note will be
used to purchase or carry any such margin stock nor to extend credit to others
for the purpose of purchasing or carrying margin stock.

 

(h)                                 The representations and warranties set
forth on the (i) the Representations and Warranties Certificate and (ii) the
Update to the Environmental Due Diligence Questionnaire, each delivered on the
date hereof, are true, complete and correct in all material respects as of the
date hereof (except to the extent such representations and warranties relate to
an earlier date).  No representation or
warranty by the Borrower in this Note, the Security Agreement or in any
Certificate contains any untrue statement of a material fact or omits to state
any material fact necessary to make the statements herein or therein not
materially misleading.  Except as
otherwise provided or disclosed herein or in disclosure schedules, the Borrower
is not aware of any fact about the Borrower which might cause a Material
Adverse Effect.

 

ARTICLE
3

COVENANTS

 

SECTION 3.1                                             Affirmative Covenants

 

Until the Obligations shall have been paid in full,
the Borrower will perform and observe the following affirmative covenants
unless the Lender shall otherwise agree in writing:

 

(a)                                  Reporting.  The Borrower
will furnish to the Lender, at the Borrower’s expense, on behalf of itself and
each of its Subsidiaries, copies of all documents delivered pursuant to the
Comerica Bank Loan and delivered to any other material lender 

 

13

 

simultaneously with the delivery of such documents to
such lender, and to the extent not already so provided a copy of the following
documents:

 

(i)                                     as soon as available, and in any event
within one hundred and eighty (180) days after the end of each fiscal year of
the Borrower, beginning with the fiscal year ending June 30, 2009, a copy
of the annual audit report of Borrower and the Subsidiaries for such fiscal
year containing, on a consolidated and consolidating basis, balance sheets,
statements of operations, statements of preferred stock, stockholders’ deficit
and comprehensive income (loss) statements of cash flows as at the end of such
fiscal year and for the twelve (12) month period then ended, in each case
setting forth in comparative form the figures for the preceding fiscal year,
all in reasonable detail and audited and certified by an independent registered
public accounting firm of recognized standing acceptable to the Lender, to the
effect that such report has been prepared in accordance with GAAP consistently
applied, and present fairly, in all material respects, the financial position
of the Borrower and the Subsidiaries as of such date, without any qualification
or exception;

 

(ii)                                  as soon as available, and in any event
within thirty (30) days after the end of each fiscal month of the Borrower
(including the last month of each fiscal year of the Borrower), a copy of an
unaudited financial report of the Borrower and the Subsidiaries as of the end
of such month and for the portion of the fiscal year then ended, containing, on
a consolidated and consolidating basis, balance sheets, statements of income,
statements of retained earnings, statements of changes in financial position,
and cash flows, setting forth in each case in comparative form the figures for
the corresponding period or periods of (or, in the case of the balance sheet,
as of the end of) the previous fiscal year, all certified by one of its
Financial Officers as presenting fairly in all material respects the financial
condition and results of operations of the Borrower and its consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments and the absence of
footnotes;

 

(iii)                               concurrently with any delivery of
financial statements under clause (i) or (ii) above, a certificate of
a Financial Officer of the Borrower (x) certifying as to whether a Default
or Event of Default has occurred and, if a Default or Event of Default has
occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto, and (y) stating whether any change in GAAP or
in the application thereof has occurred since the date of the audited financial
statements referred to in Section 3.1(a)(i) and, if any such change
has occurred, specifying the effect of such change on the financial statements
accompanying such certificate;

 

14

 

(iv)                              as soon as available, but in any event
not more than 30 days prior to the end of each fiscal year of the Borrower, an
annual operations and capital expenditure budget;

 

(v)                                 as soon as available, one copy of each
financial statement, report, notice or proxy statement sent by the Borrower or
any Subsidiary to its stockholders generally and one copy of each regular,
periodic or specific report, registration statement, or prospectus filed by
Borrower or any Subsidiary with any securities exchange or the Securities and
Exchange Commission or any successor agency;

 

(vi)                              promptly upon receipt thereof, a copy of
any notice, letter or other document informing the Borrower of any government
investigation or contestation or any material litigation commenced or
threatened against the Borrower, other than actions with respect to non payment
of accounts receivable incurred in the ordinary course of business;

 

(vii)                           promptly upon receipt, a copy of any
notice, letter or other document advising the Borrower of any material
violation of any law, regulation, policy or other requirement of any authority,
or the occurrence of any event of default pursuant to a contract to which the
Borrower is a party;

 

(viii)                        as soon as possible and in any event
within two days after the occurrence of each Default continuing on the date of
such statement, a statement of a Financial Officer of the Borrower setting
forth the details of such Default and the action that the Borrower has taken
and proposes to take with respect thereto,

 

(ix)                                promptly upon becoming aware of the
existence of any condition or event that constitutes a Default, written notice
thereof specifying the nature and duration thereof and the action being or
proposed to be taken with respect thereto;

 

(x)                                   concurrently with the dispatch or receipt
of the same to or from Comerica Bank under or in connection with the Comerica
Bank Loan or to or from any Noteholder under or in connection with the August 2006
Promissory Note and the January 2006 Promissory Notes, as the case may be,
copies of all written communications dispatched to or received from such Person
(including, without limitation, in the case of the Comerica Bank Loan, copies
of all amendments and extensions with respect thereto); and

 

(xi)                                within a reasonable delay, depending on
the circumstances, any other document or information in Borrower’s possession
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidiary, or compliance with the terms of this Note as the
Lender may reasonably request.

 

15

 

(b)                                 Compliance with Law. 
The Borrower and each of its Subsidiaries shall comply with Applicable
Legislation in all material respects and obtain and renew all permits,
certificates, licenses, patents, trademarks and other authorizations required
to conduct its business.

 

(c)                                  Preservation of Existence and Conduct of
Business.  The Borrower will (i) preserve and
maintain, and will cause each Subsidiary to take all action to preserve and
maintain, its corporate existence, and (ii) take all reasonable action to
preserve and maintain, and cause each Subsidiary to preserve and maintain, all
of its leases, privileges, franchises, qualifications, and rights that are
necessary in the ordinary conduct of its business.

 

(d)                                 Maintenance of Properties. 
The Borrower will maintain, and will cause each Subsidiary to maintain,
its tangible assets and properties in good condition and repair, subject to
ordinary wear and tear.

 

(e)                                  Insurance.  The Borrower
and each of its Subsidiaries shall at all times maintain business interruption
and liability and casualty insurance on their properties with financially sound
and reputable insurers in such amounts and with such coverages, endorsements,
deductibles and expiration dates as the officers of the Borrower in the exercise
of their reasonable judgment deem to be adequate, as are customary in the
industry for companies of established reputation engaged in the same or similar
business and owning or operating similar properties and as shall be reasonably
satisfactory to the Lender.

 

The Borrower shall also
maintain adequate insurance policies covering (i) directors’ civil
liability, including, without limitation, all arrears of salaries, vacations,
withholdings, remittances, GST/PST and all other sums covered by director’s statutory
liability, a proper error and omission coverage, without any exclusions in the
case of insolvency of the Borrower, with a minimum coverage of two million
Dollars and in form and substance otherwise satisfactory to the Lender.  The Borrower also shall obtain and maintain a
life insurance policy on the life of Philip Black in the minimum amount of
US$1,000,000, the owner and beneficiary of which shall be the Borrower, free of
all Liens.

 

(f)                                    Taxes.  The Borrower
shall pay or cause to be paid all material Taxes, assessments or governmental
charges on or against it or any of its Subsidiaries or their respective
properties on or prior to the time when they become due; except for any Tax,
assessment or charge that is being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been established
and are being maintained in accordance with GAAP and to the extent failure to
make payment during such contest would not have a Material Adverse Effect on
the Borrower or such Subsidiary.

 

(g)                                 Maintenance of Books and Records. 
The Borrower and its Subsidiaries shall keep adequate books and records
of account, in which true and complete entries will be made reflecting all of
their business and financial transactions, and such entries will be made in
accordance with GAAP consistently applied and Applicable Law.

 

16

 

(h)                                 Use of Proceeds. 
The Borrower will use the proceeds of this Note solely for the
replacement of capital from the repayment of the Indebtedness under the 8%
secured convertible subordinated bridge note issued by the Borrower to Terrapin
Partners LLC on November 2, 2006. 
No portion of the proceeds shall be used for the “purpose of purchasing
or carrying” any “margin stock” or “margin security” as such terms are used in
Regulations T, U and X of the Board of Governors of the Federal Reserve System,
or otherwise in violation of such regulations.

 

(i)                                     Inspection Rights. 
The Borrower shall permit the Lender and its designees, during normal
business hours and at reasonable intervals of time and upon reasonable notice
(or if an Event of Default shall have occurred and is continuing, at any time
and without prior notice), to (i) visit and inspect the properties of the
Borrower and its Subsidiaries, (ii) examine and make copies of and take
abstracts from the books and records of the Borrower and its Subsidiaries, (iii) discuss
the affairs, finances and accounts of the Borrower and its Subsidiaries with
their appropriate officers, employees and independent accountants, all at the
expense of the Borrower; and (iv) make or cause to be made an independent
examination and/or audit of the books and records of the Borrower.

 

(j)                                     Benefits to Employees in Quebec. 
The Borrower agrees, for the benefit of all eligible Employees residing
in Quebec who are not U.S. citizens, to:

 

(i)                                     contribute to the purchase of shares of
the Lender at the rate of one Dollar (C$1.00) for each Dollar invested by each
such Employee, up to a maximum amount of two hundred fifty Dollars (C$250.00)
per employee, per year;

 

(ii)                                  establish a payroll deduction mechanism
enabling such Employees to purchase shares in the Lender through direct payroll
deductions;

 

(iii)                               establish a system to enable such
Employees of the Borrower to benefit from provincial and federal tax advantages
with respect to such Employees’ subscription for shares of the Lender; and

 

(iv)                              contribute to the “Fondation de la
formation economique du Fond de solidarite FTQ” (Economic Training Foundation),
in the amount of forty Dollars ($40.00) (plus taxes), per each such Employee,
per year, such amount being payable each year within thirty (30) days of the
Borrower’s financial year end.

 

(k)                                  ERISA Compliance and Reports.

 

(i)                                     Each Plan shall comply in all material
respects with ERISA and the Code, except to the extent failure to comply in any
instance would not have a Material Adverse Effect on the assets, business
condition (financial or otherwise) or operations of the Borrower and its
Subsidiaries taken as a whole.

 

17

 

(ii)                                  With respect to any Plan, the Borrower
shall, or shall cause its Affiliates to, furnish to the Lender (i) as soon
as possible and in any event within 10 days after the Borrower or any of its
ERISA Affiliates know that any ERISA Event has occurred or is expected to
occur, a statement of a Financial Officer of the Borrower describing such ERISA
Event, including copies of any notice concerning an ERISA Event received from
PBGC, a plan administrator, or from a Multiemployer Plan sponsor, and the
action, if any, the Borrower or such ERISA Affiliate propose to take with
respect thereto; and (ii) upon the request of the Lender, after the filing
thereof, a copy of the annual report of each Pension Plan (Form 5500 or
comparable form) required to be filed with the IRS and/or the Department of
Labor.  Promptly after the adoption of
any Pension Plan, the Borrower shall notify the Lender of such adoption.

 

(l)                                     Environmental Compliance.

 

(i)                                     The Borrower and its Subsidiaries will
comply in all material respects with all applicable Environmental Laws in all
jurisdictions in which any of them operates now or in the future, and the
Borrower and its Subsidiaries will comply in all material respects with all
such Environmental Laws that may in the future be applicable to the Borrower’s
or any Subsidiary’s business, properties and assets.

 

(ii)                                  If the Borrower or any Subsidiary shall (i) receive
notice that any material violation of any Environmental Law may have been
committed or is about to be committed by the Borrower or any Subsidiary, (ii) receive
notice that any administrative or judicial complaint or order has been filed or
is about to be filed against the Borrower or any Subsidiary alleging a material
violation of any Environmental Law requiring the Borrower or any Subsidiary to
take any action in connection with the release of Hazardous Substance into the
environment, (iii) receive any notice from a federal, state or local
government agency or private party alleging that the Borrower or any Subsidiary
may be liable or responsible for any material amount of costs associated with a
response to or cleanup of a release of Hazardous Substance into the environment
or any damages caused thereby, (iv) become aware of any investigative
proceedings by a governmental agency or authority commenced or threatened
against the Borrower or any of their Subsidiaries regarding any potential
violation of Environmental Laws or any spill, release, discharge or disposal of
any Hazardous Substance or (v) notify any governmental agency or authority
regarding any potential violation of Environmental Laws or any spill, release,
discharge or disposal of any Hazardous Substance by the Borrower or any
Subsidiary, the Borrower shall promptly notify the Lender thereof (together
with a copy of any such notice) and of any action being or proposed to be taken
with respect thereto and thereafter shall continue to furnish to the Lender all
further notices, demands, reports and other information regarding the
foregoing.

 

18

 

(m)                               Performance under Contracts. 
The Borrower will, and will cause each of its Subsidiaries to, pay its
obligations, including tax liabilities, and perform under its contracts, where
such failure to pay or perform could result in a Material Adverse Effect on the
business, assets, operations, prospects or condition, financial or otherwise,
of the Borrower.

 

(n)                                 Further Assurances. 
At any time and from time to time the Borrower shall execute and deliver
such further instruments and take such further action as may reasonably be
requested by the Lender to effect the purposes of the undertakings set forth in
this Note.

 

SECTION 3.2                                             Negative Covenants

 

Until the Obligations shall have been paid in full,
the Borrower shall, unless the Lender shall otherwise consent in writing,
furnish to the Lender:

 

(a)                                  Indebtedness. 
The Borrower will not, and will not permit any Subsidiary to, create,
incur, assume or permit to exist any Indebtedness, except:

 

(i)                                     Indebtedness created hereunder;

 

(ii)                                  (x) Indebtedness existing under the
Comerica Bank Loan, in the case of Nexsan Technologies Incorporated and the
guaranty entered into by the Borrower guaranteeing such Indebtedness, in the
case of the Borrower, the principal amount of which on the date hereof is not
greater than $5,000,000 (but which may be increased in accordance with the
current terms thereof based on increases in the outstanding balance of the
Borrower’s accounts receivable) or (y) incurred under any other loan
agreement with a commercial bank replacing the Comerica Bank Loan, in each
case, up to an aggregate maximum amount (including principal and interest) of
six million Dollars (US$6,000,000);

 

(iii)                               Indebtedness under the January 2006
Promissory Notes and the August 2006 Promissory Note as in effect on the
date hereof;

 

(iv)                              Purchase money Indebtedness incurred by
the Borrower and its Subsidiaries in connection with the purchase of Equipment,
up to an aggregate annual amount of one hundred and fifty thousand Dollars
(US$150,000); and

 

(v)                                 Subordinated Debt.

 

(b)                                 Liens.  The Borrower
will not, and will not permit any Subsidiary to, create, incur, assume or
permit to exist any Lien on any property or asset now owned or hereafter
acquired by it, or assign or sell any income or revenues (including accounts
receivable) or rights in respect of any thereof, except the following (“Permitted Liens”):

 

19

 

(i)                                     Liens securing the Indebtedness described
in clauses (ii) and (iii) and (iv) of 3.2(a);

 

(ii)                                  Liens in connection with licenses of
software in the ordinary course of business;

 

(iii)                               Liens being contested actively and
diligently in good faith by appropriate and timely proceedings that are
dismissed, vacated or stayed within 30 days of the creation thereof, and

 

(iv)                              Liens incurred in connection with the
extension renewal or refinancing of the Indebtedness described in clause (ii) of
Section 3.2(a) provided that any extension, renewal or replacement
Lien shall be limited to the liens granted to Comerica Bank on the date hereof
in connection with the Comerica Bank Loan and the principal amount of the
Indebtedness being extended, renewed or refinanced does not increase.

 

(c)                                  Fundamental Changes.

 

(i)                                     The Borrower will not, and will not
permit Nexsan Technologies Canada Inc.  (“Nexsan Canada”) to, merge into or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
sell, transfer, lease or otherwise dispose of (in one transaction or in a
series of transactions) all or substantially all/any substantial part of its
assets, or all or substantially all of the stock of any of its Subsidiaries (in
each case, whether now owned or hereafter acquired), or liquidate or dissolve.

 

(ii)                                  The Borrower will not, and will not
permit any of its Subsidiaries to, engage to any material extent in any
business other than businesses of the type conducted by the Borrower and its
Subsidiaries on the date of execution of this Note and businesses related
thereto.

 

(iii)                               The Borrower will not and will not permit
Nexsan Canada to cease to conduct business or their respective activities
undertaken in connection therewith in the manner conducted by the Borrower on
the date hereof or, without thirty days prior written notification to the
Lender relocate its chief executive office or state of incorporation or change
its legal name;

 

(iv)                              Nexsan Canada will not move its
headquarters or operations outside of the province of Quebec.

 

(d)                                 Investments. 
Directly or indirectly acquire or own, or make any Investment in or to,
or permit any of its Subsidiaries to directly or indirectly acquire or own, of
make any Investment in or to, any Person other than Permitted Investments, or
maintain or invest any of its property with a Person, or permit any of its
Subsidiaries to do so, unless such Person has entered into an account control
agreement with the Lender in form and substance satisfactory to the Lender; or 

 

20

 

suffer or permit any Subsidiary to be a party to, or
be bound by any agreement that restricts such Subsidiary from paying dividends
or otherwise distributing property to the Borrower other than under the
Comerica Bank Loan.

 

(e)                                  Transactions with Affiliates. 
The Borrower will not, and will not permit any of its Subsidiaries to,
sell, lease or otherwise transfer any property or assets to, or purchase, lease
or otherwise acquire any property or assets from, or otherwise engage in any
other transactions with, any of its Affiliates, except in the ordinary course
of business at prices and on terms and conditions not less favorable to the
Borrower or such Subsidiary than could be obtained on an arm’s-length basis
from unrelated third parties.  The
Borrower will not, and will not permit any of its Subsidiaries, to make any
compensation arrangements with its employees or directors if those compensating
arrangement have not been approved by the board of directors of the Borrower or
the Compensation Committee thereof.

 

(f)                                    Inventory and Equipment. 
Other than in the ordinary course of business, the Borrower will not,
and will not permit any of its Subsidiaries to, store the Inventory or the
Equipment with a bailee, warehouseman, or other third party unless the third
party has been notified of the Lender’s security interest and the Lender (a) has
received an acknowledgment from the third party that it is holding or will hold
the Inventory or Equipment for the Lender’s benefit or (b) is in pledge
possession of the warehouse receipt, where negotiable, covering such Inventory
or Equipment.  Other than in the ordinary
course of business, the Borrower will not, and will not permit any of its
Subsidiaries to, store or maintain any Inventory or Equipment at a location
other than the location specified in the Representations and Warranties
Certificate.

 

(g)                                 Compliance.  The Borrower
will not, and will not permit any of its Subsidiaries to, become an “investment
company” or be controlled by an “investment company”, within the meaning of the
Investment Company Act of 1940, or become principally engaged in, or undertake
as one of its important activities, the business of extending credit for the
purpose of purchasing or carrying margin stock, or use the proceeds of this
Note for such purpose.  The Borrower will
not, and will not permit any of its Subsidiaries to, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation would have a Material Adverse Effect, or a Material Adverse Effect on
the Collateral.

 

(h)                                 Negative Pledge Agreements. 
Permit the inclusion in any contract to which it or a Subsidiary becomes
a party of any provision that could restrict or invalidate the creation of a
security interest in any of the Borrower’s or such Subsidiary’s property, other
than under the Comerica Bank Loan, the August 2006 Promissory Note and the
January 2006 Promissory Notes..

 

21

 

ARTICLE 4

EVENTS OF DEFAULT

 

SECTION 4.1                                             Events of Default

 

If any of the following events shall occur and be
continuing (in each case, an “Event of Default”):

 

(a)                                  the Borrower shall fail to pay any
principal or interest on this Note or any other amount payable under this
agreement, when and as the same shall become due and payable, whether on the
Maturity Date or at a date fixed for prepayment thereof or otherwise and such
failure shall continue =remedied for a period of 15 days or more after the
earlier to occur of (i) the Borrower receiving written notice of such
default from the Lender or (ii) the Borrower having actual knowledge of
such default;

 

(b)                                 any representation or warranty made by or
on behalf of the Borrower or any Subsidiary in or in connection with this Note
or the other Transaction Documents or any amendment or modification hereof or
waiver hereunder, or in any report, certificate, financial statement or other
document furnished pursuant to or in connection with this Note shall prove to
have been incorrect or incorrect in any material respect when made (unless
stated to relate solely to an earlier date, in which case such representations
and warranties shall have been true and correct in all material respects as of
such earlier date), in each case other than representations and warranties that
are subject to a Material Adverse Effect or a materiality qualifier, in which
case such representations and warranties shall prove to have been incorrect or
incorrect when made when made;

 

(c)                                  the Borrower shall fail to observe or
perform any covenant, condition or agreement contained in Section 3.1(a),
3.1(c) (with respect to the Borrower’s existence), 3.1(h) or 3.2;

 

(d)                                 the Borrower shall fail to observe or
perform any covenant, condition or agreement contained in this Note (other than
those specified in clause (a), (b) or (c) of this Section 4.1),
any other Transaction Document or in any other agreement or undertaking entered
between the Borrower and the Lender, and such failure shall continue unremedied
for a period of 15 days or more after the earlier to occur of (i) the
Borrower receiving written notice of such default from the Lender or (ii) the
Borrower having actual knowledge of such default;

 

(e)                                  Any Borrower or any Subsidiary thereof (A) fails
to make any payment when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness
(irrespective of the principal amount thereof), or (B) fails to observe or
perform any other agreement or condition relating to any Indebtedness having an
aggregate principal amount exceeding $10,000 (“Material Indebtedness”) or to
any guaranty of Material Indebtedness or contained in any instrument or
agreement evidencing, securing or relating to 

 

22

 

Material Indebtedness, or any other event occurs, the
effect of which default or other event is to cause, or to permit the holder or
holders of such Material Indebtedness or the beneficiary or beneficiaries of
such guaranty (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if required,
such Material Indebtedness to be demanded or to become due or to be
repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an
offer to repurchase, prepay, defease or redeem such Indebtedness to be made,
prior to its stated maturity, or such guaranty to become payable; or

 

(f)                                    monetary judgments or orders for the
payment of money (i) in excess of an aggregate of US$50,000 (or the
currency equivalent thereof) and (ii) either not covered by insurance or,
if covered by insurance, not paid by such insurance shall be rendered against
the Borrower or any of its Subsidiaries and either (x) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (y) there shall be any period of 30 consecutive days during which
a stay of enforcement of such judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect; or

 

(g)                                 the Borrower or any of its subsidiaries
shall generally not pay their debts as such debts become due, or shall admit in
writing their inability to pay their debts generally; or

 

(h)                                 an involuntary proceeding shall be
commenced or an involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Borrower or any Subsidiary or
its debts, or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Subsidiary or for a substantial part of its assets, and, in any such case, such
proceeding or petition shall continue undismissed for 30 days or an order or
decree approving or ordering any of the foregoing shall be entered; or

 

(i)                                     the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under any
applicable bankruptcy, insolvency, receivership or similar law, (ii) consent
to the institution of, or fail to contest in a timely and appropriate manner,
any proceeding or the filing of any petition described in (h) above, (iii) apply
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any
Subsidiary or for a substantial part of the property or assets of the Borrower
or any Subsidiary, (iv) file an answer admitting the material allegations
of a petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors, (vi) admit in writing its
inability or fail generally to pay its debts as they become due or (vii) take
any corporate action for the purpose of effecting any of the foregoing;

 

23

 

(j)                                     any material provision of this Note shall
for any reason cease to be valid and binding on or enforceable against the
Borrower, or the Borrower shall deny any further obligation or liability under
this Note; or

 

(k)                                  it is or will become unlawful for the Borrower
to fulfill or comply with any obligation under this Note;

 

then, and in any such event (other than an event with
respect to the Borrower described in clause (h) or (i) of this Section 4.1),
the Lender may, by notice to the Borrower, declare this Note, all interest
thereon and all other amounts payable under this Note to be forthwith due and
payable, whereupon this Note, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly waived by the
Borrower, and in case of any event with respect to the Borrower described in
clause (h) or (i) of this Section 4.1, the principal of the
Note, all interest thereon and all other amounts payable under this Note shall
automatically become due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower.

 

ARTICLE
5

MISCELLANEOUS

 

SECTION 5.1                                             Amendments, Etc.

 

No amendment or waiver of any provision of this Note,
and no consent to any departure by the Borrower herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.

 

SECTION 5.2                                             Expenses

 

The Borrower hereby agrees upon demand to pay to the
Lender the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel, which the Lender may incur in connection with
the preparation, filing or recording, interpretation or administration of this
Note and the other Transaction Documents, or any amendment, modification,
approval, consent or waiver hereof or thereof, or in connection with the
enforcement of any Obligations, the exercise, preservation or enforcement of
any rights or remedies of the Lender or the satisfaction of any Obligations, or
in connection with any litigation, proceeding or dispute in any way related to
the credit hereunder, the Obligations, or the Transaction Documents, including,
without limitation, reasonable fees and disbursements of the outside legal
counsel, and expenses relating to any inspections, appraisals or examinations
conducted in connection with the Note in accordance with the terms of the
Transaction Documents.  The amount of all
such costs, charges and expenses shall, if not paid when due, bear interest at
the rate applicable to the Note.

 

SECTION 5.3                                             Indemnification

 

The Borrower shall indemnify the Lender, as well as
its shareholders, directors, officers, agents, attorneys, subsidiaries and
Affiliates (each such Person being called an “Indemnitee”)
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, penalties, 

 

24

 

liabilities and related expenses, including the fees,
charges and disbursements of any counsel for any Indemnitee, incurred by or
asserted against any Indemnitee arising out of, in connection with, or as a result
of (i) the execution or delivery of the Transaction Documents or any
agreement or instrument contemplated thereby, the performance by the parties
hereto of their respective obligations thereunder or the consummation of the
Transactions or any other transactions contemplated hereby, (ii) the use
of the proceeds under the Note, (iii) any actual or alleged presence or
release of Hazardous Substances on or from any property owned or operated by
the Borrower or any of its Subsidiaries, or any environmental liability related
in any way to the Borrower or any of its Subsidiaries, or (iv) any actual
or prospective claim, litigation, investigation or proceeding relating to any
of the foregoing, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, penalties, liabilities or related expenses resulted
from the gross negligence or wilful misconduct of such Indemnitee.

 

SECTION 5.4                                             Waivers; Remedies

 

(a)                                  No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.  The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.

 

(b)                                 The Borrower hereby waives presentment
for payment, demand, notice of dishonor and protest of this Note.

 

SECTION 5.5                                             Assignment

 

This Agreement shall be binding upon, inure to the
benefit of and be enforceable by any successor in interest to the Lender.

 

SECTION 5.6                                             Severability

 

In case any provision or obligation under this Note
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

 

SECTION 5.7                                             Survival

 

All covenants, agreements, representations and
warranties made by the Borrower in the Transaction Documents and in the
certificates or other instruments delivered in connection with or pursuant to
this Note or any other Transaction Document shall be considered to have been
relied upon by the other parties hereto and shall survive the issuance of this
Note and the execution and delivery of the other Transaction Documents,
regardless of any investigation made by any such other party or on its behalf
and notwithstanding that the Lender may have had notice or knowledge of any
Default or incorrect representation or warranty at the time the Note was
issued, and shall continue in full force and effect as long as the principal of
or any accrued 

 

25

 

interest on any Note or any fee or any other amount
payable hereunder is outstanding and unpaid. 
The provisions of Section 5.3 shall survive and remain in full
force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the principal of the Note.

 

SECTION 5.8                                             Judgement Currency

 

This is an international loan transaction in which the
specification of Dollars and payment in New York City is of the essence, and
the obligations of the Borrower under this Note and the other Transaction
Document to the Lender to make payment in Dollars shall not be discharged or
satisfied by any tender or recovery pursuant to any judgment expressed in or converted
into any other currency or in another place except to the extent that on the
Business Day following receipt of any sum adjudged to be so due in the judgment
currency such Entitled Person may in accordance with normal banking procedures
purchase, and transfer to New York City, Dollars in the amount originally due
to the Lender with the judgment currency. 
If for the purpose of obtaining judgment in any court it is necessary to
convert a sum due hereunder in Dollars into another currency (in this Section 5.8
called the “judgment currency”), the rate of exchange that shall be applied
shall be that at which in accordance with normal banking procedures the Lender
could purchase such Dollars at New York, New York with the judgment currency on
the Business Day next preceding the day on which such judgment is
rendered.  The Borrower hereby, as a
separate obligation and notwithstanding any such judgment, agrees to indemnify
the Lender against, and to pay the Lender on demand, in Dollars, the amount (if
any) by which the sum originally due to the Lender in Dollars hereunder exceeds
the amount of the Dollars purchased and transferred as aforesaid.

 

SECTION 5.9                                             Governing Law

 

This Note shall be governed by, and construed in
accordance with, the laws of the State of New York.

 

SECTION 5.10                                      Submission to Jurisdiction

 

The Borrower hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Note, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court.  Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. 
Nothing in this Note shall affect any right that the Lender may otherwise
have to bring any action or proceeding relating to this Note against the
Borrower or its properties in the courts of any jurisdiction.

 

26

 

SECTION 5.11                                      Waiver of Trial by Jury and
Consequential Damages

 

THE BORROWER AND THE LENDER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO
ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS NOTE OR
ANY OF THE OTHER TRANSACTION DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR
THEREUNDER, THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS OR ACTIONS OF THE LENDER RELATING TO THE ADMINISTRATION OR
ENFORCEMENT OF THE NOTE AND THE TRANSACTION DOCUMENTS, AND AGREES THAT IT WILL
NOT SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL CAN NOT BE OR HAS NOT BEEN WAIVED. 
EXCEPT AS PROHIBITED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE
TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER
THAN, OR IN ADDITION TO, ACTUAL DAMAGES. 
THE BORROWER (a) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS
AND (b) ACKNOWLEDGES THAT THE LENDER HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND THE OTHER TRANSACTION BECAUSE OF, AMONG OTHER THINGS, THE
BORROWER’S WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.

 

[SIGNATURE PAGE FOLLOWS]

 

27

 

IN WITNESS WHEREOF, the Borrower has caused this Note
to be duly executed and delivered by its officer thereunto duly authorized as
of the date first above written.

 

	
   

  	
  NEXSAN
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Gene Spies

  
	
   

  	
   

  	
  Name:
  Gene Spies

  
	
   

  	
   

  	
  Title:
  Chief Financial Officer

  

 

[SIGNATURE PAGE - NOTE]EXHIBIT 10.33

 

THIS
WARRANT AND THE SECURITIES PURCHASABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR EXERCISED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS, EXCEPT IN
TRANSACTIONS THAT ARE EXEMPT FROM OR NOT SUBJECT TO SUCH REGISTRATION.

 

NEXSAN
CORPORATION

 

WARRANT

 

dated
as of September 21, 2009

 

THIS
CERTIFIES THAT, for value received, Fonds de solidarité des travailleurs du
Québec (FTQ) or its successors or assigns (such Person and such successors and
assigns each being the “Warrant Holder” with respect to the Warrant held by
it), at any time and from time to time on any Business Day on or prior to 5:00 p.m.
(New York City time), on the Expiration Date (as herein defined), is entitled (a) to
subscribe for the purchase from Nexsan Corporation, a Delaware corporation (the
“Company”), an aggregate of 2.4 million Shares at a price per Share equal to the
Exercise Price (as herein defined), and (b) to the other rights set forth
herein; provided that the number of Shares issuable upon any exercise of
this Warrant and the Exercise Price shall be adjusted and readjusted from time
to time in accordance with Section 5.  By accepting delivery hereof, the Warrant
Holder agrees to be bound by the provisions hereof.

 

IN
FURTHERANCE THEREOF, the Company irrevocably undertakes and agrees for the
benefit of Warrant Holder as follows:

 

Section 1.               Definitions and Construction.

 

(a)           Certain Definitions. 
As used herein (the following definitions being applicable in both
singular and plural forms):

 

“Affiliate”
means, with respect to any Person, any other Person that directly or indirectly
controls, is controlled by, or is under common control with such Person.

 

“Appraised
Value” means at any time the fair market value thereof determined in
accordance with and subject to Section 5(l).

 

“Appraiser”
has the meaning set forth in Section 5(l)(ii).

 

“Board
of Directors” means the board of directors of the Company.

 

“Business
Day” means any day except a Saturday, Sunday or other day on which
commercial banks in New York City or Montréal, Quebec are authorized by law to
close.

 

“Capital
Reorganization” has the meaning set forth in Section 5(d).

 

1

 

“Closing
Price” means, for any trading day with respect to a Share, (a) the
last reported sale price on such day on the principal national securities
exchange on which the Shares are listed or admitted to trading or, if no such
reported sale takes place on any such day, the average of the closing bid and
asked prices thereon, as reported in The Wall Street Journal, or (b) if
such Shares shall not be listed or admitted to trading on a national securities
exchange, then the average of the closing bid and asked prices, as reported by The
Wall Street Journal for the over-the-counter market; provided that
if clause (a) or (b) applies and no price is reported in The
Wall Street Journal for any trading day, then the price reported in The
Wall Street  Journal for the most
recent prior trading day shall be deemed to be the price reported for such
trading day.  In the event that none of
the foregoing applies, the Closing Price shall be determined reasonably and in
good faith by the Board of Directors and the Requisite Holders in accordance
with Section 5(1).

 

“Commission”
means the United Securities and Exchange Commission or any other Federal agency
administering the Securities Act at the time.

 

“Company”
has the meaning set forth in the introductory paragraph to this Warrant.

 

“Convertible
Securities” has the meaning set forth in Section 5(b)(ii).

 

“Determination
Date” has the meaning set forth in Section 5(c)(ii).

 

“Distributed
Shares” has the meaning set forth in Section 5(b)(i).

 

“Exchange
Act” means the Securities Exchange Act of 1934, or any successor Federal
statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. 
Reference to a particular section of the Exchange Act shall include a
reference to the comparable section, if any, of any such successor Federal
statute.

 

“Exercise
Amount” means for any number of Warrant Shares as to which this Warrant is
being exercised the product of (i) such number of Warrant Shares times
(ii) the Exercise Price.

 

“Exercise
Price” for each Warrant Share means the fair market value per Share at the
date of this Warrant determined by linear interpolation between the fair market
value per Share as of June 30, 2009 and as of September 30, 2009, as
adjusted from time to time pursuant to Section 5.  For the purposes of this calculation, the June 30,
2009 fair market value per Share shall be $0.78.  The linear interpolation shall be determined
by (i) dividing the difference between the September 30, 2009 fair
market value per Share and .78 by 92 (ii) multiplying the quotient by the
number of days between the date of this Warrant and June 30, 2009 and (iii) adding
the product, expressed as a dollar amount, to $0.78.

 

“Existing
Registration Rights Agreement” means the Third Amended and Restated
Registration Rights Agreement dated as of March 29, 2007 between the
Company and the investors party thereto, as amended from time to time.

 

“Expiration
Date” means September 21, 2016.

 

“Initial
Holder” means Fonds de solidarité des travailleurs du Québec (FTQ).

 

2

 

“Market
Price” on any day means (a) the unweighted average of the daily
Closing Prices per Share for the 20 consecutive trading days prior to such date
or (b) if clauses (a), (b) and (c) of the definition of “Closing
Price” are inapplicable, then the Appraised Value as of such day shall apply; provided
that for purposes of the application of Section 5(b) to a
Share Distribution pursuant to a public offering registered under the
Securities Act, “Market Price” means the Closing Price per Share for the
trading day preceding the effective date of the registration statement with
respect to such public offering (or in the case of an initial public offering,
the price per Share in such offering).

 

“Notice
of Exercise” has the meaning set forth in Section 2(a).

 

“Options”
has the meaning set forth in Section 5(b)(ii).

 

“Person”
means an individual, a corporation, a partnership, an association, a trust or
any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.

 

“Repurchase”
has the meaning set forth in Section 5(c)(ii).

 

“Repurchase
Premium” has the meaning set forth in Section 5(c)(ii)(B).

 

“Requisite
Holders” means at any time holders of Warrant Shares and Warrants
representing more than 50% of the Warrant Shares outstanding or issuable upon
the exercise of all the outstanding Warrants.

 

“Securities
Act” means the Securities Act of 1933, or any successor Federal statute,
and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time. 
Reference to a particular section of the Securities Act shall include a
reference to the comparable section, if any, of any such successor Federal
statute.

 

“Share
Distribution” has the meaning set forth in Section 5(b)(i).

 

“Share
Reorganization” has the meaning set forth in Section 5(a).

 

“Shares”
means the Company’s Series C Preferred Shares.

 

“Special
Distributions” has the meaning set forth in Section 5(c).

 

“Warrant”
means this warrant and, any successor warrant or warrants issued upon a whole
or partial transfer or assignment of any such Share purchase warrant or of any
such successor warrant.

 

“Warrant
Holder” has the meaning set forth in the introductory paragraph to this
Warrant.

 

“Warrant
Shares” means the number of Shares issued or issuable upon exercise of this
Warrant as set forth in the introduction hereto, as adjusted from time to time
pursuant to Section 5 or in the case of other Warrants, issuable
upon exercise of those Warrants.

 

3

 

(b)           Computation of Time Periods. 
With respect to the computation of periods of time from a specified date
to a later specified date, the word “from” means “from and including” and the
words “to” and “until” each mean “to but excluding.”  Periods of days shall be counted in calendar
days unless otherwise stated.

 

(c)           Construction. 
Unless the context requires otherwise, references to the plural include
the singular and to the singular include the plural, references to any gender
include any other gender, the part includes the whole, the term “including” is
not limiting, and the term “or” has, except where otherwise indicated, the
inclusive meaning represented by the phrase “and/or.”  The words “hereof,” “herein,” “hereby,” “hereunder,”
and similar terms in this Warrant refer to this Warrant as a whole and not to
any particular provision of this Warrant. 
Section, subsection, clause, exhibit and schedule references are to this
Warrant, unless otherwise specified.  Any
reference to this Warrant includes any and all permitted alterations,
amendments, changes, extensions, modifications, renewals, or supplements thereto
or thereof, as applicable.

 

(d)           Exhibits and Schedules. 
All of the exhibits and schedules attached hereto shall be deemed
incorporated herein by reference.

 

(e)           No Presumption Against Any Party. 
Neither this Warrant nor any uncertainty or ambiguity herein or therein
shall be construed or resolved using any presumption against any party hereto
or thereto, whether under any rule of construction or otherwise.  On the contrary, this Warrant has been
reviewed by each of the parties and their counsel and, in the case of any
ambiguity or uncertainty, shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the purposes and
intentions of all parties hereto.

 

Section 2.              Exercise of Warrant.

 

(a)           Exercise and Payment. 
The Warrant Holder may exercise this Warrant in whole or in part, at any
time or from time to time on any Business Day on or prior to the Expiration
Date, by delivering to the Company a duly executed notice (a “Notice of
Exercise”) in the form of Exhibit A and by payment to the
Company of the Exercise Price per Warrant Share, at the election of the Warrant
Holder, either (i) by wire transfer of immediately available funds to the
account of the Company in an amount equal to the Exercise Amount, (ii) by
exchanging a portion of this Warrant pursuant to which the Warrant holder
receives from the Company the number of Warrant Shares equal to (A) the
number of Warrant Shares as to which this Warrant is being exercised minus (B) the
number of Warrant Shares having a value, based on the Closing Price on the
trading day immediately prior to the date of such exercise (or in there is no
such Closing Price, then based on the Appraised Value as of such day), equal to
the Exercise Amount, (iii) by surrendering that portion of any note held
by the Warrant Holder in an amount equal to the Exercise Amount, or (iv) any
combination of the foregoing.  The
Company acknowledges that the provisions of clause (ii) are intended, in
part, to ensure that a full or partial exchange of this Warrant pursuant to
such clause (ii) will qualify as a conversion or exchange, within the
meaning of paragraph (d)(3)(ii) of Rule 144 under the Securities
Act.  At the request of any Warrant
Holder, the Company will accept reasonable modifications to the exchange
procedures provided for in this Section in order to accomplish such
intent.  For all purposes of this Warrant
(other than this Section 2(a)), any reference herein to the
exercise of this Warrant shall be 

 

4

 

deemed to include a reference to the exchange of this
Warrant into Shares in accordance with the terms of clause (ii).

 

(b)           Effectiveness and Delivery. 
As soon as practicable but not later than five Business Days after the
Company shall have received such Notice of Exercise and payment, the Company
shall execute and deliver or cause to be executed and delivered, in accordance
with such Notice of Exercise, a certificate or certificates representing the
number of Shares specified in such Notice of Exercise, issued in the name of
the Warrant Holder or in such other name or names of any Person or Persons
designated in such Notice of Exercise. 
This Warrant shall be deemed to have been exercised and such Share
certificate or certificates shall be deemed to have been issued, and the
Warrant Holder or other Person or Persons designated in such Notice of Exercise
shall be deemed for all purposes to have become a holder of record of Shares,
all as of the date that such Notice of Exercise and payment shall have been
received by the Company.

 

(c)           Surrender of Warrant. 
The Warrant Holder shall surrender this Warrant to the Company when it
delivers the Notice of Exercise, and in the event of a partial exercise of the
Warrant, the Company shall execute and deliver to the Warrant Holder, at the
time the Company delivers the Share certificate or certificates issued pursuant
to such Notice of Exercise, a new Warrant for the unexercised portion of the
Warrant, but in all other respects identical to this Warrant.

 

(d)           Legend.  Each
certificate for Warrant Shares issued upon exercise of this Warrant, unless at
the time of exercise such Warrant Shares are registered under the Securities
Act, shall bear the following legends:

 

THIS SECURITY HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS, EXCEPT FOR TRANSACTIONS THAT ARE EXEMPT FROM OR NOT SUBJECT TO SUCH
REGISTRATION.

 

Any
certificate for Warrant Shares issued at any time in exchange or substitution
for any certificate bearing such legend (unless at that time such Warrant
Shares are registered under the Securities Act) shall also bear such legend
unless, in the written opinion of counsel selected by the holder of such
certificate (who may be an employee of such holder), which counsel and opinion
shall be reasonably acceptable to the Company, the Warrant Shares represented thereby
need no longer be subject to restrictions on resale under the Securities Act.

 

(e)           Fractional Shares. 
The Company shall not be required (but may elect) to issue fractions of
Shares upon an exercise of the Warrant. 
If any fraction of a Share would, but for this restriction, be issuable
upon an exercise of the Warrant, in lieu of delivering such fractional Share,
the Company shall pay (unless it elects to issue fractions of a share) to the
Warrant Holder, in cash, an amount equal to the same fraction times the
Exercise Price.

 

5

 

(f)            Expenses and Taxes. 
The Company shall pay all expenses, taxes and owner charges payable in
connection with the preparation, issuance and delivery of certificates for the
Warrant Shares and any new Warrants.

 

Section 3.               Investment Representation.

 

By
accepting the Warrant, the Initial Holder represents that it is acquiring the
Warrant for its own account for investment purposes and not with the view to
any sale or distribution, that the Initial Holder will not offer, sell or
otherwise dispose of the Warrant or the Warrant Shares except under
circumstances as will not result in a violation of applicable securities laws,
and that the Initial Holder is an “accredited investor” as that term is defined
in Rule 501 under the Securities Act.

 

Section 4.               Validity of Warrant and Issuance of Shares.

 

(a)           The Company represents and warrants that
this Warrant has been duly authorized, is validly issued, and constitutes the
valid and binding obligation of the Company.

 

(b)           The Company further represents and
warrants that on the date hereof it has duly authorized and reserved, and the
Company hereby agrees that it will at all times until the Expiration Date have
duly authorized and reserved, such number of Shares as will be sufficient to
permit the exercise in full of the Warrant, and that all such Shares are and
will be duly authorized and, when issued and paid for upon exercise of the
Warrant in accordance herewith, will be validly issued, fully paid and
non-assessable, and free and clear of all security interests, claims, liens,
equities and other encumbrances of any kind whatsoever.

 

Section 5.               Antidilution Provisions.

 

The
Exercise Price in effect at any time, and the number of Warrant Shares that may
be purchased upon any exercise of the Warrant, shall be subject to change or
adjustment as follows:

 

(a)           Share Reorganization. 
If the Company shall subdivide its outstanding into a greater number of
Shares, by way of a stock split, stock dividend or otherwise, or consolidate
its outstanding Shares into a smaller number of Shares (any such event being
herein called a “Share Reorganization”), then (i) the Exercise
Price shall be adjusted, effective immediately after the effective date of such
Share Reorganization, to a price determined by multiplying the Exercise Price
in effect immediately prior to such effective date by a fraction, the numerator
of which shall be the number of Shares outstanding on such effective date
before giving effect to such Share Reorganization and the denominator of which
shall be the number of Shares outstanding after giving effect to such Share
Reorganization, and (ii) the number of Shares subject to purchase upon
exercise of this Warrant shall be adjusted, effective at such time, to a number
determined by multiplying the number of Shares subject to purchase immediately
before such Share Reorganization by a fraction, the numerator of which shall be
the number of Shares outstanding after giving effect to such Share Reorganization
and the denominator of which shall be the number of Shares outstanding
immediately before giving effect to such Share Reorganization.

 

6

 

(b)           Share Distribution.

 

(i)            If the Company shall issue, sell or
otherwise distribute any Shares or any preferred shares with terms no less
favorable than the Shares (collectively, “Distributed Shares”), other
than pursuant to a Share Reorganization (which is governed by Section 5(a))
(any such event, including any event described in paragraphs (ii) and (iii) below,
being herein called a “Share Distribution”), for a consideration per
Distributed Share less than the Exercise Price then in effect, then, effective
upon such Share Distribution, the Exercise Price shall be reduced to a price
determined by multiplying the Exercise Price by a fraction, the numerator of
which shall be the sum of (A) the number of Shares outstanding immediately
prior to such Share Distribution multiplied by the Exercise Price, plus (B) the
consideration, if any, received by the Company upon such Share Distribution,
and the denominator of which shall be the product of (1) the total number
of Shares plus Distributed Shares that are not Shares outstanding immediately
after such Share Distribution multiplied by (2) the Exercise Price.  If any Share Distribution shall require an
adjustment to the Exercise Price pursuant to the foregoing provisions of this Section 5(b),
including by operation of paragraph (ii) or (iii) below, then,
effective at the time such adjustment is made, the number of Shares subject to
purchase upon exercise of this Warrant shall be increased to a number
determined by multiplying the number of Shares subject to purchase immediately
before such Share Distribution by a fraction, the numerator of which shall be
the Exercise Price in effect immediately prior to such event and the
denominator of which shall be the Exercise Price as adjusted in accordance with
this Section 5(b).  The
provisions of this Section 5(b), including by operation of
paragraph (ii) or (iii) below, shall not operate to increase the
Exercise Price or reduce the number of Shares subject to purchase upon exercise
of this Warrant.

 

(ii)           If the Company shall issue, sell,
distribute or otherwise grant in any manner (including by assumption) any
rights to subscribe for or to purchase Shares or any preferred shares with
terms no less favorable than the Shares, or any warrants or options for the
purchase thereof or any securities convertible into or exchangeable therefor (such
rights, warrants or options being herein called “Options” and such
convertible or exchangeable securities being herein called “Convertible
Securities”), whether or not such Options or the rights to convert or
exchange any such Convertible Securities in respect of such Options are
immediately exercisable or exercisable prior to the Expiration Date or
thereafter, and the price per share for which such shares are issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities in respect of such Options (determined by dividing (x) the
aggregate amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus, in the case of Options to acquire Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon issuance or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (y) the total maximum number of shares
issuable upon the exercise of such Options or upon the conversion or exchange
of all such Convertible Securities issuable upon the exercise of such Options)
shall be less than the Exercise Price, then, for purposes of Section 5(b)(i),
the total maximum number of shares issuable upon the exercise of such Options
or upon conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to have
been issued as of the date of granting of such Options and thereafter shall be
deemed to be outstanding and the 

 

7

 

Company shall be deemed to have received as
consideration of such price per share, determined as provided above,
therefor.  Except as otherwise provided
in paragraph (iv) below, no additional adjustment of the Exercise Price
shall be made upon the actual exercise of such Options or upon conversion or
exchange of such Convertible Securities.

 

(iii)          If
the Company shall issue, sell or otherwise distribute (including by assumption)
any Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable or exercisable prior to the Expiration
Date or thereafter, and the price per share for which the underlying shares are
issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the aggregate amount received or receivable by
the Company as consideration for the issuance, sale or distribution of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (y) the maximum number of shares issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the Exercise
Price, then, for purposes of Section 5(b)(i), the total maximum
number of shares issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued as of the date of the issuance,
sale or distribution of such Convertible Securities thereafter shall be deemed
to be outstanding and the Company shall be deemed to have received as
consideration such price per share, determined as provided above,
therefor.  Except as otherwise provided
in paragraph (iv) below, no additional adjustment of the Exercise Price
shall be made upon the actual conversion or exchange of such Convertible
Securities.

 

(iv)          If (x) the purchase price provided
for in any Option referred to in Section 5(b)(ii) or the
additional consideration, if any, payable upon the conversion or exchange of
any Convertible Securities referred to in Sections 5 (b)(ii) or 5(b)(iii) or
the rate at which any Convertible Securities referred to in Sections 5(b)(ii) or
5(b)(iii) are convertible into or exchangeable for Shares shall
change at any time (other than under or by reason of provisions designed to
protect against dilution upon an event which results in a related adjustment
pursuant to this Section 5), or (y) any of such Options or
Convertible Securities shall have terminated, lapsed or expired, the Exercise
Price then in effect shall forthwith be readjusted (effective only with respect
to any exercise of this Warrant after such readjustment) to the Exercise Price
which would then be in effect had the adjustment made upon the issuance, sale,
distribution or grant of such Options or Convertible Securities been made based
upon such changed purchase price, additional consideration or conversion rate,
as the case may be (in the case of any event referred to in clause (x) of
this paragraph (iv)) or had such adjustment not been made (in the case of any
event referred to in clause (y) of this paragraph (iv)).

 

(v)           If the Company shall pay a dividend or
make any other distribution upon any capital stock of the Company payable in
Shares, Options or Convertible Securities, other than pursuant to a Share
Reorganization (which is governed by Section 5(a)), then, for
purposes of this Section 5(b), such Distributed Shares, Options or
Convertible Securities shall be deemed to have been issued or sold without
consideration.

 

(vi)          If any Distributed Shares, Options or
Convertible Securities shall be issued, sold or distributed for cash, the
consideration received therefor shall be deemed to be the amount received by
the Company therefor.  If any Distributed
Shares, Options or Convertible 

 

8

 

Securities shall be issued, sold or distributed for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair market value of such
consideration at the time of its receipt by the Company as determined in good
faith by the Board of Directors of the Company. 
If any Distributed Shares, Options or Convertible Securities shall be
issued in connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor shall be deemed to be the fair
market value of such portion of the assets and business of the non-surviving
entity as shall be attributable to such Distributed Shares, Options or
Convertible Securities, as the case may be, at the time of the merger as
determined in good faith by the Board of Directors of the Company (in making
such determination the members of its Board of Directors may give effect to the
proposed acquisition and incorporate the prospects of the performance of the
assets and business of the non-surviving corporation over the 12 month period
following the acquisition, including any reasonably demonstrable synergistic or
value enhancing factors).  If any Options
shall be issued in connection with the issuance and sale of other securities of
the Company, together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto, such Options
shall be deemed to have been issued without consideration.

 

(c)           Special Distributions; Above Market
Purchases of Securities.

 

(i)            If the Company shall issue or distribute
to any holder or holders of Shares evidences of indebtedness, any other
securities of the Company or any cash, property or other assets (excluding (i) a
Share Reorganization and (ii) a Share Distribution), whether or not
accompanied by a purchase, redemption or other acquisition of Shares (any such
nonexcluded event being herein called a “Special Distribution”), then
the Warrant Holder shall be entitled to a pro-rata Share of such Special
Distribution as though the Warrant Holder had fully exercised this Warrant
immediately prior to the record date for such Special Distribution, and the
Company shall pay or distribute such pro-rata share to the Warrant Holder when
paid or distributed to the holders of the Shares, or the Warrant Holder
may at its option decline to accept such payment or distribution in which case
the (x) the Exercise Price shall be decreased, effective immediately after
the effective date of such Special Distribution, to a price determined by multiplying
the Exercise Price then in effect by a fraction, the numerator of which shall
be the Market Price immediately prior to such effective date less any cash and
the then fair market value, as determined in good faith by the Board of
Directors of the Company, of any evidences of indebtedness, securities or
property or other assets issued or distributed in such Special Distribution
with respect to one Share, and the denominator of which shall be the Market
Price immediately prior to such effective date, and (y) the number of
Shares subject to purchase upon exercise of this Warrant shall be increased to
a number determined by multiplying the number of Shares subject to purchase
immediately before such Special Distribution by a fraction, the numerator of
which shall be the Exercise Price in effect immediately before such Special
Distribution and the denominator of which shall be the Exercise Price in effect
immediately after such Special Distribution. 
A reclassification of the Shares (other than a change in par value, or
from par value to no par value or from no par value to par value) into shares
of any other class of stock shall be deemed to be a distribution by the Company
to the holders of its Shares of such class of stock and, if the outstanding
Shares shall be changed into a larger or smaller number of Shares as part of
such reclassification, a Share Reorganization.

 

9

 

(ii)           If, at any time after the Closing Date,
the Company or any Subsidiary shall repurchase (a “Repurchase”), by
self-tender offer or otherwise, any Shares of the Company at an aggregate
repurchase price that exceeds the aggregate Market Price for the securities
repurchased determined as of the Business Day immediately prior to the earliest
of (i) the date of such Repurchase, (ii) the commencement of an offer
to repurchase or (iii) the public announcement of either (such date being
referred to as the “Determination Date”), then the Exercise Price and
the number of Warrant Shares issuable upon exercise of this Warrant shall be
adjusted as follows:

 

(A)          The Exercise Price shall be reduced to an
amount equal to the product of (A) the Exercise Price in effect
immediately prior to such Determination Date times (B) a fraction, (I) the
numerator of which shall be (x) the product of (1) the Market Price
for the Shares as of the Determination Date times (2) the number of Shares
outstanding immediately following the consummation of the Repurchase less (y) the
Repurchase Premium (as defined below), and (II) the denominator of which
shall be (x) the product of (1) the Market Price for the Shares as of
the Determination Date times (2) the number of Shares outstanding
immediately following the consummation of the Repurchase.

 

(B)           The number of Warrant Shares issuable
upon exercise of this Warrant shall be increased to the number of Shares
determined by multiplying (x) the number of Warrant Shares issuable upon
exercise of this Warrant immediately prior to such Repurchase times (y) a
fraction (1) the numerator of which shall be the Exercise Price in effect
immediately prior to the adjustment in clause (A) of this Section 5(c)(ii) and
(2) the denominator of which shall be the Exercise Price in effect
immediately after such adjustment.

 

The
amount by which the aggregate repurchase price for all Shares repurchased in
any Repurchase (including for such purposes any fees or other direct or
indirect consideration payable in connection therewith) exceeds the aggregate
Market Price for such securities is referred to as the “Repurchase Premium.”

 

(d)           Capital Reorganization. 
If there shall be any consolidation or merger to which the Company is a
party, other than a consolidation or a merger of which the Company is the
continuing corporation and which does not result in any reclassification of, or
change (other than a Share Reorganization) in, outstanding Shares, or any sale
or conveyance of the property of the Company as an entirety or substantially as
an entirety, or, any recapitalization of the Company (any such event being
called a “Capital Reorganization”), then, effective upon the effective
date of such Capital Reorganization, the Warrant Holder shall no longer have
the right to purchase Shares, but shall have instead the right to purchase,
upon exercise of this Warrant, the kind and amount of securities and property
(including cash) which the Warrant Holder would have owned or have been
entitled to receive pursuant to such Capital Reorganization if the Warrant had
been exercised immediately prior to the effective date of such Capital
Reorganization.  As a condition to
effecting any Capital Reorganization, the Company or the successor or surviving
corporation, as the case may be, shall execute and deliver to the Warrant
Holder an agreement as to the Warrant Holder’s rights in accordance with this Section 5(d),
providing, to the extent of any right to purchase equity securities hereunder,
for subsequent adjustments as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5 and otherwise having the
same terms and conditions as set forth herein, except that, in the case of a
successor or surviving

 

10

 

corporation, Sections 5(b), (c) and (k) shall
not apply.  The provisions of this Section 5(d) shall
similarly apply to successive Capital Reorganizations.

 

(e)                                  Adjustment Rules.

 

(i)                                     Any adjustments pursuant to this Section 5
shall be made successively whenever any event referred to herein shall occur,
except that, notwithstanding any other provision of this Section 5,
no adjustment shall be made to the number of Warrant Shares to be delivered to
the Warrant Holder (or to the Exercise Price) if such adjustment represents
less than 1% of the number of Warrant Shares previously required to be so
delivered, but any lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which together
with any adjustments so carried forward shall amount to 1% or more of the
number of Warrant Shares to be so delivered.

 

(ii)                                  No adjustments shall be made pursuant to
this Section 5 in respect of the issuance of Warrant Shares upon
exercise of the Warrant.

 

(iii)                               If the Company shall take a record of the holders of
its Shares for any purpose referred to in this Section 5, then (x) such
record date shall be deemed to be the date of the issuance, sale, distribution
or grant in question and (y) if the Company shall legally abandon such
action prior to effecting such action, no adjustment shall be made pursuant to
this Section 5 in respect of such action.

 

(f)                                    Proceedings Prior to Any Action Requiring
Adjustment.  As a condition precedent to the taking of any
action which would require an adjustment pursuant to this Section 5,
the Company shall use commercially reasonable efforts to take any action which
may be necessary, including obtaining regulatory approvals or exemptions, in
order that the Company may thereafter validly and legally issue as fully paid
and nonassessable all Shares which the Warrant Holder is entitled to receive
upon exercise of the Warrant.

 

(g)                                 Notice of Adjustment. 
Not less than 10 days prior to the record date or effective date, as the
case may be, of any action which requires or might require an adjustment or
readjustment pursuant to this Section 5, the Company shall give
notice to the Warrant Holder of such event, describing such event in reasonable
detail and specifying the record date or effective date, as the case may be,
and, if determinable, the required adjustment and computation thereof.  If the required adjustment is not
determinable as of the time of such notice, the Company shall give notice to
the Warrant Holder of such adjustment and computation as soon as reasonably
practicable after such adjustment becomes determinable.  In connection with any such adjustment or
readjustment, at the written request of the Warrant Holder, the Company, at its
sole cost and expense, will also cause independent certified public accountants
of recognized national standing (which may be the regular auditors of the
Company) selected by the Company to verify its computations and, in connection
with the preparation of the Company’s quarterly financial statements prepare a
report setting forth such adjustment or readjustment and showing in reasonable
detail the method of calculation thereof and the facts upon which such
adjustment or readjustment is based, including a statement of (i) the
consideration received or to be received by the Company for any Share
Distribution issued or sold or deemed to have been issued, (ii) the number
of Shares outstanding or deemed to be outstanding, and (iii) the Exercise
Price in effect 

 

11

 

immediately prior to such issue or sale and as
adjusted and readjusted (if required by this Section 5) on account
thereof.  The Company will forthwith mail
a copy of each such report to the Warrant Holder and will, upon the written
request at any time of the Warrant Holder, furnish to such holder a like report
setting forth the Exercise Price at the time in effect and showing in
reasonable detail how it was calculated. 
The Company will also keep copies of all such reports at its office and
will cause the same to be available for inspection at such office during normal
business hours by the Warrant Holder or any prospective purchaser of this
Warrant designated by the Warrant Holder.

 

(h)                                 Subsequent Warrants. 
Irrespective of any adjustments in the Exercise Price or the number of
Warrant Shares issuable upon exercise of the Warrants theretofore or thereafter
issued may continue to express the same Exercise Price per Share and number and
kind of Warrant Shares as are stated in this Warrant.

 

(i)                                     Disputes.  Any dispute
which arises between the Warrant Holder and the Company with respect to the
calculation of the adjusted Exercise Price or Warrant Shares issuable upon
exercise shall be determined by the Appraiser, and such determination shall be
binding upon the Company and the holders of the Warrants and the Warrant Shares
if made in good faith and without manifest error.

 

(j)                                     Other Actions Affecting Shares.

 

(i)                                     Equitable Equivalent. 
In case any event shall occur as to which the provisions of this Section 5
set forth above hereof are not strictly applicable but the failure to make any
adjustment would not, in the opinion of the Warrant Holder, fairly protect the
purchase rights represented by this Warrant in accordance with the essential
intent and principles of this Section 5, then, in each such case, at the
request of the Requisite Holders, the Company shall provide to the Warrant
Holders information sufficient to support the Company’s determination for not
making such adjustment in accordance with this Section 5, and the
Requisite Holders shall have a period of 20 days from their receipt of all such
information so requested to notify the Company in writing of their decision to
contest such determination.  If the
Requisite Holders do not deliver such a notice to the Company within such
20-day period, the Requisite Holders will be deemed to have agreed with the
Company’s determination that no adjustment is required in respect of such
event.  If, following a period of 10 days
following delivery of such notice, the Company and the Requisite Holders are
unable to agree as to whether an adjustment is required in respect of such
event, the Company shall appoint a firm of independent investment bankers of
recognized national standing (which shall be completely independent of the
Company and shall be satisfactory to the holder or the holders of the Requisite
Holders), which shall give their opinion upon the adjustment, if any, on a
basis consistent with the essential intent and principles established in this Section 5,
necessary to preserve, without dilution, the purchase rights represented by
this Warrant.  Upon receipt of such
opinion, the Company will promptly mail a copy thereof to the holder of this
Warrant and shall make the adjustments described therein, if any.  The costs and expenses of such investment
bankers shall be borne by the Company, if the investment bankers’ opinion
states that an adjustment is required in respect of such event, and by the
Warrant Holders (allocated pro rata among all Warrant Holders) if the
investment bankers’ opinion states that an adjustment is not required in
respect of such event.

 

12

 

(ii)                                  No Avoidance. 
The Company shall not, by amendment of its certificate of incorporation
or by-laws or through any consolidation, merger, reorganization, transfer of
assets, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant
against dilution or other impairment as if the holder was a shareholder of the
Company entitled to the benefit of fiduciary duties afforded to shareholders
under Delaware law.

 

(k)                                  Calculation of Consideration Received. 
The consideration for the issue or sale of any Share Distribution shall,
irrespective of the accounting treatment of such consideration:

 

(i)                                     insofar as it consists of cash, be
computed at the amount of cash actually received by the Company before any
expenses paid or incurred by the Company or any commissions or compensations
paid or concessions or discounts allowed to underwriters, dealers or others
performing similar services in connection with such issue or sale;

 

(ii)                                  insofar as it consists of property
(including securities) other than cash actually received by the Company, be
computed at the Appraised Value thereof at the time of such issue or sale; and

 

(iii)                               insofar as it consists neither of cash nor of other
property, be computed as having no value.

 

(l)                                     Appraisal.

 

(i)                                     At least 20 days prior to an event
requiring a determination of the Appraised Value of a Share, the Board of
Directors shall determine the Appraised Value acting reasonably and in good
faith, providing notice of such determination to the Requisite Holders.  In the event the Requisite Holders object to
such Appraised Value by delivering written notice to the Board of Directors
within thirty (30) days, then the Appraised Value shall be determined as set
forth in clause (ii) below.

 

(ii)                                  The Company shall, within ten (10) days
after the above-referenced 10-day period, engage an independent investment bank
of national repute (which, for the avoidance of doubt, shall not then currently
be acting or have previously acted as an underwriter, placement agent or
financial advisor to the Company) (the “Appraiser”) selected by the
Company (with the consent of the Requisite Holders, such consent not to be
unreasonably withheld) and retained pursuant to an engagement letter between
the Company and the Appraiser with respect to such valuation in form and
substance acceptable to Requisite Holders, to make an independent determination
of the Appraised Value of a Share; such value shall be determined by assuming
the Company is sold in an arm’s length transaction between a willing seller and
a willing buyer as a going concern, without deduction for (A) liquidity
considerations, (B) minority shareholder status, or (C) any
liquidation or other preference or any right of redemption in favor of any
other equity securities of the Company. 
The costs of engagement of such investment bank for any such determination
of Appraised Value shall be paid by the Company.

 

13

 

Section 6.                                            Registration Rights.

 

Neither
the Warrant nor the Warrant Shares have been registered with the Commission
under the Securities Act or qualified for sale pursuant to any state blue sky
law, and neither may be sold or transferred without such registration or
qualification, except pursuant to an exemption therefrom.  No rights shall be hereby granted which are
in violation of applicable securities laws or regulations.  The shares of the Company’s Common Stock
issuable upon the conversion of the Warrant Shares shall be “Series C
Registrable Securities” under the Existing Registration Rights Agreement.

 

Section 7.                                            Transfer of Warrant.

 

The
Warrant Holder upon transfer of the Warrant must deliver to the Company a duly
executed Warrant Assignment in the form of Exhibit B and upon
surrender of this Warrant to the Company, the Company shall execute and deliver
a new Warrant with appropriate changes to reflect such Assignment, in the name
or names of the assignee or assignees specified in the Warrant Assignment or
other instrument of assignment and, if the Warrant Holder’s entire interest is
not being transferred or assigned, in the name of the Warrant Holder, and upon
the Company’s execution and delivery of such new Warrant, this Warrant shall
promptly be cancelled.  The Warrant
Holder shall pay any transfer tax imposed in connection with such assignment
(if any).  Any transfer or exchange of
this Warrant shall be without charge to the Warrant Holder (except as provided
above with respect to transfer taxes, if any) and any new Warrant issued shall
be dated the date hereof.  The Warrant
Holder agrees that any such transfer shall be made in compliance with all
applicable securities laws and the Company shall not recognize any transfer
that is not in compliance therewith and the Company may request that the
Warrant Holder provide it an opinion of counsel with respect to such transfer.

 

Section 8.                                            Covenants.  The Company
agrees that:

 

(a)                                  Securities Filings; Rules 144. 
The Company will (i) file any reports required to be filed by it
under the Securities Act, the Exchange Act or the rules and regulations
adopted by the Commission thereunder, (ii) use its commercially reasonable
efforts to cooperate with the Warrant Holder and each holder of Warrant Shares
in supplying such information concerning the Company as may be necessary for
the Warrant Holder or holder of Warrant Shares to complete and file any information
reporting forms currently or hereafter required by the Commission as a
condition to the availability of an exemption from the Securities Act for the
sale of any Warrants or Warrant Shares as permitted hereby, (iii) take
such further action as the Warrant Holder may reasonably request to the extent
required from time to time to enable the Warrant Holder to sell Warrant Shares
as permitted hereby without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 under the Securities
Act, as such Rules may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission, and (iv) upon the request
of the Warrant Holder, deliver to the Warrant Holder a written statement as to
whether it has complied with such reporting requirements; provided that
this subsection (b) shall not require the Company to make any
filing under the Securities Act or Exchange Act which the Company is not
otherwise obligated to make.

 

14

 

(b)                                 Obtaining of Governmental Approvals and
Stock Exchange Listings.  The Company will, at its own
expense, (i) obtain and keep effective any and all permits, consents and
approvals of governmental agencies and authorities which may from time to time
be required of the Company in order to satisfy its obligations hereunder, and (ii) take
all action which may be necessary so that the Warrant Shares, immediately upon
their issuance upon the exercise of the Warrants, will be listed on each
securities exchange, if any, on which the Shares are then listed, as required
herein.

 

(c)                                  Notices of Corporate Action. 
In the event of:

 

(i)                                     any taking by the Company of a record of
the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any distribution, or any right to
subscribe for, purchase or otherwise acquire any Shares or any other securities
or property, or to receive any other right, or

 

(ii)                                  any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company,
any consolidation or merger involving the Company and any other Person or any
transfer of all or substantially all the assets of the Company to any other
Person, or any change of control, or

 

(iii)                               any voluntary or involuntary dissolution, liquidation
or winding-up of the Company, or

 

(iv)                              any issuance of any Shares, Convertible
Security or Option by the Company,

 

the
Company will mail to the Warrant Holder a notice specifying (i) the date
or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, (ii) the date or expected date on which
any such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up is to take place, (iii) the
time, if any such time is to be fixed, as of which the holders of record of
Shares (or other securities under Section 5(d)) shall be entitled
to exchange their Shares (or other securities under Section 5(d))
for the securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up and a description in reasonable detail
of the transaction and (iv) the date of such issuance, together with a
description of the security so issued and the consideration received by the
Company therefor.  Such notice shall be
mailed at least ten (10) days prior to the date therein specified.

 

Section 9.                                            Lost, Mutilated or Missing Warrants.

 

Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of any Warrant, and, in the case of loss,
theft or destruction, upon receipt of indemnification satisfactory to the
Company (in the case of an Initial Holder its unsecured, unbonded agreement of
indemnity or affidavit of loss shall be sufficient) or, in the case of
mutilation, upon surrender and cancellation of the mutilated Warrant, the
Company shall execute and deliver a new Warrant of like tenor and representing
the right to purchase the same aggregate number of Warrant Shares.

 

15

 

Section 10.                                      Waivers; Amendments.

 

Any
provision of this Warrant may be amended or waived with (but only with) the
written consent of the Company and the Warrant Holder.  No failure or delay of the Company or the
Warrant Holder in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereon or the exercise of any
other right or power.  No notice or
demand on the Company in any case shall entitle the Company to any other or
future notice or demand in similar or other circumstances.  The rights and remedies of the Company and
the Warrant Holder hereunder are cumulative and not exclusive of any rights or
remedies which it would otherwise have.

 

Section 11.                                      Miscellaneous.

 

(a)                                  Shareholder Rights. 
The Warrant shall not entitle any Warrant Holder, prior to the exercise
of the Warrant as provided herein, to any voting rights as a shareholder of the
Company.

 

(b)                                 Expenses.  The Company
shall pay all reasonable expenses of the Warrant Holder, including reasonable
fees and disbursements of counsel, in connection with the preparation of the
Warrant, any waiver or consent hereunder or any amendment or modification
hereof (regardless of whether the same becomes effective), or the enforcement
of the provisions hereof.

 

(c)                                  Successors and Assigns. 
All the provisions of this Warrant by or for the benefit of the Company
or the Warrant Holder shall bind and inure to the benefit of their respective
successors and assigns.

 

(d)                                 Severability. 
In case any one or more of the provisions contained in this Warrant
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby. 
The parties shall endeavor in good faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.

 

(e)                                  Notices.  Any notice or
other communication hereunder shall be in writing and shall be sufficient if
sent by first-class mail or courier, postage prepaid, and addressed as follows:
(a) if to the Company, addressed to the Company at its address for notices
as set forth below its signature hereon or any other address as the Company may
hereafter notify to the Warrant Holder and (b) if to the Warrant Holder,

 

Fonds de solidarité des travailleurs du Québec (FTQ) 

Bureau 200

545, boulevard Crémazie Est

Montréal, Quebec H2M 2W4

Facsimile : (514) 383-2500

Attention : Vice President, Legal Affairs

 

16

 

or to such address as the Warrant Holder may hereafter from time to
time notify to the Company for the purposes of notice hereunder.

 

(f)                                    Equitable Remedies. 
Without limiting the rights of the Company and the Warrant Holder to
pursue all other legal and equitable rights available to such party for the
other parties’ failure to perform its obligations hereunder, the Company and
the Warrant Holder each hereto acknowledge and agree that the remedy at law for
any failure to perform any obligations hereunder would be inadequate and that
each shall be entitled to seek specific performance, injunctive relief or other
equitable remedies in the event of any such failure.

 

(g)                                 Continued Effect. 
Rights and benefits conferred on the holders of Warrant Shares pursuant
to the provisions hereof shall continue to inure to the benefit of, and shall
be enforceable by, such holders, notwithstanding the surrender of the Warrant
to, and its cancellation by, the Company upon the full or partial exercise or repurchase
hereof.

 

(h)                                 Governing Law. 
THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PRINCIPLES
OF CONFLICT OF LAW THEREOF WHICH WOULD RESULT IN THE APPLICATION OF THE LAWS OF
ANY OTHER JURISDICTION.

 

(i)                                     Section Headings. 
The section headings used herein are for convenience of reference only
and shall not be construed in any way to affect the interpretation of any
provisions of the Warrant.

 

17

 

IN WITNESS WHEREOF, the Company has caused this
Warrant to be duly executed by its authorized signatory as of the day and year
first above written.

 

	
   

  	
  NEXSAN
  CORPORATION,

  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By
  

  	
  /s/
  Gene Spies

  
	
   

  	
  Name:
  

  	
  Gene
  Spies

  
	
   

  	
  Title:
  

  	
  Chief
  Financial Officer

  
	
   

  	
   

  
	
   

  	
  Address
  for Notices:

  
	
   

  	
   

  
	
   

  	
  Nexsan Corporation

  555 St. Charles Drive, Suite 202

  Thousand Oaks, CA 91360

  Telephone: 805-418-2700

  Facsimile: 805-418-2799

  
	
   

  	
   

  
	
   

  	
  With a copy that shall not constitute notice to:

  Fenwick & West LLP

  801 California Street

  Mountain View, CA 94041

  Attn: Jeffrey Vetter, or in his absence, William Schreiber

  Telephone: 650-335-8500

  Facsimile: 650-938-5200

  

 

[SIGNATURE
PAGE — WARRANT]

 

18

 

Exhibit A
to Warrant

 

Form of
Notice of Exercise

 

	
   

  	
                         ,
  20  

  

 

To: Nexsan Corporation

 

Reference
is made to the Warrant dated
                                .
Terms defined therein are used herein as therein defined.

 

The
undersigned, pursuant to the provisions set forth in the Warrant, hereby
irrevocably elects and agrees to purchase
                            
Shares, and makes payment herewith in full therefor at the Exercise Price of $               
in the following form:                                                                         .

 

[If the number of Shares as to which the Warrant is
being exercised is less than all of the Shares purchasable thereunder, the
undersigned hereby requests that a new Warrant representing the remaining
balance of the Shares be registered in the name of
                                    ,
whose address is:
                                                        .]

 

The
undersigned hereby represents that it is an accredited investor within the meaning
of Rule 501 under the Securities Act of 1933, as amended, and is
exercising the Warrant for its own account or the account of an Affiliate for
investment purposes and not with the view to any sale or distribution and that
the Warrant Holder will not offer, sell or otherwise dispose of the Warrant or
any underlying Warrant Shares in violation of applicable securities laws.

 

	
   

  	
  [NAME OF WARRANT HOLDER]

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [ADDRESS OF WARRANT HOLDER]

  

 

 

Exhibit B
to Warrant

 

Form of
Warrant Assignment

 

Reference
is made to the Warrant dated
                                                      ,
issued by Company. Terms defined therein are used herein as therein defined.

 

FOR
VALUE RECEIVED
                                                                
(the “Assignor”) hereby sells, assigns and transfers all of the rights of the
Assignor as set forth in such Warrant, with respect to the number of Warrant
Shares covered thereby as set forth below, to the Assignee(s) as set forth
below:

 

Number
of Warrant Shares

 

	
   

  	
   

  	
   

  	
   

  	
  Number
  of Warrant

  	
   

  
	
  Name(s) of Assignee(s)

  	
   

  	
  Address(es)

  	
   

  	
  Shares

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

All
notices to be given by the Company to the Assignor as Warrant Holder shall be
sent to the Assignee(s) at the above listed address(es), and, if the
number of Shares being hereby assigned is less than all of the Shares covered
by the Warrant held by the Assignor, then also to the Assignor.

 

In
accordance with Section 7 of the Warrant, the Assignor requests that the
Company execute and deliver a new Warrant or Warrants in the name or names of
the assignee or assignees, as is appropriate, or, if the number of Shares being
hereby assigned is less than all of the Shares covered by the Warrant held by
the Assignor, new Warrants in the name or names of the assignee or the
assignees, as is appropriate, and in the name of the Assignor.

 

The
undersigned represents that the Assignee has represented to the Assignor that
the Assignee is acquiring the Warrant for its own account or the account of an
Affiliate for investment purposes and not with the view to any sale or
distribution, and that the Assignee will not offer, sell or otherwise dispose
of the Warrant or the Warrant Shares except under circumstances as will not
result in a violation of applicable securities laws.

 

	
  Dated:
                                  ,
  20

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [NAME
  OF ASSIGNOR]

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [ADDRESS OF ASSIGNOR]

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